Quarterly report [Sections 13 or 15(d)]

REPORTABLE SEGMENTS

v3.25.3
REPORTABLE SEGMENTS
 9 Months Ended
Sep. 30, 2025
Segment Reporting [Abstract]  
REPORTABLE SEGMENTS
NOTE 16. REPORTABLE SEGMENTS
Reportable segments under GAAP are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the Chief Operating Decision Maker (CODM), or decision-making group, in deciding how to allocate resources and in assessing performance. Our CODM is the Chief Executive Officer.
Our reportable segments consist of Engine, Components, Distribution, Power Systems and Accelera. This reporting structure is organized according to the products and markets each segment serves. The Engine segment produces engines (15 liters and smaller) and associated parts for sale to customers in on-highway and various off-highway markets. Our engines are used in trucks of all sizes, buses and recreational vehicles, as well as in various industrial applications, including construction, agriculture, power generation systems and other off-highway applications. The Components segment sells axles, drivelines, brakes and suspension systems for commercial diesel and natural gas applications, aftertreatment systems, turbochargers, fuel systems, valvetrain technologies, automated transmissions and electronics. The Distribution segment includes wholly-owned and partially-owned distributorships engaged in wholesaling engines, generator sets and service parts, as well as performing service and repair activities on our products, maintaining relationships with various OEMs throughout the world and providing selected sales and aftermarket support for our Accelera business. The Power Systems segment is an integrated power provider, which designs, manufactures and sells standby and prime power generators, engines (16 liters and larger) for standby and prime power generator sets and industrial applications (including mining, oil and gas, marine, rail and defense), alternators and other power components. The Accelera segment designs, manufactures, sells and supports electrified power systems with innovative components and subsystems, including battery, fuel cell and electric powertrain technologies as well as hydrogen production technologies. The Accelera segment is currently in the early stages of commercializing these technologies with efforts primarily focused on the development of electrified power systems and related components and subsystems and our electrolyzers for hydrogen production. We continue to serve all our markets as they adopt electrification and alternative power technologies, meeting the needs of our OEM partners and end customers.
Our CODM uses segment EBITDA as the basis to evaluate the performance of each of our reportable segments. EBITDA provides our CODM with a full picture of the profitability of a segment to drive decisions and resource allocation. EBITDA is used as the key profitability measure when we set our annual operating plan, is the metric with which our CODM assesses results and is a key component of our annual variable compensation plans. Segment amounts exclude certain expenses not specifically identifiable to segments.
The accounting policies of our reportable segments are the same as those applied in our Condensed Consolidated Financial Statements. We prepared the financial results of our reportable segments on a basis that is consistent with the manner in which we internally disaggregate financial information to assist in making internal operating decisions. We allocate certain common costs and expenses, primarily corporate functions, among segments differently than we would for stand-alone financial information prepared in accordance with GAAP. These include certain costs and expenses of shared services, such as IT, human resources, legal, finance and supply chain management. We do not allocate gains or losses of corporate-owned life insurance and the gain and certain costs related
to the divestiture of Atmus. See NOTE 15, "ATMUS DIVESTITURE," for additional information. EBITDA may not be consistent with measures used by other companies.
Summarized financial information regarding our reportable segments for the three and nine months ended September 30, 2025 and 2024 is shown in the table below:
In millions Engine Components Distribution Power Systems Accelera Total Segments
Three months ended September 30, 2025  
External sales $ 1,922  $ 1,986  $ 3,170  $ 1,126  $ 113  $ 8,317 
Intersegment sales 683  343  2  870  8  1,906 
Total sales 2,605  2,329  3,172  1,996  121  10,223 
Cost of goods sold (excluding warranty expenses) 2,030  1,868  2,489  1,357  172 
(1)
 7,916 
Warranty expenses 97  29  5  37  18  186 
Selling expenses 57  43  151  42  7  300 
Administrative expenses 141  132  93  105  18  489 
Research, development and engineering expenses 159  70  14  62  40  345 
Equity, royalty and interest income (loss) from investees 54  7  23  26  (6) 104 
Other income (expense) (2)
15  (24) 17  2  (209)
