ELI LILLY & Co 10-K

Item 8. Financial Statements and Supplementary Data Consolidated Statements of Operations ELI LILLY AND COMPANY AND SUBSIDIARIES (Dollars and shares in millions, except per-share data) Year Ended December 31, 2025 2024 2023 Revenue $ 65,179 $ 45,043 $ 34,124 Costs, expenses, and other: Cost of sales 11,052 8,418 7,082 Research and development 13,337 10,991 9,313 Marketing, selling, and administrative 11,094 8,594 7,404 Acquired in-process research and development 2,910 3,280 3,800 Asset impairment, restructuring, and other special charges 484 861 68 Other—net, (income) expense 571 219 ( 97 ) 39,448 32,363 27,570 Income before income taxes 25,731 12,680 6,554 Income taxes 5,091 2,090 1,314 Net income $ 20,640 $ 10,590 $ 5,240 Earnings per share: Basic $ 23.00 $ 11.76 $ 5.82 Diluted $ 22.95 $ 11.71 $ 5.80 Shares used in calculation of earnings per share: Basic 897.3 900.6 900.2 Diluted 899.3 904.1 903.3 See notes to consolidated financial statements. 57 Consolidated Statements of Comprehensive Income ELI LILLY AND COMPANY AND SUBSIDIARIES (Dollars in millions) Year Ended December 31, 2025 2024 2023 Net income $ 20,640 $ 10,590 $ 5,240 Other comprehensive income (loss), net of taxes: Foreign currency translation 1,241 ( 571 ) 55 Retirement benefit plans 192 519 ( 635 ) Other 9 57 98 Total other comprehensive income (loss) 1,442 5 ( 482 ) Comprehensive income $ 22,082 $ 10,595 $ 4,758 See notes to consolidated financial statements. 58 Consolidated Balance Sheets ELI LILLY AND COMPANY AND SUBSIDIARIES (Dollars and shares in millions) December 31, 2025 2024 Assets Current Assets Cash and cash equivalents $ 7,268 $ 3,268 Accounts receivable 17,760 11,006 Other receivables 2,395 2,270 Inventories 13,744 7,589 Prepaid expenses 14,315 8,341 Other current assets 147 266 Total current assets 55,629 32,740 Noncurrent Assets Investments 2,802 3,216 Goodwill 5,898 5,770 Other intangibles, net 6,521 6,166 Deferred tax assets 9,959 8,001 Property and equipment, net 24,675 17,102 Other noncurrent assets 6,992 5,720 Total assets $ 112,476 $ 78,715 Liabilities and Equity Current Liabilities Short-term borrowings and current maturities of long-term debt $ 1,635 $ 5,117 Accounts payable 5,379 3,229 Employee compensation 2,375 2,094 Sales rebates and discounts 17,382 11,539 Other current liabilities 8,457 6,397 Total current liabilities 35,228 28,376 Noncurrent Liabilities Long-term debt 40,868 28,527 Long-term income taxes payable 5,875 4,061 Other noncurrent liabilities 3,970 3,479 Total noncurrent liabilities 50,713 36,067 Commitments and Contingencies Equity Common stock—no par value Authorized shares: 3,200.0 Issued shares: 944.8 (2025) and 947.9 (2024) 590 592 Additional paid-in capital 7,346 7,439 Retained earnings 24,470 13,545 Employee benefit trust ( 3,013 ) ( 3,013 ) Accumulated other comprehensive loss ( 2,880 ) ( 4,322 ) Other equity 22 31 Total equity 26,535 14,272 Total liabilities and equity $ 112,476 $ 78,715 See notes to consolidated financial statements. 59 Consolidated Statements of Shareholders' Equity ELI LILLY AND COMPANY AND SUBSIDIARIES (Dollars and shares in millions, except per-share data) Common Stock Additional Paid-in Capital Retained Earnings Employee Benefit Trust Accumulated Other Comprehensive Loss Shares Amount Balance at January 1, 2023 950.6 $ 594 $ 6,921 $ 10,043 $ ( 3,013 ) $ ( 3,845 ) Net income 5,240 Other comprehensive loss, net of tax ( 482 ) Cash dividends declared per share: $ 4.69 ( 4,221 ) Purchases of common stock ( 2.3 ) ( 1 ) ( 749 ) Issuance of stock under employee stock plans, net 1.5 1 ( 300 ) Stock-based compensation 629 Other ( 1 ) Balance at December 31, 2023 949.8 594 7,250 10,312 ( 3,013 ) ( 4,327 ) Net income 10,590 Other comprehensive income, net of tax 5 Cash dividends declared per share: $ 5.40 ( 4,857 ) Purchases of common stock ( 3.0 ) ( 2 ) ( 2,498 ) Issuance of stock under employee stock plans, net 1.1 — ( 457 ) Stock-based compensation 646 Other ( 2 ) Balance at December 31, 2024 947.9 592 7,439 13,545 ( 3,013 ) ( 4,322 ) Net income 20,640 Other comprehensive income, net of tax 1,442 Cash dividends declared per share: $ 6.23 ( 5,586 ) Purchases of common stock ( 4.8 ) ( 3 ) ( 4,105 ) Issuance of stock under employee stock plans, net 1.7 1 ( 719 ) Stock-based compensation 626 Other ( 24 ) Balance at December 31, 2025 944.8 $ 590 $ 7,346 $ 24,470 $ ( 3,013 ) $ ( 2,880 ) See notes to consolidated financial statements. 60 Consolidated Statements of Cash Flows ELI LILLY AND COMPANY AND SUBSIDIARIES (Dollars in millions) Year Ended December 31, 2025 2024 2023 Cash Flows from Operating Activities Net income $ 20,640 $ 10,590 $ 5,240 Adjustments to Reconcile Net Income to Cash Flows from Operating Activities: Depreciation and amortization 1,997 1,767 1,527 Change in deferred income taxes ( 1,707 ) ( 2,683 ) ( 2,341 ) Stock-based compensation expense 626 646 629 Gains on sale of product rights ( 180 ) ( 224 ) ( 1,879 ) Acquired in-process research and development 2,910 3,280 3,800 Other operating activities, net 620 826 319 Other changes in operating assets and liabilities, net of acquisitions and divestitures: Receivables—(increase) decrease ( 7,000 ) ( 2,155 ) ( 2,451 ) Inventories—(increase) decrease ( 4,671 ) ( 2,507 ) ( 1,425 ) Prepaid expenses and other assets—(increase) decrease ( 6,609 ) ( 3,331 ) ( 3,453 ) Accounts payable and other liabilities—increase (decrease) 10,187 2,609 4,274 Net Cash Provided by Operating Activities 16,813 8,818 4,240 Cash Flows from Investing Activities Purchases of property and equipment ( 7,841 ) ( 5,058 ) ( 3,448 ) Proceeds from sales of and distributions from noncurrent investments 964 374 508 Purchases of noncurrent investments ( 645 ) ( 677 ) ( 731 ) Proceeds from sale of product rights 218 601 1,604 Purchases of in-process research and development ( 3,008 ) ( 3,346 ) ( 3,944 ) Cash paid for acquisitions, net of cash acquired ( 661 ) ( 948 ) ( 1,044 ) Other investing activities, net 1 ( 248 ) ( 98 ) Net Cash Used for Investing Activities ( 10,972 ) ( 9,302 ) ( 7,153 ) Cash Flows from Financing Activities Dividends paid ( 5,384 ) ( 4,680 ) ( 4,069 ) Net change in short-term borrowings ( 4,338 ) ( 1,852 ) 4,691 Proceeds from issuance of long-term debt 13,167 11,417 3,959 Repayments of long-term debt ( 778 ) ( 664 ) — Purchases of common stock ( 4,108 ) ( 2,500 ) ( 750 ) Other financing activities, net ( 772 ) ( 491 ) ( 335 ) Net Cash Provided by (Used for) Financing Activities ( 2,213 ) 1,230 3,496 Effect of exchange rate changes on cash and cash equivalents 372 ( 297 ) 169 Net increase in cash and cash equivalents 4,000 449 752 Cash and cash equivalents at beginning of year 3,268 2,819 2,067 Cash and Cash Equivalents at End of Year $ 7,268 $ 3,268 $ 2,819 See notes to consolidated financial statements. 61 Notes to Consolidated Financial Statements ELI LILLY AND COMPANY AND SUBSIDIARIES (Tables present dollars in millions, except per-share data, and numbers may not add due to rounding) Note 1: Summary of Significant Accounting Policies and Implementation of New Financial Accounting Standards Basis of Presentation The accompanying consolidated financial statements include Eli Lilly and Company and all subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States (GAAP). We consider majority voting interests, as well as effective economic or other control over an entity when deciding whether or not to consolidate an entity. We generally do not have control by means other than voting interests. All intercompany balances and transactions have been eliminated. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures at the date of the financial statements and during the reporting period. Actual results could differ from those estimates. We issued our financial statements by filing them with the Securities and Exchange Commission (SEC) and have evaluated subsequent events up to the time of the filing of this Annual Report on Form 10-K. We operate as a single operating segment engaged in the discovery, development, manufacturing, marketing, and sales of pharmaceutical products worldwide. A global research and development organization and a supply chain organization are responsible for the discovery, development, manufacturing, and supply of our products. Our commercial organizations market, distribute, and sell the products. The business is also supported by global corporate staff functions. See Note 17 for additional information. Research and Development Expenses and Acquired IPR&D Research and development costs are expensed as incurred. Research and development costs consist of expenses incurred in performing research and development activities, including but not limited to, compensation and benefits, facilities and overhead expense, clinical trial expense and fees paid to contract research organizations. Acquired IPR&D includes the initial costs and development milestones incurred related to externally developed IPR&D projects, acquired directly in a transaction other than a business combination, that do not have an alternative future use. Development milestones are milestone payment obligations that are incurred prior to regulatory approval of the compound and are expensed when the event triggering an obligation to pay the milestone occurs. Earnings Per Share (EPS) All per-share amounts, unless otherwise stated in the notes to the consolidated financial statements, are presented on a diluted basis. We calculate basic EPS based on the weighted-average number of common shares outstanding plus the effect of incremental shares from potential participating securities. We calculate diluted EPS based on the weighted-average number of common shares outstanding plus the effect of incremental shares from our stock-based compensation programs. Foreign Currency Translation Operations in our subsidiaries outside the U.S. are recorded in the functional currency of each subsidiary which is determined by a review of the environment where each subsidiary primarily generates and expends cash. The results of operations for our subsidiaries outside the U.S. are translated from functional currencies into U.S. dollars using the weighted-average currency rate for the period. Assets and liabilities are translated using the period end exchange rates. The U.S. dollar effects that arise from translating the net assets of these subsidiaries are recorded in other comprehensive income (loss). Advertising Expenses Costs associated with advertising are expensed as incurred and are generally included in marketing, selling, and administrative expenses. Global advertising expenses, comprised primarily of online marketing and television advertising, totaled $ 2.9 billion, $ 1.4 billion, and $ 1.1 billion in 2025, 2024, and 2023, respectively, which were less than 5 percent of revenue each year. 62 Other Significant Accounting Policies Our other significant accounting policies are described in the remaining appropriate notes to the consolidated financial statements. Reclassifications Certain reclassifications have been made to prior periods in the consolidated financial statements and accompanying notes to conform with the current presentation. Implementation of New Financial Accounting Standards Effective January 1, 2025, we prospectively adopted Accounting Standards Update (ASU) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures , which requires incremental disaggregation pertaining to the effective tax rate reconciliation and income taxes paid. See Note 14 for the income tax disclosures as required by Topic 740, as amended by ASU 2023-09. ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, requires disaggregation of specific expense categories in the notes to the financial statements and a qualitative description of the remaining expense amounts not separately disaggregated. This standard is effective for annual reporting periods beginning after December 15, 2026, and requires prospective application with the option to apply it retrospectively. We intend to adopt this standard in our Annual Report on Form 10-K for the year ending December 31, 2027. We are currently evaluating the potential impact of adopting this standard on our disclosures. Note 2: Revenue The following table summarizes our revenue recognized in our consolidated statements of operations: 2025 2024 2023 Net product revenue $ 60,958 $ 40,748 $ 28,814 Collaboration and other revenue 4,221 4,295 5,310 Revenue $ 65,179 $ 45,043 $ 34,124 We recognize revenue primarily from two different types of contracts, product sales to customers (net product revenue) and collaborations and other arrangements. Revenue recognized from collaborations and other arrangements includes our share of profits from the collaborations, as well as royalties, upfront and milestone payments we receive under these types of contracts. See Note 3 for additional information related to our collaborations and other arrangements. Collaboration and other revenue disclosed above includes the revenue resulting from our collaboration with Boehringer Ingelheim, as well as the sale of product rights. Substantially all of the remainder of collaboration and other revenue is related to contracts accounted for as contracts with customers. Net Product Revenue Revenue from sales of products is recognized at the point where the customer obtains control of the goods and we satisfy our performance obligation, which generally is at the time we ship the product to the customer. Payment terms differ by jurisdiction and customer, but payment terms in most of our major jurisdictions typically range from 30 to 70 days from date of shipment. Provisions for rebates, discounts, and returns are established in the same period the related product sales are recognized. We generally ship product shortly after orders are received; therefore, we generally only have a few days of orders received but not yet shipped at the end of any reporting period. Shipping and handling activities are considered to be fulfillment activities and are not considered to be a separate performance obligation. We exclude from the measurement of the transaction price all taxes assessed by a governmental authority that are imposed on our sales of product and collected from a customer. Most of our products are sold to wholesalers that serve pharmacies, physicians and other healthcare professionals, and hospitals. For the years ended December 31, 2025, 2024, and 2023, our three largest wholesalers each accounted for between 16 percent and 24 percent of consolidated revenue. Further, they each accounted for between 20 percent and 29 percent of accounts receivable as of December 31, 2025 and 2024. As of December 31, 2025 and 2024, our allowance for doubtful accounts was not material. 