Quarterly report [Sections 13 or 15(d)]

REPORTABLE SEGMENTS

v3.26.1
REPORTABLE SEGMENTS
 3 Months Ended
Mar. 31, 2026
Segment Reporting [Abstract]  
REPORTABLE SEGMENTS
NOTE 14. 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 and electric powertrain technologies. The Accelera segment is currently in the early stages of commercializing these technologies with efforts primarily focused on the development of electrified power systems and related components and subsystems. We continue to serve all our markets as they adopt electrification, meeting the needs of our OEM partners and end customers.
Our CODM uses segment earnings or losses before interest expense, income taxes, depreciation and amortization and noncontrolling interests (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. EBITDA may not be consistent with measures used by other companies.
Summarized financial information regarding our reportable segments for the three months ended March 31, 2026 and 2025 is shown in the table below:
In millions Engine Components Distribution Power Systems Accelera Total Segments
Three months ended March 31, 2026  
External sales $ 1,966  $ 2,138  $ 3,109  $ 1,093  $ 92  $ 8,398 
Intersegment sales 706  392  7  863  9  1,977 
Total sales 2,672  2,530  3,116  1,956  101  10,375 
Cost of goods sold (excluding warranty expenses) 2,074  2,024  2,463  1,228  121  7,910 
Warranty expenses 93  27  7  17  13  157 
Selling expenses 69  47  164  48  6  334 
Administrative expenses 162  134  104  101  10  511 
Research, development and engineering expenses 164  81  15  66  32  358 
Equity, royalty and interest income (loss) from investees 80  10  28  36  (6) 148 
Other income (expense) (1)
17  (18) 18  9  (199)
(2)
 (173)
Add back: Depreciation and amortization (3)
72  128  35  36  9  280 
Segment EBITDA $ 279  $ 337  $ 444  $ 577  $ (277)
(2)
 $ 1,360 
Interest income (4)
$ 10  $ 11  $ 6  $ 5  $ —  $ 32 
Three months ended March 31, 2025    
External sales $ 2,040  $ 2,270  $ 2,902  $ 872  $ 90  $ 8,174 
Intersegment sales 731  400  5  777  13  1,926 
Total sales 2,771  2,670  2,907  1,649  103  10,100 
Cost of goods sold (excluding warranty expenses) 2,036  2,139  2,332  1,090  121  7,718 
Warranty expenses 85  26  6  32  8  157 
Selling expenses 59  41  157  46  7  310 
Administrative expenses 138  119  91  100  13  461 
Research, development and engineering expenses 155  75  14  57  43  344 
Equity, royalty and interest income (loss) from investees 73  7  28  29  (6) 131 
Other income (expense) (1)
20  (17) 9  3  (3) 12 
Add back: Depreciation and amortization (3)
67  122  32  33  12  266 
Segment EBITDA $ 458  $ 382  $ 376  $ 389  $ (86) $ 1,519 
Interest income (4)
$ 10  $ 7  $ 5  $ 4  $ —  $ 26 
(1) Other income (expense) includes other operating expense, net and other income, net from our Condensed Consolidated Statements of Net Income.
(2) On March 31, 2026, we sold our low pressure fuel cell business to a customer, cancelled future commitments and resolved certain claims against us with that customer resulting in a net payment by us of $175 million. These transactions resulted in a net charge of $199 million which is reflected in other operating expense, net in 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 $2 million and $3 million for the three months ended March 31, 2026 and 2025, respectively. A portion of depreciation expense is included in research, development and engineering expenses.
(4) Interest income is a component of other income (expense).
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
  March 31,
In millions 2026 2025
TOTAL SEGMENT EBITDA $ 1,360  $ 1,519 
Intersegment eliminations and other (1)
(70) (59)
Less:
Interest expense 76  77 
Depreciation and amortization 280  266 
INCOME BEFORE INCOME TAXES $ 934  $ 1,117 
(1) Included intersegment sales, intersegment profit in inventory and unallocated corporate expenses.