(1)
 (199)
Add back: Depreciation and amortization (3)
71  122  32  36  13  274 
Segment EBITDA $ 261  $ 292  $ 492  $ 457  $ (336)
(1)
 $ 1,166 
Interest income (4)
$ 11  $ 8  $ 6  $ 4  $ —  $ 29 
Three months ended September 30, 2024    
External sales $ 2,215  $ 2,287  $ 2,942  $ 912  $ 100  $ 8,456 
Intersegment sales 698  437  10  775  10  1,930 
Total sales 2,913  2,724  2,952  1,687  110  10,386 
Cost of goods sold (excluding warranty expenses) 2,151  2,198  2,378  1,173  137  8,037 
Warranty expenses 101  37  7  26  5  176 
Selling expenses 55  43  159  43  11  311 
Administrative expenses 144  132  94  111  14  495 
Research, development and engineering expenses 147  85  13  57  57  359 
Equity, royalty and interest income (loss) from investees 53  12  25  20  (11) 99 
Other (expense) income (2)
(3) (11) 13  (2) (6) (9)
Add back: Depreciation and amortization (3)
62  121  31  33  16  263 
Segment EBITDA $ 427  $ 351  $ 370  $ 328  $ (115) $ 1,361 
Interest income (4)
$ 2  $ 4  $ 7  $ 1  $ —  $ 14 
In millions Engine Components Distribution Power Systems Accelera Total Segments
Nine months ended September 30, 2025
External sales $ 6,124  $ 6,551  $ 9,106  $ 3,052  $ 301  $ 25,134 
Intersegment sales 2,151  1,153  14  2,482  28  5,828 
Total sales 8,275  7,704  9,120  5,534  329  30,962 
Cost of goods sold (excluding warranty expenses) 6,234  6,168  7,240  3,737  425 
(1)
 23,804 
Warranty expenses 301  83  16  95  38  533 
Selling expenses 177  124  462  129  21  913 
Administrative expenses 425  372  273  311  45  1,426 
Research, development and engineering expenses 465  222  42  188  129  1,046 
Equity, royalty and interest income (loss) from investees 187  24  77  82  (17) 353 
Other income (expense) (2)
53  (59) 53  16  (214)
(1)
 (151)
Add back: Depreciation and amortization (3)
206  371  96  104  38  815 
Segment EBITDA $ 1,119  $ 1,071  $ 1,313  $ 1,276  $ (522)
(1)
 $ 4,257 
Interest income (4)
$ 29  $ 25  $ 18  $ 12  $ 1  $ 85 
Nine months ended September 30, 2024
External sales $ 6,923  $ 7,647  $ 8,292  $ 2,508  $ 285  $ 25,655 
Intersegment sales 2,069  1,391  24  2,157  29  5,670 
Total sales 8,992  9,038  8,316  4,665  314  31,325 
Cost of goods sold (excluding warranty expenses) 6,668  7,203  6,725  3,277  401  24,274 
Warranty expenses 328  165  17  65  19  594 
Selling expenses 163  141  469  130  26  929 
Administrative expenses 435  425  292  315  46  1,513 
Research, development and engineering expenses 468  250  41  180  166  1,105 
Equity, royalty and interest income (loss) from investees 158  51  73  65  (22) 325 
Other income (expense) (2)
17  (42) 41  4  (12) 8 
Add back: Depreciation and amortization (3)
181  367  92  99  45  784 
Segment EBITDA $ 1,286  $ 1,230 
(5)
 $ 978  $ 866  $ (333) $ 4,027 
Interest income (4)
$ 16  $ 21  $ 29  $ 7  $ —  $ 73 
(1) Included a $30 million inventory write-down in cost of goods sold and a $210 million goodwill impairment charge in other income (expense). See NOTE 14, “GOODWILL IMPAIRMENT AND INVENTORY WRITE-DOWN,” for additional information.
(2) Other income (expense) includes other operating expense, net and other income, net from our Condensed Consolidated Statements of Net Income.
(3) Depreciation and amortization are not considered significant segment expenses but are presented here to reconcile to EBITDA, the measure used by our CODM. Depreciation and amortization, as shown on a segment basis, excludes the amortization of debt discount and deferred costs included in our Condensed Consolidated Statements of Net Income as interest expense. The amortization of debt discount and deferred costs was $10 million and $10 million for the nine months ended September 30, 2025 and 2024, respectively. A portion of depreciation expense is included in research, development and engineering expenses.
(4) Interest income is a component of other income (expense).
(5) Included $21 million of costs associated with the divestiture of Atmus for the nine months ended September 30, 2024. See NOTE 15, "ATMUS DIVESTITURE," for additional information.
A reconciliation of our segment information to the corresponding amounts in the Condensed Consolidated Statements of Net Income is shown in the table below:
Three months ended Nine months ended
  September 30, September 30,
In millions 2025 2024 2025 2024
TOTAL SEGMENT EBITDA $ 1,166  $ 1,361  $ 4,257  $ 4,027 
Intersegment eliminations and other (1)
21  28  (23) 1,279 
(2)
Less:
Interest expense 83  83  247  281 
Depreciation and amortization 274  263  815  784 
INCOME BEFORE INCOME TAXES $ 830  $ 1,043  $ 3,172  $ 4,241 
(1) Included intersegment sales, intersegment profit in inventory and unallocated corporate expenses.
(2) Included a $1.3 billion gain related the divestiture of Atmus and $14 million of costs associated with the divestiture of Atmus (included in corporate expenses) for the nine months ended September 30, 2024. See NOTE 15, "ATMUS DIVESTITURE," for additional information.