63 Significant judgments must be made in determining the transaction price for our sales of products related to anticipated rebates, discounts, and returns. The following describe the most significant of these judgments: Sales Rebates and Discounts - Background and Uncertainties • We initially invoice our customers at contractual list prices. Contracts with direct and indirect customers may provide for various rebates and discounts, which we estimate as a reduction of product revenue at the time we recognize a sale to a direct customer. We estimate these accruals using an expected value approach. Since there is often a timing lag between the product sale and the settlement of accruals relating to these programs, our net product revenue may incorporate revisions of accruals for several periods. • In the U.S., the largest of our sales rebate and discount amounts include rebates associated with sales covered by managed care, Medicare, Medicaid, and chargeback programs, as well as reductions in revenue related to our patient assistance programs. In determining the appropriate accrual amount, we consider our historical payments for these programs by product as a percentage of our historical sales, any significant changes in sales trends, an evaluation of the current contracts for these programs, the percentage of our products that are sold via these programs, and our product pricing. • Most of our rebates outside the U.S. are contractual or legislatively mandated. Contractual rebates are generally provided as part of reimbursement programs for products. Government rebates are generally based on the anticipated budget for pharmaceutical payments in the country. Sales Returns - Background and Uncertainties • When product sales occur, to determine the appropriate transaction price for our sales, we estimate a reserve for future product returns related to those sales using an expected value approach. This estimate is based on several factors, including: historical return rates, expiration date by product, estimated levels of inventory in the wholesale and retail channels, patent exclusivity, product recalls and discontinuations, or a changing competitive environment. We record the return amounts as a deduction to arrive at our net product revenue. Actual U.S. product returns have been less than 1 percent of our U.S. revenue during each of the past three years. Adjustments to Revenue Adjustments to revenue recognized as a result of changes in estimates for our most significant U.S. sales returns, rebates, and discounts liability balances for products shipped in previous periods were less than 1 percent, 3 percent, and 1 percent of U.S. revenue during the years ended December 31, 2025, 2024, and 2023, respectively. Collaboration and Other Arrangements We recognize several types of revenue from our collaborations and other arrangements, which we discuss in general terms immediately below and more specifically in Note 3 for each of our significant collaborations and other arrangements. Our collaborations and other arrangements are evaluated to determine if the arrangements in their entirety, or contain aspects that, are contracts with customers. Royalty revenue from licensees and certain of our collaboration partners, which is based on sales to third parties of licensed products and technology, is recorded when the third-party sale occurs and the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). This royalty revenue is included in collaboration and other revenue. The net gain or loss related to the sale of rights of a product is included in collaboration and other revenue when control of the asset transfers to the other party. For arrangements that involve variable consideration where we have sold intellectual property, we recognize revenue based on estimates of the amount of consideration we believe we will be entitled to receive from the other party, but only to the extent a significant reversal in the amount of revenue recognized is not probable of occurring when the uncertainties associated with the variable consideration are subsequently resolved. Significant judgments must be made in determining the transaction price for our sales of intellectual property. Because of the risk that products in development will not receive regulatory approval, we generally do not recognize any contingent payments that would be due to us upon or after regulatory approval. 64 Disaggregation of Revenue The following table summarizes revenue, including net product revenue and collaboration and other revenue, by product: U.S. Outside U.S. 2025 2024 2023 2025 2024 2023 Cardiometabolic Health: Mounjaro $ 13,651 $ 8,950 $ 4,834 $ 9,315 $ 2,590 $ 329 Zepbound (1) 13,484 4,926 176 58 — — Trulicity 2,914 3,694 5,433 1,362 1,560 1,699 Jardiance (2) 1,582 1,598 1,600 1,849 1,743 1,144 Other cardiometabolic health 2,233 2,682 2,738 1,773 1,778 1,715 Total cardiometabolic health 33,864 21,850 14,781 14,357 7,671 4,887 Oncology: Verzenio 3,464 3,421 2,509 2,259 1,886 1,354 Other oncology 1,888 1,615 1,288 1,765 1,831 1,507 Total oncology 5,352 5,036 3,797 4,024 3,717 2,861 Immunology: Taltz 2,333 2,152 1,832 1,230 1,108 928 Other immunology 631 306 226 1,053 827 812 Total immunology 2,964 2,458 2,058 2,283 1,935 1,740 Neuroscience 997 780 696 394 694 2,183 Other 304 251 459 639 652 663 Revenue $ 43,481 $ 30,375 $ 21,791 $ 21,698 $ 14,668 $ 12,333 (1) Tirzepatide is marketed for obesity under the brand name Zepbound in Canada, Japan, and the U.S. (2) Jardiance revenue includes Glyxambi, Synjardy, and Trijardy XR. The following table summarizes revenue by geographical area: 2025 2024 2023 Revenue (1) : U.S. $ 43,481 $ 30,375 $ 21,791 Europe 11,558 6,921 6,175 Japan 2,132 1,815 1,673 China 1,951 1,660 1,540 Rest of world 6,057 4,271 2,946 Revenue $ 65,179 $ 45,043 $ 34,124 (1) Revenue is attributed to the countries based on the location of the customer or other party . 65 Note 3: Collaborations and Other Arrangements We often enter into collaborative and other arrangements to develop and commercialize drug candidates or to sell the rights of a product. See Note 2 for a discussion of our recognition of revenue from our collaborations and other arrangements. Collaborative activities may include research and development, marketing and selling, manufacturing, and distribution for which we may receive from or pay to the collaboration partner expense reimbursements. Operating expenses for costs incurred pursuant to these arrangements are reported in their respective expense line item, net of any payments due to or reimbursements due from our collaboration partners, with such reimbursements being recognized at the time the party becomes obligated to pay. Each arrangement is unique in nature, and our more significant arrangements are discussed below. Boehringer Ingelheim Collaboration We and Boehringer Ingelheim have a global agreement to jointly develop and commercialize a portfolio of compounds. Boehringer Ingelheim's Jardiance product family, which includes Glyxambi, Synjardy, and Trijardy XR, is the significant product family included in the collaboration. For the Jardiance product family in the most significant markets, which remains in the collaboration through December 31, 2028, we receive a share of net sales depending on performance of the product, which we recognize as collaboration and other revenue. The following table summarizes our revenue recognized: 2025 2024 2023 Jardiance $ 3,432 $ 3,341 $ 2,745 In 2025 and 2024, we and Boehringer Ingelheim entered into amendments to our collaboration to adjust commercialization responsibilities for the Jardiance product family in certain markets, resulting in our recognition of one-time benefits of $ 370 million and $ 300 million as Jardiance revenue during the years ended December 31, 2025 and 2024, respectively. During the year ended December 31, 2025, we recognized a $ 200 million sales-based milestone for Jardiance. As of December 31, 2025, we have the right to receive up to $ 910 million in potential sales-based milestones related to the Jardiance product family in certain markets in 2026. Ebglyss We have a license agreement with F. Hoffmann-La Roche Ltd and Genentech, Inc. (collectively, Roche), which provides us the worldwide development and commercialization rights to lebrikizumab, which is branded and trademarked as Ebglyss. Roche receives tiered royalty payments on worldwide net sales ranging in percentages from high single digits to high teens, which we recognize as cost of sales. As of December 31, 2025, Roche is eligible to receive additional payments from us, including up to $ 975 million in potential sales-based milestones. We have a license agreement with Almirall, S.A. (Almirall), under which Almirall licensed the rights to develop and commercialize Ebglyss, for the treatment or prevention of dermatology indications, including, but not limited to, atopic dermatitis in Europe. We receive tiered royalty payments on net sales in Europe ranging in percentages from low double digits to low twenties, which we recognize as collaboration and other revenue. As of December 31, 2025, we are eligible to receive additional payments up to $ 1.2 billion in a series of sales-based milestones. Orforglipron We have a license agreement with Chugai Pharmaceutical Co., Ltd (Chugai), which provides us with the worldwide development and commercialization rights to orforglipron. In addition to milestone payment rights which are not material, Chugai has the right to receive tiered royalty payments on future worldwide net sales from mid single digits to low teens if the product is successfully commercialized. 66 Divestitures In 2023, we sold the rights for the olanzapine portfolio, including Zyprexa, a neuroscience product, to Cheplapharm Arzneimittel GmbH, a European company. During the year ended December 31, 2023, we recognized $ 1.4 billion in revenue primarily related to the net gain on the sale of rights for the olanzapine portfolio. In 2023, we sold the rights for Baqsimi, a cardiometabolic health product, to Amphastar Pharmaceuticals, Inc. During the year ended December 31, 2023, we recognized $ 579 million in revenue primarily related to the net gain on the sale of rights for Baqsimi. As of December 31, 2025, we are eligible to receive payments of up to $ 450 million in a series of sales-based milestones. Note 4: Acquisitions We engage in various forms of business development activities to enhance or refine our product pipeline, including acquisitions, collaborations, investments, and licensing arrangements. In connection with these arrangements, our partners may be entitled to future royalties and/or commercial milestones based on sales if the products are approved for commercialization and/or milestones based on the successful progress of compounds through the development process. We account for each arrangement as either a business combination or an asset acquisition in accordance with GAAP. Business Combinations When an acquisition met the definition of a business under GAAP, the assets acquired and liabilities assumed were recorded at their respective fair values as of the acquisition date in our consolidated financial statements. The determination of estimated fair value required management to make significant estimates and assumptions. The excess of the purchase price over the fair value of the acquired net assets was recorded as goodwill. The results of operations of the acquisition are included in our consolidated financial statements from the date of acquisition. Verve Acquisition Overview of Transaction In July 2025, we acquired all shares of Verve Therapeutics, Inc. (Verve) for a purchase price of $ 10.50 per share in cash (or an aggregate of $ 549 million, net of cash acquired), plus one non-tradeable contingent value right (CVR) per share that entitles the holder to receive up to an additional $ 3.00 per share (or an aggregate of up to approximately $ 300 million) payable, subject to certain terms and conditions, upon the achievement of a certain specified milestone. Verve is developing genetic medicines for cardiovascular disease. Assets Acquired and Liabilities Assumed Our access to information was limited prior to this acquisition. As a consequence, we are in the process of determining fair values and tax bases of the assets acquired and liabilities assumed, including the identification and valuation of intangible assets and tax exposures. The final determination of these amounts will be completed as soon as possible but no later than one year from the acquisition date. The final determination may result in asset and liability fair values and tax bases that differ from the preliminary estimates and require changes to the preliminary amounts recognized. 67 The following table summarizes the preliminary amounts recognized for assets acquired and liabilities assumed as of the acquisition date: Estimated Fair Value at July 25, 2025 Cash $ 389 Acquired IPR&D (1) 608 Goodwill (2) 127 Other assets and liabilities, net 39 Acquisition date fair value of consideration transferred 1,163 Less: Cash acquired ( 389 ) Fair value of CVR liability ( 177 ) Fair value of equity interest in Verve held before the business combination ( 48 ) Cash paid, net of cash acquired $ 549 (1) Acquired IPR&D intangibles primarily relate to VERVE-102 (PCSK9 Editor). (2) The goodwill recognized from this acquisition is primarily attributable to future unidentified projects and products and the assembled workforce for Verve, which is not deductible for tax purposes. Manufacturing Facility Acquisition Overview of Transaction In May 2024, we acquired NexPharm Parent HoldCo, LLC and Isopro Holdings, LLC, which together own the assets of a manufacturing site in Wisconsin, for a purchase price of $ 925 million, net of cash acquired. The facility expands our global parenteral (injectable) product manufacturing network. Assets Acquired and Liabilities Assumed In connection with this acquisition, we recognized $ 817 million of goodwill, which is primarily attributable to the synergies between the manufacturing capabilities of the site and our products as well as the assembled workforce of the site and is deductible for tax purposes, as well as $ 109 million of property and equipment. POINT Acquisition Overview of Transaction In December 2023, we acquired all shares of POINT Biopharma Global Inc. (POINT) for a purchase price of $ 12.50 per share in cash (or an aggregate of $ 1.0 billion, net of cash acquired). POINT has capabilities in radiopharmaceutical discovery, development, and manufacturing efforts, as well as clinical and pre-clinical radioligand therapies in development for the treatment of cancer. Assets Acquired and Liabilities Assumed The following table summarizes the amounts recognized for assets acquired and liabilities assumed as of the acquisition date: Estimated Fair Value at December 27, 2023 Cash $ 303 Acquired IPR&D 196 Goodwill (1) 854 Other assets and liabilities, net ( 14 ) Acquisition date fair value of consideration transferred 1,339 Less: Cash acquired ( 303 ) Cash paid, net of cash acquired $ 1,036 (1) The goodwill recognized from this acquisition is primarily attributable to the radiopharmaceutical discovery, development, and manufacturing capabilities and the assembled workforce for POINT, which is not deductible for tax purposes. 68 Asset Acquisitions Upon each asset acquisition, the cost allocated to acquired IPR&D was immediately expensed as acquired IPR&D if the compound had no alternative future use. Milestone payment obligations incurred prior to regulatory approval of the compound were expensed as acquired IPR&D when the event triggering an obligation to pay the milestone occurred. We recognized acquired IPR&D charges of $ 2.9 billion, $ 3.3 billion, and $ 3.8 billion for the years ended December 31, 2025, 2024, and 2023, respectively. The following table summarizes our significant acquired IPR&D charges during 2025, 2024, and 2023. Counterparty Compound, Therapy, or Asset Acquisition Month Phase of Development (1) Acquired IPR&D Charge SiteOne STC-004, Nav1.8 inhibitor for the treatment of pain July 2025 Phase 1 $ 494 Scorpion STX-478, PI3Kα inhibitor for the treatment of breast cancer and other advanced solid tumors March 2025 Phase 1 1,412 Morphic MORF-057, inhibitor of α4β7 integrin for the treatment of inflammatory bowel disease August 2024 Phase 2 2,549 DICE Therapeutics, Inc. (DICE) DC-806, an oral IL-17 inhibitor for the treatment of chronic diseases in immunology (2) August 2023 Phase 2 1,916 Versanis Bio, Inc. (Versanis) Bimagrumab, a monoclonal antibody for the treatment of people living with obesity and obesity-related complications August 2023 Phase 2 604 Emergence Therapeutics AG (Emergence) ETx-22, a Nectin-4 antibody-drug conjugate for the treatment of urothelial cancer August 2023 Pre-clinical 407 (1) The phase of development presented is as of the date of the arrangement and represents the phase of development of the most advanced asset acquired, where applicable. (2) In 2024, we discontinued development of this molecule in favor of another molecule in development. Note 5: Asset Impairment, Restructuring, and Other Special Charges Asset impairment, restructuring, and other special charges were $ 484 million, $ 861 million, and $ 68 million for the years ended December 31, 2025, 2024, and 2023, respectively. Asset impairment, restructuring, and other special charges recognized during the year ended December 31, 2025 were primarily related to a litigation charge and acquisition and integration costs associated with the acquisition of Verve. Asset impairment, restructuring, and other special charges recognized during the year ended December 31, 2024 were primarily related to a litigation charge and an intangible asset impairment for Vitrakvi, driven by expected commercial projections. See Note 4 for additional information related to our acquisition of Verve and Note 16 for additional information related to litigation charges. 69 Note 6: Inventories We use the last-in, first-out (LIFO) method for the majority of our inventories located in the continental U.S., which results in a better matching of costs and revenues. Other inventories are valued by the first-in, first-out (FIFO) method. FIFO cost approximates current replacement cost. Inventories measured using LIFO must be valued at the lower of cost or market. Inventories measured using FIFO must be valued at the lower of cost or net realizable value. Inventories at December 31 consisted of the following: 2025 2024 Finished products $ 1,931 $ 1,221 Work in process 8,183 3,979 Raw materials and supplies 3,587 2,326 Total (approximates replacement cost) 13,701 7,526 Increase to LIFO cost 43 63 Inventories $ 13,744 $ 7,589 Inventories valued under the LIFO method comprised $ 5.8 billion and $ 2.7 billion of total inventories at December 31, 2025 and 2024, respectively. When we believe that future commercialization is probable and the future economic benefit is expected to be realized, we capitalize pre-launch inventory prior to regulatory approval. A number of factors are considered, including the current status in the regulatory approval process, potential impediments to the approval process such as safety or efficacy, viability of commercialization, and marketplace trends. Pre-launch inventories capitalized as of December 31, 2025 were $ 1.5 billion, primarily related to orforglipron. Note 7: Financial Instruments Investments in Equity and Debt Securities Our equity investments are accounted for using three different methods depending on the type of equity investment: • Investments in companies over which we have significant influence but not a controlling interest are accounted for using the equity method, with our share of earnings or losses reported in other-net, (income) expense. • For equity investments that do not have readily determinable fair values, we measure these investments at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. Any change in recorded value is recorded in other-net, (income) expense. • Our public equity investments are measured and carried at fair value. Any change in fair value is recognized in other-net, (income) expense. We record our available-for-sale debt securities at fair value, with changes in fair value reported as a component of accumulated other comprehensive income (loss). 70 Fair Value of Investments The following table summarizes certain fair value information at December 31, 2025 and 2024 for investment assets measured at fair value on a recurring basis, as well as the carrying amount and amortized cost of certain other investments: Fair Value Measurements Using Carrying Amount Cost Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Fair Value December 31, 2025 Cash equivalents (1) $ 4,392 $ 4,392 $ 4,392 $ — $ — $ 4,392 Short-term investments: Available-for-sale debt securities (2) $ 16 $ 16 $ 9 $ 7 $ — $ 16 Other securities 89 89 — 12 78 89 Short-term investments $ 105 Noncurrent investments: Available-for-sale debt securities (2) $ 360 $ 368 $ 69 $ 291 $ — $ 360 Other securities 85 54 — 2 83 85 Marketable equity securities 223 292 223 — — 223 Equity investments without readily determinable fair values (3) 846 Equity method investments (3) 1,288 Noncurrent investments $ 2,802 December 31, 2024 Cash equivalents (1) $ 1,507 $ 1,507 $ 1,494 $ 13 $ — $ 1,507 Short-term investments: Available-for-sale debt securities (2) $ 95 $ 95 $ 29 $ 66 $ — $ 95 Other securities 60 60 — 17 43 60 Short-term investments $ 155 Noncurrent investments: Available-for-sale debt securities (2) $ 573 $ 616 $ 140 $ 433 $ — $ 573 Other securities 150 103 — 6 144 150 Marketable equity securities 486 495 486 — — 486 Equity investments without readily determinable fair values (3) 864 Equity method investments (3) 1,143 Noncurrent investments $ 3,216 (1) We consider all highly liquid investments with a maturity of three months or less from the date of purchase to be cash equivalents. The cost of these investments approximates fair value. (2) For available-for-sale debt securities, amounts disclosed represent the securities' amortized cost. (3) Fair value disclosures are not applicable for equity method investments and investments accounted for under the measurement alternative for equity investments. We determine our Level 1 and Level 2 fair value measurements based on a market approach using quoted market values, significant other observable inputs for identical or comparable assets or liabilities, or discounted cash flow analyses. Level 3 fair value measurements for other investment securities are determined using unobservable inputs, including the investments' cost adjusted for impairments and price changes from orderly transactions. Fair values are not readily available for certain equity investments measured under the measurement alternative. 71 Debt Fair Value of Debt The following table summarizes the carrying amount and fair value using Level 2 inputs for our short-term and long-term debt as of December 31: 2025 2024 Carrying Amount Fair Value Carrying Amount Fair Value Short-term commercial paper borrowings $ — $ — $ 4,338 $ 4,319 Long-term debt, including current portion 42,503 39,799 29,307 26,249 Risk Management and Related Financial Instruments To manage foreign currency and interest rate risk, we may enter into derivative instruments intended to offset losses and gains on the assets, liabilities, and transactions being hedged. Such instruments are entered into in accordance with documented corporate risk-management policies. Management reviews the correlation and effectiveness of our derivatives on a quarterly basis. Derivative instruments are recorded at fair value, with gains and losses recognized as follows: • For derivative instruments designated as fair value hedges, gains and losses are recognized in earnings to offset the respective losses and gains recognized on the underlying exposure. • For derivative instruments designated as cash flow hedges, gains and losses are reported as a component of accumulated other comprehensive income (loss) and reclassified into earnings as an offset in the same period the hedged transaction affects earnings. • For derivative and non-derivative instruments designated as net investment hedges, gains and losses are reported as a component of accumulated other comprehensive income (loss) and reclassified into earnings upon the sale or substantial liquidation of our net investments. • For derivative contracts not designated as hedging instruments, gains and losses are recognized in earnings to offset the respective losses and gains recognized on the underlying exposure. Cash settlements of our derivative instruments are classified as operating activities in our consolidated statements of cash flows. Foreign Currency Risk As a global company, we face foreign currency risk exposure from fluctuating currency exchange rates, primarily the U.S. dollar against the euro, Japanese yen, Chinese yuan, and British pound sterling. We manage foreign currency risk primarily through the use of foreign currency debt and foreign currency forward contracts. Our foreign currency-denominated notes designated as accounting hedges had carrying amounts of $ 6.0 billion and $ 5.3 billion as of December 31, 2025 and 2024, respectively. Below summarizes the aggregate outstanding notional amounts of our foreign currency forward contracts in U.S. dollar equivalent as of December 31: 2025 2024 Purchase Sell Purchase Sell Designated as accounting hedges $ 67 $ — $ 8,909 $ — Not designated as accounting hedges 14,281 9,264 8,755 8,848 Forward contracts generally have maturities not exceeding 12 months. Interest Rate Risk In the normal course of business, our operations are exposed to fluctuations in interest rates which can vary the costs of financing, investing, and operating. Our primary interest-rate risk exposure results from changes in short-term U.S. dollar interest rates. In an effort to manage interest-rate exposures, we may enter into derivative contracts to achieve an acceptable balance between fixed- and floating-rate debt or to reduce cash flow variability from changes in interest rates as part of anticipated debt issuances. For 2025, 2024, and 2023, the impact of our interest rate contracts on our consolidated financial statements was not material. 72 Credit Risk Financial instruments that potentially subject us to credit risk include the following: • Trade receivables: Wholesale distributors of our products account for a substantial portion of our trade receivables; collateral is generally not required. We seek to mitigate the risk through our ongoing credit-review procedures and insurance. • Interest-bearing investments: In accordance with documented corporate risk-management policies, we monitor the amount of credit exposure to any one issuer based on credit rating of our counterparty. • Derivatives: In accordance with documented corporate risk-management policies, we monitor the amount of credit exposure to any one counterparty based on the credit rating of our counterparty. The majority of our cash is held by a few major financial institutions that have been identified as Global Systemically Important Banks (G-SIBs) by the Financial Stability Board. G-SIBs are subject to rigorous regulatory testing and oversight and must meet certain capital requirements. We monitor our exposures with these institutions and do not expect any of these institutions to fail to meet their obligations. Impact of Significant Risk Management Programs on the Financial Statements The following table summarizes the effects of significant risk-management programs: 2025 2024 2023 Recognized in other–net, (income) expense: Foreign currency forward contracts not designated as accounting hedges $ 489 $ 288 $ 26 Recognized in other comprehensive income (loss): Foreign currency-denominated notes: Designated as accounting hedges ( 690 ) 338 ( 220 ) Foreign currency forward contracts: Designated as accounting hedges ( 643 ) 343 ( 107 ) The following table summarizes the fair value of assets and liabilities on a gross basis for significant risk-management programs using Level 2 inputs as of December 31: 2025 2024 Foreign currency forward contracts: Designated as accounting hedges: Other receivables $ — $ 297 Not designated as accounting hedges: Other receivables 39 40 Other current liabilities ( 329 ) ( 93 ) 73 Note 8: Goodwill and Other Intangibles Goodwill Goodwill results from excess consideration in a business combination over the fair value of identifiable net assets acquired. Goodwill is not amortized but is reviewed for impairment at least annually, or more frequently if impairment indicators are present, by first assessing qualitative factors to determine whether it is more likely than not that the fair value is less than its carrying amount. If we conclude it is more likely than not that the fair value is less than the carrying amount, a quantitative test that compares the fair value to its carrying value is performed to determine the amount of any impairment. The change in goodwill during 2025 was primarily related to our acquisition of Verve. See Note 4 for additional information. No impairments occurred with respect to the carrying value of goodwill for the years ended December 31, 2025, 2024, and 2023. Other Intangibles The components of intangible assets other than goodwill at December 31 were as follows: 2025 2024 Carrying Amount, Gross Accumulated Amortization Carrying Amount, Net Carrying Amount, Gross Accumulated Amortization Carrying Amount, Net Finite-lived intangible assets: Marketed products $ 7,916 $ ( 2,963 ) $ 4,952 $ 8,090 $ ( 2,822 ) $ 5,269 Indefinite-lived intangible assets: Acquired IPR&D 1,569 — 1,569 898 — 898 Other intangibles $ 9,485 $ ( 2,963 ) $ 6,521 $ 8,988 $ ( 2,822 ) $ 6,166 Marketed products consist primarily of the amortized cost of the rights to assets acquired in business combinations and approved for marketing in a significant global jurisdiction (U.S., Europe, and Japan) and capitalized milestone payments. For transactions other than a business combination, we capitalize milestone payments incurred at or after the product has obtained regulatory approval for marketing. Acquired IPR&D consists of the fair values of acquired IPR&D projects acquired in business combinations, adjusted for subsequent impairments, if any. The costs of acquired IPR&D projects acquired directly in a transaction other than a business combination are capitalized as other intangible assets if the projects have an alternative future use; otherwise, they are expensed immediately. See Note 4 for significant acquired IPR&D projects that had no alternative future use. Several methods may be used to determine the estimated fair value of other intangibles acquired in a business combination. We utilize the "income method," which is a Level 3 fair value measurement and applies a probability weighting that considers the risk of development and commercialization to the estimated future net cash flows that are derived from projected revenues and estimated costs. These projections are based on factors such as relevant market size, patent protection, historical pricing of similar products, analyst expectations, and expected industry trends. The estimated future net cash flows are then discounted to the present value using an appropriate discount rate. This analysis is performed for each asset independently. The acquired IPR&D assets are treated as indefinite-lived intangible assets until completion or abandonment of the projects, at which time the assets are tested for impairment and amortized over the remaining useful life or written off, as appropriate. Indefinite-lived intangible assets are reviewed for impairment at least annually, or more frequently if impairment indicators are present, by first assessing qualitative factors to determine whether it is more likely than not that the fair value of the asset is less than its carrying amount. If we conclude it is more likely than not that the fair value is less than the carrying amount, a quantitative test that compares the fair value of the intangible asset to its carrying value is performed to determine the amount of any impairment. Finite-lived intangible assets are reviewed for impairment when an indicator of impairment is present. When required, a comparison of fair value to the carrying amount of assets is performed to determine the amount of any impairment. When determining the fair value of indefinite-lived acquired IPR&D as well as the fair value of finite-lived intangible assets for impairment testing purposes, we utilize the "income method" discussed above. 74 Intangible assets with finite lives are capitalized and are amortized primarily to cost of sales over their estimated useful lives, ranging from one to 20 years. As of December 31, 2025, the remaining weighted-average amortization period for finite-lived intangible assets was approximately 11 years. Amortization expense related to finite-lived intangible assets was as follows: 2025 2024 2023 Amortization expense $ 488 $ 553 $ 506 The estimated amortization expense for each of the next five years associated with our finite-lived intangible assets as of December 31, 2025 is as follows: 2026 2027 2028 2029 2030 Estimated amortization expense $ 488 $ 486 $ 480 $ 466 $ 432 Note 9: Property and Equipment Property and equipment is stated on the basis of cost. Provisions for depreciation of buildings and equipment are computed generally by the straight-line method at rates based on their estimated useful lives ( 12 to 50 years for buildings and three to 25 years for equipment). We review the carrying value of long-lived assets for potential impairment on a periodic basis and whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. Impairment is determined by comparing projected undiscounted cash flows to be generated by the asset to its carrying value. If an impairment is identified, a loss is recorded equal to the excess of the asset's net book value over its fair value, and the cost basis is adjusted. At December 31, property and equipment consisted of the following: 2025 2024 Land $ 647 $ 382 Buildings 10,088 8,807 Equipment 13,486 11,458 Construction in progress 13,013 8,245 37,235 28,891 Less accumulated depreciation ( 12,560 ) ( 11,789 ) Property and equipment, net $ 24,675 $ 17,102 Depreciation expense related to property and equipment was as follows: 2025 2024 2023 Depreciation expense $ 1,314 $ 1,058 $ 902 The following table summarizes long-lived assets by geographical area: 2025 2024 Long-lived assets (1) : U.S. and Puerto Rico $ 18,764 $ 13,402 Ireland 4,321 3,205 Rest of world 3,516 2,159 Long-lived assets $ 26,601 $ 18,765 (1) Long-lived assets consist of property and equipment, net, operating lease assets, and unamortized computer software costs. 75 Note 10: Leases We primarily have leases for corporate offices, research and development facilities, vehicles, and equipment. Information related to operating leases as of December 31 was as follows: 2025 2024 Balance Sheet Classification Operating lease right-of-use assets $ 1,260 $ 1,050 Other noncurrent assets Operating lease liabilities, current portion 222 176 Other current liabilities Operating lease liabilities, noncurrent portion 1,140 971 Other noncurrent liabilities Weighted-average remaining lease term 8 years 9 years Weighted-average discount rate 4.7 % 4.6 % We determine the lease term by assuming the exercise of any renewal and/or early-termination options that are reasonably assured. We generally use our incremental borrowing rate in determining the present value of lease payments. Note 11: Borrowings Debt at December 31 consisted of the following: Stated Interest Rate 2025 2024 Long-term notes: Notes due 2025 2.750 % - 7.125 % $ — $ 778 Notes due 2026 1.625 % - 5.000 % 1,632 1,529 Notes due 2027 3.100 % - 5.500 % 2,516 2,516 Notes due 2028 0.450 % - 4.550 % (1) 3,256 442 Notes due 2029 0.420 % - 4.500 % 3,077 3,076 Notes due 2030 2.125 % - 4.750 % 2,132 779 Notes due 2031 - 2040 0.500 % - 6.770 % 11,582 6,166 Notes due 2041 - 2050 0.970 % - 4.650 % 4,543 4,381 Notes due 2051 - 2060 1.125 % - 5.550 % 8,280 5,961 Notes due 2061 - 2070 1.375 % - 5.650 % 5,824 3,977 Other long term debt and adjustments ( 339 ) ( 298 ) Short-term commercial paper borrowings — 4,338 Total debt 42,503 33,644 Less current portion ( 1,635 ) ( 5,117 ) Long-term debt $ 40,868 $ 28,527 (1) Included in the 2028 tranche is $ 750 million of floating-rate notes issued in August 2025, with interest reset and paid quarterly using the Secured Overnight Financing Rate (SOFR) plus .530 percent. The weighted-average effective borrowing rate on short-term commercial paper borrowings was 4.61 percent at December 31, 2024. At December 31, 2025, we had $ 10.1 billion of unused committed bank credit facilities, which consisted primarily of a $ 4.0 billion credit facility that expires in December 2029 and a $ 6.0 billion 364 -day facility that expires in August 2026, both of which are available to support our commercial paper program. 76 Below are the details of our issuances of long-term debt for the periods presented, from which the cash proceeds were used for business development activities and general business purposes, including the repayment of commercial paper: Date of Issuance Amount Maturity Stated Interest Rate August 2025 $ 6,750 2028-2065 4.000 %- 5.650 % (1) February 2025 6,500 2028-2065 4.550 %- 5.600 % August 2024 5,000 2027-2064 4.150 %- 5.200 % February 2024 6,500 2027-2064 4.500 %- 5.100 % February 2023 4,000 2026-2063 4.700 %- 5.000 % (1) Included in the 2028 tranche is $ 750 million of floating-rate notes, with interest reset and paid quarterly using SOFR plus .530 percent. The following table summarizes information related to interest on borrowings, net of capitalized interest: 2025 2024 2023 Interest expense on borrowings $ 895 $ 781 $ 486 Cash payments for interest on borrowings 633 578 404 Note 12: Stock-Based Compensation Our stock-based compensation expense includes restricted stock units (RSUs), relative value awards (RVAs), shareholder value awards (SVAs), and performance awards (PAs). We recognize the fair value of stock-based compensation as expense over the requisite service period of the individual grantees, which generally equals the vesting period. Stock-based compensation expense was as follows: 2025 2024 2023 Stock-based compensation expense $ 626 $ 646 $ 629 As of December 31, 2025, the total estimated remaining unrecognized compensation cost of $ 554 million was primarily related to 2.3 million of nonvested RSUs and will be amortized over the weighted-average remaining requisite service period of 21 months. We provide newly issued shares of our common stock to satisfy the issuance of shares under our stock-based compensation awards. At December 31, 2025, stock-based compensation awards may be granted under the 2002 Lilly Stock Plan for not more than 42.4 million additional shares. RSUs are granted to certain employees with a vesting period of typically three years . RSU shares are accounted for at fair value based upon the closing stock price on the date of grant. RVAs are granted to officers and management. The number of shares actually issued, if any, varies depending on the growth of our stock price at the end of the three-year vesting period compared to our peers. We measure the fair value of the RVA unit on the grant date using a Monte Carlo simulation model. SVAs have been granted to officers and management. The number of shares actually issued, if any, varies depending on our stock price at the end of the three-year vesting period compared to pre-established target stock prices. We measure the fair value of the SVA unit on the grant date using a Monte Carlo simulation model. PAs were granted to officers and management prior to 2024, as we discontinued the program. The number of PA shares actually issued varied depending on the achievement of certain pre-established earnings-per-share targets over a two-year period. PA shares were accounted for at fair value based upon the closing stock price on the date of grant. The following table summarizes the weighted-average grant date fair value per share: 2025 2024 2023 RSUs $ 844.85 $ 749.74 $ 339.30 RVAs 1,154.90 1,106.40 397.95 SVAs 1,056.09 1,030.87 349.63 PAs 335.86 77 For RVAs and SVAs, the Monte Carlo simulation model utilizes multiple input variables that determine the probability of satisfying the market condition stipulated in the award grant and calculates the fair value of the award. Expected volatilities utilized in the model are based on implied volatilities from traded options on our stock, historical volatility of our stock price, historical volatility of our peers' stock price for RVAs, and other factors. Similarly, the dividend yield is based on historical experience and our estimate of future dividend yields. The risk-free interest rate is derived from the U.S. Treasury yield curve in effect at the time of grant. The following table summarizes the assumptions used in determining the weighted-average grant date fair value for the RVAs and SVAs: RVAs SVAs 2025 2024 2023 2025 2024 2023 Expected dividend yield 0.70 % 0.70 % 1.07 % 0.70 % 0.70 % 1.07 % Risk-free interest rate 4.21 4.26 4.08 4.21 4.26 4.08 Volatility 29.10 27.69 31.25 31.54 28.64 29.87 Note 13: Shareholders' Equity In 2025, 2024, and 2023, we repurchased $ 4.1 billion, $ 2.5 billion, and $ 750 million, respectively, of shares associated with our share repurchase programs. As of December 31, 2025, we had $ 10.9 billion remaining under our $ 15.0 billion share repurchase program authorized in December 2024. We retire shares once we repurchase them. We have 5 million authorized shares of preferred stock. As of December 31, 2025 and 2024, no preferred stock was issued. We have an employee benefit trust that hel d 50 million shares of our common stock at both December 31, 2025 and 2024, to provide a source of funds to assist us in meeting our obligations under various employee benefit plans. The cost basis of the shares held in the trust was $ 3.0 billion at both December 31, 2025 and 2024, and is shown as a reduction of shareholders' equity. Any dividend transactions between us and the trust are eliminated. Stock held by the trust is not considered outstanding in the computation of EPS. The assets of the trust were not used to fund any of our obligations under these employee benefit plans during the years ended December 31, 2025, 2024, and 2023. The following table summarizes the activity related to each component of accumulated other comprehensive income (loss): Foreign Currency Translation (1) Retirement Benefit Plans Other Accumulated Other Comprehensive Loss Beginning balance at January 1, 2023 $ ( 1,874 ) $ ( 2,062 ) $ 91 $ ( 3,845 ) Other comprehensive income (loss) 55 ( 635 ) 98 ( 482 ) Balance at December 31, 2023 ( 1,819 ) ( 2,697 ) 189 ( 4,327 ) Other comprehensive income (loss) ( 571 ) 519 57 5 Balance at December 31, 2024 ( 2,390 ) ( 2,179 ) 246 ( 4,322 ) Other comprehensive income (loss) 1,241 192 9 1,442 Ending balance at December 31, 2025 $ ( 1,149 ) $ ( 1,987 ) $ 255 $ ( 2,880 ) (1) Includes the impact of foreign currency transactions designated as net investment hedges. See Note 7 for additional information. Where our ownership of consolidated subsidiaries is less than 100 percent, the noncontrolling shareholders' interests are reflected in other equity as of December 31, 2025 and 2024 and are not material to our consolidated financial statements. 78 Note 14: Income Taxes Deferred taxes are recognized for the future tax effects of temporary differences between financial and income tax reporting based on enacted tax laws and rates. Deferred taxes related to global intangible low-taxed income (GILTI) are also recognized for the future tax effects of temporary differences. We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position, based on its technical merits, will be sustained upon examination by the taxing authority. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate resolution. Following is the composition of income tax expense: 2025 2024 2023 Current: Domestic $ 4,639 $ 3,343 $ 3,042 Foreign 2,159 1,430 613 Total current tax expense 6,798 4,773 3,655 Deferred: Domestic ( 1,149 ) ( 2,210 ) ( 2,375 ) Foreign ( 558 ) ( 473 ) 34 Total deferred tax benefit ( 1,707 ) ( 2,683 ) ( 2,341 ) Income taxes $ 5,091 $ 2,090 $ 1,314 Cash payments of U.S. federal, state, and foreign income taxes, net of refunds, were as follows: 2025 2024 2023 Cash payments of income taxes (1) $ 10,814 $ 6,562 $ 5,559 (1) 2025 included U.S. federal cash payments of $ 3.3 billion and cash payments to Ireland of $ 6.6 billion. Cash payments of income taxes increased $ 4.3 billion in 2025 compared with 2024, driven primarily by a $ 4.2 billion increase in Ireland resulting from higher production activity to meet growing global demand for our medicines and a prior year tax payment. U.S. federal cash payments decreased from $ 3.8 billion in 2024 to $ 3.3 billion in 2025, driven primarily by immediate deductibility of U.S. research and development expenses, a prior year tax refund, and accelerated depreciation on U.S. capital investments, partially offset by higher U.S. income. Refer to the composition of income tax expense above regarding current income tax expense on current-year income. At December 31, 2025 and 2024, prepaid expenses included prepaid taxes of $ 12.9 billion and $ 7.1 billion, respectively. Prepaid taxes largely reflect taxes paid on intercompany profit not yet recognized, primarily related to Ireland. As of December 31, 2025, we have long-term income taxes payables of $ 1.1 billion that we expect to pay in 2027 and $ 4.8 billion that we cannot reasonably estimate the timing of future cash outflows. 79 Following is a reconciliation of the consolidated income tax expense applying th e U.S. federal statutory rate to income before income taxes to the reported consolidated income tax expense for 2025: 2025 Amount (1) Percent U.S. federal statutory tax rate $ 5,404 21.0 % Foreign tax effects: Ireland Statutory tax rate difference between Ireland and the U.S. ( 346 ) ( 1.3 ) % Other 269 1.0 % Other foreign jurisdictions ( 53 ) ( 0.2 ) % Effect of cross-border tax laws (2) Foreign-derived intangible income ( 334 ) ( 1.3 ) % Other ( 149 ) ( 0.5 ) % Tax credits ( 327 ) ( 1.3 ) % Nontaxable or nondeductible items: Non-deductible acquired IPR&D (3) 442 1.7 % Other ( 121 ) ( 0.5 ) % Other adjustments (4) 306 1.2 % Income taxes $ 5,091 19.8 % (1) Unrecognized tax benefits related to the current year are presented on a net basis in the category where the tax position is presented. (2) The effect of cross-border tax laws includes the tax effects of both the cross-border tax and the related foreign tax credit allowed. (3) Non-deductible acquired IPR&D was primarily related to the acquisitions of Scorpion and SiteOne in 2025. See Note 4 for additional information related to acquisitions. (4) Other adjustments include individually immaterial amounts for effects of changes in tax laws or rates enacted in the current period, changes in unrecognized tax benefits related to prior years, state and local income tax, and changes in valuation allowances. Our effective tax rate was 19.8 percent in 2025 compared with an effective tax rate of 16.5 percent in 2024, primarily driven by unfavorable impacts related to the jurisdictional mix of earnings and U.S. tax law changes (OBBBA) in 2025. The effective tax rates for both periods were unfavorably impacted by non-deductible acquired IPR&D charges, with a larger impact occurring in 2024. In July 2025, the OBBBA, which implemented certain U.S. tax law changes, was enacted into law. The OBBBA modified and made permanent several provisions of the Tax Cuts and Jobs Act, including reductions in scheduled increases for the rate of taxation of foreign income, immediate deductibility of U.S. research and development expenses, and reinstatement of 100 percent bonus depreciation for capital assets. Following is a reconciliation of the consolidated income tax expense applying the U.S. federal statutory rate to income before income taxes to the reported consolidated income tax expense for 2024 and 2023: 2024 2023 Income tax at the U.S. federal statutory tax rate $ 2,663 $ 1,377 Non-deductible acquired IPR&D (1) 566 677 Foreign-derived intangible income ( 307 ) ( 237 ) International operations, including Puerto Rico (2) ( 302 ) ( 187 ) General business credits ( 291 ) ( 258 ) Other ( 239 ) ( 58 ) Income taxes $ 2,090 $ 1,314 (1) Non-deductible acquired IPR&D was primarily related to the acquisitions of Morphic in 2024, and DICE, Versanis, and Emergence in 2023. See Note 4 for additional information related to acquisitions. (2) Includes the impact of GILTI tax and other U.S. taxation of foreign income. 80 Domestic and Puerto Rican companies contributed approximately 54 percent, 20 percent, and 14 percent for the years ended December 31, 2025, 2024, and 2023, respectively, to consolidated income before income taxes. Significant components of our deferred tax assets and liabilities as of December 31 were as follows: 2025 2024 Deferred tax assets: Capitalized research and development $ 4,518 $ 4,599 Sales rebates and discounts 2,779 1,776 Correlative tax adjustments 2,392 1,604 Purchases of intangible assets 1,721 1,781 Tax loss and other tax carryforwards 911 587 Inventories 711 — Tax credit carryforwards 649 577 Compensation and benefits 556 565 Foreign tax redeterminations 367 335 Other 1,004 599 Total gross deferred tax assets 15,608 12,423 Valuation allowances ( 1,223 ) ( 964 ) Total deferred tax assets 14,385 11,459 Deferred tax liabilities: Earnings of foreign subsidiaries ( 1,291 ) ( 773 ) Intangibles ( 1,258 ) ( 1,176 ) Property and equipment ( 907 ) ( 558 ) Prepaid employee benefits ( 707 ) ( 611 ) Other ( 381 ) ( 414 ) Total deferred tax liabilities ( 4,544 ) ( 3,532 ) Deferred tax assets, net $ 9,841 $ 7,927 The deferred tax asset and related valuation allowance amounts for U.S. federal, international, and state net operating losses and tax credits shown above have been reduced for differences between financial reporting and tax return filings. At December 31, 2025, based on filed tax returns we have tax credit carryforwards and carrybacks of $ 1.4 billion available to reduce future income taxes; $ 253 million will expire if unused. The remaining portion of the tax credit carryforwards are fully reserved and primarily related to state tax credits of $ 899 million. At December 31, 2025, based on filed tax returns we have net operating losses and other carryforwards for U.S. federal and international tax purposes of $ 2.9 billion available to reduce future income taxes; $ 1.6 billion will never expire. The remaining portion of the U.S. federal and international net operating losses and other carryforwards are substantially reserved. Deferred tax assets related to state net operating losses and other carryforwards of $ 357 million are fully reserved as of December 31, 2025. Substantially all of the unremitted earnings of our foreign subsidiaries are considered not to be indefinitely reinvested for continued use in our foreign operations. At December 31, 2025 and 2024, we accrued an immaterial amount of U.S. federal tax, foreign withholding taxes, and state income tax that would be owed upon future distributions of unremitted earnings of our foreign subsidiaries that are not indefinitely reinvested. For the amount considered to be indefinitely reinvested, it is not practicable to determine the amount of the related deferred income tax liability due to the complexities in the tax laws and assumptions we would have to make. 81 Following is a reconciliation of the beginning and ending amount of gross unrecognized tax benefits: 2025 2024 2023 Beginning balance at January 1 $ 3,976 $ 3,395 $ 2,987 Additions based on tax positions related to the current year 1,020 694 364 Other adjustments (1) 86 ( 113 ) 44 Ending balance at December 31 $ 5,082 $ 3,976 $ 3,395 (1) Other adjustments include individually immaterial changes related to prior-year positions, settlements, lapses of statutes of limitation, and foreign currency translation impacts. The total amount of unrecognized tax benefits that, if recognized, would affect our effective tax rate was $ 3.2 billion and $ 2.6 billion at December 31, 2025 and 2024, respectively. We file U.S. federal, foreign, and various state and local income tax returns. We are no longer subject to U.S. federal income tax examination for years before 2016. In most major foreign and state jurisdictions, we are no longer subject to income tax examination for years before 2015. The U.S. examination of tax years 2019-2021 remains ongoing. For tax years 2016-2018, we are pursuing competent authority assistance through the Mutual Agreement Procedure (MAP) process for the pricing of certain intercompany transactions. The resolution of both examination periods will likely extend beyond the next 12 months. Interest and penalties related to unrecognized tax benefits are recognized in income tax expense and were not material for the years ended December 31, 2025, 2024, and 2023. Our accrued interest and penalties related to unrecognized tax benefits were $ 798 million and $ 594 million at December 31, 2025 and 2024, respectively. 82 Note 15: Retirement Benefits We use a measurement date of December 31 to determine the change in benefit obligation, change in plan assets, funded status, and amounts recognized in the consolidated balance sheets at December 31 for our defined benefit pension and retiree health benefit plans, which were as follows: Defined Benefit Pension Plans Retiree Health Benefit Plans 2025 2024 2025 2024 Change in benefit obligation: Benefit obligation at beginning of year $ 13,415 $ 14,258 $ 1,223 $ 1,310 Service cost 324 339 33 35 Interest cost 697 662 64 62 Actuarial (gain) loss 232 ( 1,084 ) 33 ( 97 ) Benefits paid ( 661 ) ( 634 ) ( 88 ) ( 82 ) Foreign currency exchange rate changes and other adjustments 255 ( 125 ) 9 ( 6 ) Benefit obligation at end of year 14,262 13,415 1,274 1,223 Change in plan assets: Fair value of plan assets at beginning of year 13,658 13,709 2,566 2,580 Actual return on plan assets 1,456 583 283 59 Employer contribution 119 115 14 9 Benefits paid ( 661 ) ( 634 ) ( 88 ) ( 82 ) Foreign currency exchange rate changes and other adjustments 248 ( 115 ) — — Fair value of plan assets at end of year 14,820 13,658 2,775 2,566 Funded status 558 243 1,501 1,343 Unrecognized net actuarial loss 2,499 2,663 87 149 Unrecognized prior service (benefit) cost 2 4 ( 4 ) ( 4 ) Net amount recognized $ 3,059 $ 2,910 $ 1,584 $ 1,489 Amounts recognized in the consolidated balance sheets consisted of: Other noncurrent assets $ 1,857 $ 1,482 $ 1,656 $ 1,485 Other current liabilities ( 73 ) ( 71 ) ( 9 ) ( 8 ) Other noncurrent liabilities ( 1,226 ) ( 1,167 ) ( 146 ) ( 133 ) Accumulated other comprehensive loss 2,501 2,667 83 146 Net amount recognized $ 3,059 $ 2,910 $ 1,584 $ 1,489 The unrecognized net actuarial loss has not yet been recognized in net periodic pension costs and was included in accumulated other comprehensive loss at December 31, 2025 and 2024. Unrecognized net actuarial loss for the U.S. and Puerto Rico defined benefit pension and retiree health benefit plans is amortized over the average remaining service period of active employees in the plan. The amortization of actuarial (gains) losses for U.S. and Puerto Rico defined benefit pension plans are determined by using a 10% corridor of the greater of the market related value of assets or the projected benefit obligations. The $ 898 million increase in benefit obligation in 2025 was primarily driven by service and interest costs in excess of benefit payments. The $ 930 million decrease in benefit obligation in 2024 was primarily driven by increases in the discount rates primarily reflected in actuarial (gain) loss. 83 The following represents our weighted-average assumptions: Defined Benefit Pension Plans Retiree Health Benefit Plans 2025 2024 2023 2025 2024 2023 Weighted-average assumptions used to determine net periodic benefit costs: Discount rate 5.5 % 4.8 % 5.1 % 5.7 % 5.0 % 5.2 % Rate of compensation increase 4.0 4.3 4.3 Expected return on plan assets 7.9 8.1 8.1 7.0 7.3 7.3 Weighted-average assumptions used to determine benefit obligation as of December 31: Discount rate 5.5 5.5 4.8 5.5 5.7 5.0 Rate of compensation increase 4.0 4.0 4.3 We annually evaluate the expected return on plan assets in our defined benefit pension and retiree health benefit plans. In evaluating the expected return on plan assets, we consider many factors, with a primary analysis of current and projected market conditions; asset returns and asset allocations; and the views of leading financial advisers and economists. In U.S. and Puerto Rico, the expected return on plan assets uses a market-related value of assets. For U.S. dollar denominated investment grade debt securities and derivatives, the market-related value of assets is the actual fair value. For all other asset categories, the market-related value of assets uses a method that recognizes investment gains and losses arising from the difference between expected and actual returns on plan assets over a five-year period. We may also review our historical assumptions compared with actual results, as well as the assumptions and trend rates utilized by similar plans, where applicable. Expected benefit payments, which reflect expected future service, are as follows: 2026 2027 2028 2029 2030 2031 - 2035 Defined benefit pension plans $ 720 $ 746 $ 770 $ 803 $ 838 $ 4,711 Retiree health benefit plans 95 96 96 97 97 488 Amounts relating to defined benefit pension plans with projected benefit obligations in excess of plan assets were as follows at December 31: 2025 2024 Projected benefit obligation $ 2,360 $ 2,297 Fair value of plan assets 1,061 1,058 Amounts relating to defined benefit pension plans and retiree health benefit plans with accumulated benefit obligations in excess of plan assets were as follows at December 31: Defined Benefit Pension Plans Retiree Health Benefit Plans 2025 2024 2025 2024 Accumulated benefit obligation $ 1,810 $ 1,656 $ 155 $ 142 Fair value of plan assets 702 595 — — The total accumulated benefit obligation for our defined benefit pension plans was $ 13.0 billion and $ 12.2 billion at December 31, 2025 and 2024, respectively. 84 Net periodic (benefit) cost included the following components: Defined Benefit Pension Plans Retiree Health Benefit Plans 2025 2024 2023 2025 2024 2023 Components of net periodic (benefit) cost: Service cost $ 324 $ 339 $ 290 $ 33 $ 35 $ 32 Interest cost 697 662 648 64 62 61 Expected return on plan assets ( 1,086 ) ( 1,112 ) ( 1,055 ) ( 185 ) ( 192 ) ( 182 ) Amortization of prior service (benefit) cost 2 2 2 — ( 6 ) ( 53 ) Recognized actuarial (gain) loss 76 125 122 ( 4 ) ( 3 ) ( 6 ) Net periodic (benefit) cost $ 13 $ 15 $ 8 $ ( 92 ) $ ( 103 ) $ ( 148 ) The following represents the amounts recognized in other comprehensive income (loss) for the years ended December 31: Defined Benefit Pension Plans Retiree Health Benefit Plans 2025 2024 2023 2025 2024 2023 Actuarial gain (loss) arising during period $ 138 $ 555 $ ( 764 ) $ 65 $ ( 37 ) $ ( 50 ) Amortization of net actuarial (gain) loss included in net income 76 125 122 ( 4 ) ( 3 ) ( 6 ) Foreign currency exchange rate changes and other ( 48 ) 18 ( 27 ) 1 ( 6 ) ( 52 ) Total other comprehensive income (loss) during period $ 166 $ 697 $ ( 669 ) $ 62 $ ( 46 ) $ ( 108 ) Benefit Plan Investments Our benefit plan investment policies are set with specific consideration of return and risk requirements in relationship to the respective liabilities. U.S. and Puerto Rico plans represent approximately 85 percent of our global investments. Given the long-term nature of our liabilities, these plans have the flexibility to manage an above-average degree of risk in the asset portfolios. At the investment-policy level, there are no specifically prohibited investments. However, within individual investment manager mandates, restrictions and limitations are contractually set to align with our investment objectives, ensure risk control, and limit concentrations. We manage our portfolio to minimize concentration of risk by allocating funds within asset categories. In addition, within a category we use different managers with various management objectives to eliminate any significant concentration of risk. Our global benefit plans may enter into contractual arrangements (derivatives) to implement the local investment policy or manage particular portfolio risks. The defined benefit pension and retiree health benefit plan allocation for the U.S. and Puerto Rico currently comprises approximately 85 percent growth investments and 15 percent fixed-income investments. The growth investment allocation encompasses public equity securities, hedge funds, private equity-like investments, and real estate. These portfolio allocations are intended to reduce overall risk by providing diversification, while seeking moderate to high returns over the long term. Public equity securities - Securities are well diversified and invested in U.S. and international companies across various asset managers and styles. Fixed-income investments - These investments primarily consist of fixed-income securities in U.S. treasuries and agencies, emerging market debt obligations, corporate bonds, bank loans, mortgage-backed securities, commercial mortgage-backed obligations, and any related repurchase agreements. Hedge funds - Our hedge fund investments are made through limited partnership interests in fund-of-funds structures and directly into hedge funds. Plan holdings in hedge funds are valued based on net asset values (NAVs) calculated by each fund or general partner, as applicable, and we have the ability to redeem these investments at NAV. 85 Private equity-like investments - Private equity-like investments are made through long-term partnerships or joint ventures with limited liquidity and typical fund lives of 10 to 15 years. Underlying investments include venture capital, buyout, special situations, private debt, and private real estate. These investments are made both directly into funds and through fund-of-funds structures to ensure broad diversification across management styles and asset types. Plan holdings in private equity-like investments are valued using partnership-reported values, adjusted for known cash flows and significant events through the reporting date. Valuation inputs include underlying NAVs, discounted cash flow analyses, and comparable market data, with adjustments for currency, credit, liquidity, and other risks as applicable. The majority of these partnerships provide annual audited financial statements confirming compliance with fair valuation procedures consistent with applicable accounting standards. Real estate - Real estate investments in registered investment companies that trade on an exchange are classified as Level 1 on the fair value hierarchy. Real estate investments in funds measured at fair value on the basis of NAV provided by the fund manager are classified as such. These NAVs are developed with inputs including discounted cash flow, independent appraisal, and market comparable analyses. Other assets - Other assets include cash and cash equivalents and mark-to-market value of derivatives. The cash value of the trust-owned insurance contract is primarily invested in investment-grade publicly traded equity and fixed-income securities. Other than hedge funds, private equity-like investments, and a portion of the real estate holdings, which are discussed above, we determine fair values based on a market approach using quoted market values, significant other observable inputs for identical or comparable assets or liabilities, or discounted cash flow analyses. The fair values of our defined benefit pension plan assets by asset category were as follows: Fair Value Measurements Using Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Investments Valued at Net Asset Value (1) As of December 31, 2025 Public equity securities $ 4,277 $ 1,179 $ 403 $ — $ 2,695 Fixed-income investments 2,083 55 1,517 — 511 Hedge funds 3,240 — — — 3,240 Private equity-like investments 3,927 — — 6 3,921 Real estate 460 312 — — 148 Other assets 833 49 103 — 681 Total $ 14,820 $ 1,595 $ 2,023 $ 6 $ 11,196 As of December 31, 2024 Public equity securities $ 3,423 $ 1,056 $ 337 $ — $ 2,030 Fixed-income investments 2,023 42 1,556 — 425 Hedge funds 3,058 — — — 3,058 Private equity-like investments 3,931 — — 9 3,922 Real estate 451 301 — — 150 Other assets 773 10 26 — 737 Total $ 13,658 $ 1,409 $ 1,919 $ 9 $ 10,321 (1) Certain investments that are measured at fair value using the NAV per share (or its equivalent) as a practical expedient have not been classified in the fair value hierarchy. 86 The fair values of our retiree health plan assets by asset category were as follows: Fair Value Measurements Using Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Investments Valued at Net Asset Value (1) As of December 31, 2025 Public equity securities $ 383 $ 114 $ — $ — $ 269 Fixed-income investments 77 — 46 — 31 Hedge funds 314 — — — 314 Private equity-like investments 363 — — 1 362 Cash value of trust owned insurance contract 1,529 — 1,529 — — Real estate 30 30 — — — Other assets 79 12 2 — 65 Total $ 2,775 $ 156 $ 1,577 $ 1 $ 1,041 As of December 31, 2024 Public equity securities $ 288 $ 98 $ — $ — $ 190 Fixed-income investments 89 — 63 — 26 Hedge funds 285 — — — 285 Private equity-like investments 346 — — 1 345 Cash value of trust owned insurance contract 1,465 — 1,465 — — Real estate 28 28 — — — Other assets 64 4 ( 7 ) — 68 Total $ 2,566 $ 130 $ 1,521 $ 1 $ 914 (1) Certain investments that are measured at fair value using the NAV per share (or its equivalent) as a practical expedient have not been classified in the fair value hierarchy. 87 Note 16: Contingencies We are and may become involved in various lawsuits, claims, government investigations and other legal proceedings that arise from time to time in the course of our business, including patent, environmental, commercial, contractual, licensing, employment, health and safety, consumer protection, pricing, access, consumer, sales and marketing, product liability, insurance, antitrust, securities, and regulatory compliance matters, among others. Such matters may involve inquiries from or disputes with various types of parties, including governments, regulatory agencies, competitors, customers, suppliers, service providers, licensees, employees, or shareholders, among others. We cannot predict the final outcome of these proceedings, and while we intend to vigorously prosecute or defend our position as appropriate, there can be no assurance that we will be successful or obtain any requested relief. Matters often develop over a long period of time, and expectations can change as a result of new findings, rulings, appeals, settlements, legal or regulatory changes, or other factors. From time to time we may discontinue or settle and compromise matters as appropriate in our best interest. Legal proceedings that we believe are significant or could become significant or material are described below. For proceedings in which we are named as defendants, unless otherwise noted, we cannot reasonably estimate the maximum potential exposure or the range of possible loss in excess of amounts accrued; however, we believe that the resolution of all such matters will not have a material adverse effect on our consolidated financial position or liquidity, but could possibly be material to our consolidated results of operations in any one accounting period. Litigation accruals and environmental liabilities and any related estimated insurance recoverables are reflected on a gross basis as liabilities and assets, respectively, on our consolidated balance sheets. We accrue for estimated exposures to the extent they are both probable and reasonably estimable based on the then available information. We accrue for certain unfiled product liability claims to the extent we can formulate a reasonable estimate of their exposure. We estimate these exposures based primarily on historical claims experience and data regarding product usage. Legal defense costs expected to be incurred in connection with significant liability loss contingencies are accrued when both probable and reasonably estimable. Because of the nature of pharmaceutical products, it is possible that we could become subject to large numbers of additional product liability and related claims in the future. Due to a very restrictive market for litigation liability insurance, we are predominantly self-insured for litigation liability losses for all our currently and previously marketed products. Patent Matters In the course of our business, we are subject to actions and proceedings by third parties that seek to challenge, invalidate, or circumvent our patents and patent applications relating to our products, product candidates, and technologies, including the matter described below. Emgality Patent Litigation In September 2018, Teva Pharmaceuticals International GmbH and Teva Pharmaceuticals USA, Inc. (collectively, Teva) filed a complaint in the U.S. District Court for the District of Massachusetts alleging that Lilly's launch and continued sales of Emgality infringed various claims in three Teva patents. In November 2022, following a trial, a jury returned a verdict in favor of Teva. In September 2023, the trial court overruled the jury verdict, found all asserted claims invalid, and entered judgment in Lilly's favor. In October 2023, Teva appealed to the U.S. Court of Appeals for the Federal Circuit. The appeal is pending. Environmental Matters Superfund Matters Under the Comprehensive Environmental Response, Compensation, and Liability Act, commonly known as "Superfund," we have been designated as one of several potentially responsible parties with respect to the cleanup of fewer than 10 sites. Under Superfund, each responsible party may be jointly and severally liable for the entire amount of the cleanup. 88 Brazil Litigation – Cosmopolis Facility Labor Attorney Litigation In March 2008, the state Labor Public Attorney (LPA) filed a public civil action against Eli Lilly do Brasil Limitada (Lilly Brasil) in the Labor Court of Paulinia, State of Sao Paulo, alleging harm to employees and former employees from alleged exposure to soil and groundwater contaminants at a former manufacturing facility in Cosmopolis, operated by the company between 1977 and 2003. In May 2014, the trial court ruled against Lilly Brasil, ordering several remedial and compensatory actions, including health coverage for a class of individuals and certain of their children, and imposing a liquidated award. In December 2025, the superior labor court (TST) significantly reduced the liquidated award. Further appeals are possible. In July 2019, at the LPA's request, the trial court ordered a freeze of certain of Lilly Brasil's immovable property, which amount was reduced on Lilly's appeal. Both parties have appealed this order to the TST. The trial court is currently assessing the status of Lilly Brasil's compliance with the obligations as to the land. Former Employee Litigation Various former employees have filed related claims against Lilly Brasil in the trial court. These lawsuits are at various stages in the litigation process. Pricing Matters 340B Litigation and Investigations In January 2021, we filed a lawsuit in the U.S. District Court for the Southern District of Indiana against the U.S. Department of HHS, the Secretary of HHS, the HRSA, and the Administrator of HRSA. The lawsuit challenges HHS's December 2020 advisory opinion that the 340B program requires drug manufacturers to deliver discounts to all contract pharmacies, as well as HHS's December 2020 administrative dispute resolution (ADR) regulations. It seeks declaratory, injunctive, and other related relief. In March 2021, the court preliminarily enjoined the government's use of the ADR process as to us. In May 2021, we amended the complaint to add claims related to a May 2021 letter from HRSA asserting that Lilly's contract pharmacy policy violated the 340B statute. In October 2021, the court granted in part and denied in part the parties' cross-motions for summary judgment. Both parties appealed to the U.S. Court of Appeals for the Seventh Circuit. The appeal remains pending. We have been named in various ADR petitions, filed between 2021 and 2024, seeking declaratory, injunctive, and/or monetary relief related to the 340B program. In light of the preliminary injunction order described above, these petitions are being held in abeyance as to us. In July 2021, Mosaic Health, Inc. filed a putative class action lawsuit in the U.S. District Court for the Western District of New York against us, Sanofi-Aventis U.S., LLC, Novo Nordisk Inc., and AstraZeneca Pharmaceuticals LP, alleging antitrust and unjust enrichment claims related to the defendants' 340B programs. In October 2021, an amended complaint added Central Virginia Health Services, Inc. as a plaintiff. After the district court dismissed the case for failure to state a claim, the U.S. Court of Appeals for the Second Circuit reversed. In the second half of 2025, the Second Circuit denied our petitions for rehearing. This matter is ongoing. We have multiple other challenges against HHS and related parties related to interpretations and actions under the 340B program. Insulin Pricing Litigation Since 2017, various plaintiffs, including consumers, states and state attorneys general, counties, municipalities, Native American tribes, school districts, wholesalers, third-party payers, and others, have filed lawsuits, including putative class actions, against us, other manufacturers, pharmacy benefit managers, and others, relating to the pricing of insulin medications, and in some cases other diabetes medications, and rebates paid by manufacturers to pharmacy benefit managers. The complaints in the various lawsuits assert a variety of claims, including among others consumer protection, unfair or deceptive trade practices, fraud, false advertising, unjust enrichment, civil conspiracy, racketeering, antitrust, and unfair competition claims. Most cases have been coordinated or consolidated for pretrial proceedings in a multidistrict litigation (MDL) pending in the U.S. District Court for the District of New Jersey. The lawsuits are at various stages in the litigation process. 89 The MDL court has issued various case management and other orders, including but not limited to orders establishing separate tracks for state attorney general claims, putative class actions, and non-class suits by self-funded payers; orders dismissing certain claims; and an order setting a constructive notice date of January 14, 2021 for statute of limitations purposes. In January 2022, the Michigan attorney general filed a petition in Michigan state court seeking authorization to investigate Lilly for potential violations of the Michigan Consumer Protection Act (MCPA), along with a complaint seeking a declaratory judgment that the state has authority to investigate Lilly's sale of insulin under the MCPA. The court authorized the proposed investigation and the issuance of civil investigative subpoenas. In April 2022, however, the parties entered into a stipulation providing that the state will not issue any civil investigative subpoena to us under the MCPA until the declaratory judgment action is resolved, and in July 2022, the court dismissed the case in its entirety. In June 2023, the Michigan Court of Appeals affirmed the judgment in our favor. The state's appeal to the Michigan Supreme Court remains pending. Lilly entered into settlement agreements with New York and Minnesota to resolve allegations relating to insulin pricing in 2023 and 2024, respectively. These agreements involved no monetary payments and no admission of wrongdoing or liability. Insulin and Other Pricing Investigations We have been subject to various investigations and received subpoenas, civil investigative demands, information requests, interrogatories, and other inquiries from various governmental entities related to pricing issues, including the pricing and sale of insulin medications, and in some instances certain other diabetes medications, and/or calculations of average manufacturer price and best price. These include subpoenas, civil investigative demands, or information requests from the U.S. Department of Justice, the U.S. Federal Trade Commission, and attorneys general from various states and the District of Columbia. To the extent the foregoing governmental entities have not filed lawsuits, we are cooperating with the various investigations, subpoenas, and inquiries. Average Manufacturer Price Litigation In November 2014, a relator filed a qui tam action in the U.S. District Court for the Northern District of Illinois against us and Takeda Pharmaceuticals America, Inc. The relator's complaint alleges that the defendants should have treated certain credits from distributors as retroactive price increases and included such increases in calculating average manufacturer prices. In August 2022, following a trial, the jury returned a verdict in favor of the relator. In September 2025, the U.S. Court of Appeals for the Seventh Circuit affirmed and we recognized a charge related to the matter. In December 2025, the Seventh Circuit denied our petition for rehearing en banc. We are assessing next steps. Other Matters Actos Litigation We, along with Takeda Chemical Industries, Ltd. and Takeda affiliates (collectively, Takeda), are named in a third-party payer class action in the U.S. District Court for the Central District of California. The plaintiffs allege that bladder cancer risk was concealed from them and claim that as a result they and a proposed class of third-party payers are entitled to recover money paid for Actos prescriptions. Our agreement with Takeda calls for Takeda to defend and indemnify us against losses and expenses with respect to U.S. litigation arising out of the manufacture, use, or sale of Actos and other related expenses in accordance with the terms of the agreement. In May 2023, the district court granted class certification. In June 2025, the U.S. Court of Appeals for the Ninth Circuit denied our appeal of the class certification order, and in August 2025 it denied our petition for rehearing en banc. In November 2025, we and Takeda filed a petition for certiorari to the U.S. Supreme Court. 90 Mounjaro, Trulicity, and Zepbound Product Liability Litigation Since August 2023, various plaintiffs have filed lawsuits against us, Novo Nordisk A/S, and other related entities, alleging injuries following purported use of incretin medicines, including Mounjaro, Trulicity, and Zepbound. The complaints assert a variety of claims and generally seek damages and/or other relief. Most of these lawsuits have been coordinated or consolidated for pretrial proceedings in two federal MDLs: one focused on alleged gastrointestinal injuries, and the other relating to claims of non-arteritic anterior ischemic optic neuropathy (NAION). Both MDLs are pending in the U.S. District Court for the Eastern District of Pennsylvania. There are also cases pending in various other federal and state courts. In addition to the cases in the United States, there are two class action petitions in Israel, as well as a class action petition in Quebec, Canada. Health Choice Alliance In October 2019, a relator filed a qui tam lawsuit against us in Texas state court asserting claims under the Texas Medicaid Fraud Prevention Act (TMFPA) based on allegations about certain patient support programs related to three of our products. The relator sought to recover the value of payments by the Texas Medicaid Program for these products, as well as civil penalties and other relief. In August 2025, the relator purported to dismiss the first lawsuit and filed a second lawsuit in a different Texas state court adding the State of Texas as a party and expanding claims under the TMFPA to fifteen of our products. We are opposing the relator's purported dismissal of the first lawsuit. Research Corporation Technologies, Inc. In April 2016, Research Corporation Technologies, Inc. (RCT) filed a lawsuit against us in the U.S. District Court for the District of Arizona asserting damages claims for breach of contract, unjust enrichment, and conversion related to processes used to manufacture certain products, including Humalog and Humulin. In October 2021, the court issued a summary judgment decision in favor of RCT on certain issues, including with respect to a disputed royalty. In July 2024, we reached a confidential agreement with RCT that requires different payments based on various litigation outcomes as determined on appeal. The settlement agreement is not an admission of liability or fault and is subject to conditions. Pursuant to the agreement, the court entered final judgment, Lilly filed a notice of appeal to the U.S. Court of Appeals for the Ninth Circuit, and Lilly made an initial payment under the agreement. Lilly's appeal remains pending. The remaining amount payable under the agreement, if any, should not have a material impact on our financial position, liquidity or results of operations. 91 Note 17: Segment Information We operate as a single reportable segment engaged in the discovery, development, manufacturing, marketing, and sales of pharmaceutical products worldwide. A global research and development organization and a supply chain organization are responsible for the discovery, development, manufacturing, and supply of our products. Our commercial organizations market, distribute, and sell the products. The business is also supported by global corporate staff functions. Our determination that we operate as a single segment is consistent with the nature of our operations and the financial information regularly reviewed by the chief executive officer, in his capacity as the chief operating decision maker (CODM), for the purposes of evaluating performance, allocating resources, setting incentive compensation targets, and planning and forecasting for future periods. Our purpose is to unite caring with discovery to create medicines that make life better for people around the world. Our long-term success is significantly dependent on our ability to research and develop innovative medicines. The CODM uses consolidated net income to assess performance of our company, ensuring that we are investing in future research and development while efficiently delivering products to patients. The CODM allocates research and development resources based upon several factors, including the likelihood of technical success, unmet medical needs, and the viability of commercial success. A significant component of the CODM’s decision-making process is to ensure a balanced investment in our research and development portfolio to drive near-term success and sustain for the long-term. The following table summarizes information for our single reportable segment, including significant segment expenses: 2025 2024 2023 Revenue $ 65,179 $ 45,043 $ 34,124 Less: Cost of sales 11,052 8,418 7,082 Early-stage research and development (1) 4,881 3,917 3,093 Late-stage research and development (1) 8,456 7,074 6,221 Marketing, selling, and administrative 11,094 8,594 7,404 Acquired in-process research and development 2,910 3,280 3,800 Other segment items (2) 6,146 3,170 1,285 Net income $ 20,640 $ 10,590 $ 5,240 Expenditures for long-lived assets (3) $ 8,672 $ 5,561 $ 3,830 (1) Early-stage research and development primarily includes costs incurred from discovery through Phase 2 clinical trials. Late-stage research and development primarily includes costs incurred from Phase 3 clinical trials. (2) Other segment items primarily include income taxes and asset impairment, restructuring, and other special charges. (3) Includes expenditures for property and equipment and computer software costs. 92 Management's Reports Management's Report for Financial Statements—Eli Lilly and Company and Subsidiaries Management of Eli Lilly and Company and subsidiaries is responsible for the accuracy, integrity, and fair presentation of the financial statements. The statements have been prepared in accordance with generally accepted accounting principles in the United States and include amounts based on judgments and estimates by management. In management's opinion, the consolidated financial statements present fairly our financial position, results of operations, and cash flows. In addition to the system of internal accounting controls, we maintain a code of conduct (known as " The Red Book" ) that applies to all employees worldwide, requiring proper overall business conduct, avoidance of conflicts of interest, compliance with laws, and confidentiality of proprietary information. All employees must take training annually on The Red Book and are required to report suspected violations. A hotline number is available on our lilly.com website and on the internal LillyNow website to enable reporting of suspected violations anonymously. Employees who report suspected violations are protected from discrimination or retaliation by the company. In addition to The Red Book , the chief executive officer and all financial management must sign a financial code of ethics, which further reinforces their ethical and fiduciary responsibilities. The consolidated financial statements have been audited by Ernst & Young LLP, an independent registered public accounting firm (PCAOB ID: 42 ). Their responsibility is to examine our consolidated financial statements in accordance with generally accepted auditing standards of the Public Company Accounting Oversight Board (United States). Ernst & Young's opinion with respect to the fairness of the presentation of the statements is included in Item 8 of our Annual Report on Form 10-K. Ernst & Young reports directly to the audit committee of the board of directors. Our audit committee includes four nonemployee members of the board of directors, all of whom are independent from our company. The committee charter, which is available on our website, outlines the members' roles and responsibilities. It is the audit committee's responsibility to appoint an independent registered public accounting firm subject to shareholder ratification, pre-approve both audit and non-audit services performed by the independent registered public accounting firm, and review the reports submitted by the firm. The audit committee meets several times during the year with management, the internal auditors, and the independent public accounting firm to discuss audit activities, internal controls, and financial reporting matters, including reviews of our externally published financial results. The internal auditors and the independent registered public accounting firm have full and free access to the committee. We are dedicated to ensuring that we maintain the high standards of financial accounting and reporting that we have established. We are committed to providing financial information that is transparent, timely, complete, relevant, and accurate. Our culture demands integrity and an unyielding commitment to strong internal practices and policies. Finally, we have the highest confidence in our financial reporting, our underlying system of internal controls, and our people, who are objective in their responsibilities, operate under a code of conduct and are subject to the highest level of ethical standards. Management's Report on Internal Control Over Financial Reporting—Eli Lilly and Company and Subsidiaries Management of Eli Lilly and Company and subsidiaries is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. We have global financial policies that govern critical areas, including internal controls, financial accounting and reporting, fiduciary accountability, and safeguarding of corporate assets. Our internal accounting control systems are designed to provide reasonable assurance that assets are safeguarded, that transactions are executed in accordance with management's authorization and are properly recorded, and that accounting records are adequate for preparation of financial statements and other financial information. A staff of internal auditors regularly monitors, on a worldwide basis, the adequacy and effectiveness of internal accounting controls. The general auditor reports directly to the audit committee of the board of directors. We conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in "Internal Control—Integrated Framework" (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. 93 Based on our evaluation under this framework, we concluded that our internal control over financial reporting was effective as of December 31, 2025. However, because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. The effectiveness of internal control over financial reporting as of December 31, 2025 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their attestation report, which appears herein. Their responsibility is to evaluate whether internal control over financial reporting was designed and operating effectively. David Ricks Lucas Montarce Chair, President, and Chief Executive Officer Executive Vice President and Chief Financial Officer February 12, 2026 94 Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of Eli Lilly and Company Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Eli Lilly and Company and subsidiaries (the Company) as of December 31, 2025 and 2024, the related consolidated statements of operations, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2025, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 12, 2026, expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates. 95 Medicaid, Managed Care, and Medicare sales rebate accruals Description of the Matter As described in Note 2 to the consolidated financial statements under the caption “Net Product Revenue,” the Company establishes provisions for sales rebate and discounts in the same period as the related sales occur. At December 31, 2025, the Company had $17,382 million in sales rebate and discount accruals. A large portion of these accruals are rebates associated with sales in the United States for which payment for purchase of the product is covered by Medicaid, Managed Care, and Medicare. Auditing the Medicaid, Managed Care, and Medicare sales rebate and discount accruals is challenging because of the subjectivity of certain assumptions required to estimate the rebate liabilities. In calculating the appropriate accrual amount, the Company considers historical Medicaid, Managed Care, and Medicare rebate payments by product as a percentage of their historical sales as well as any significant changes in sales trends, the lag in payment timing, changes in rebate contracts, an evaluation of the current Medicaid and Medicare laws and interpretations, the percentage of products that are sold via Medicaid, Managed Care, and Medicare, and product pricing. Given variability in prescription drug costs and variability in prescription data, historical rebate information may not be predictive for management to estimate the rebate accrual and thus, management supplements its historical data analysis with qualitative adjustments based upon current expectations, particularly for select products which contribute the largest portion of the Company's revenue. How We Addressed the Matter in Our Audit We tested the Company’s controls addressing the identified risks of material misstatement related to the valuation of the sales rebate and discount liabilities. This included testing controls over management’s review of the significant assumptions used to calculate the Medicaid, Managed Care, and Medicare rebate liabilities, including the significant assumptions discussed above. This testing also included management’s control to compare actual activity to estimated activity and controls to ensure the data used to evaluate the significant assumptions was complete and accurate. Our audit procedures included, among others, evaluating for reasonableness the significant assumptions in light of economic trends, product profiles, and other regulatory factors. Our testing involved assessing the historical accuracy of management’s estimates by comparing actual activity to previous estimates and performing analytical procedures to evaluate the completeness of the reserves. Additionally, our procedures included reviewing a sample of contracts, testing a sample of rebate payments and testing the underlying data used in management’s evaluation. For Medicaid, we involved our professionals with an understanding of the statutory reimbursement requirements to assess the consistency of the Company’s calculation methodologies with the applicable government regulations and policy. /s/ Ernst & Young LLP We have served as the Company's auditor since 1940. Indianapolis, Indiana February 12, 2026 96 Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of Eli Lilly and Company Opinion on Internal Control Over Financial Reporting We have audited Eli Lilly and Company and subsidiaries’ internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Eli Lilly and Company and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2025, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2025 and 2024, the related consolidated statements of operations, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2025, and the related notes and our report dated February 12, 2026, expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP Indianapolis, Indiana February 12, 2026 97 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.