Annual report pursuant to Section 13 and 15(d)

OPERATING SEGMENTS

v3.25.0.1
OPERATING SEGMENTS
 12 Months Ended
Dec. 31, 2024
Segment Reporting [Abstract]  
OPERATING SEGMENTS
NOTE 25. OPERATING SEGMENTS
Operating 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 operating 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 earnings or losses before interest expense, income taxes, depreciation and amortization and noncontrolling interests (EBITDA) as the basis for the CODM to evaluate the performance of each of our reportable operating 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 operating segments are the same as those applied in our Consolidated Financial Statements. We prepared the financial results of our operating 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, the Settlement Agreements charge and the gain and certain costs related to the divestiture of Atmus. EBITDA may not be consistent with measures used by other companies.
Summarized financial information regarding our reportable operating segments at December 31, is shown in the table below:
In millions Engine Components Distribution Power Systems Accelera Total Segments
2024  
External sales $ 8,987  $ 9,894  $ 11,352  $ 3,500  $ 369  $ 34,102 
Intersegment sales 2,725  1,785  32  2,908  45  7,495 
Total sales 11,712  11,679  11,384  6,408  414  41,597 
Cost of goods sold (excluding warranty expenses) 8,707  9,346  9,185  4,506  643 
(1)
 32,387 
Warranty expenses 420  173  23  101  34  751 
Selling expenses 214  184  628  174  33 
(1)
 1,233 
Administrative expenses 582  555  382  421  70 
(1)
 2,010 
Research, development and engineering expenses 616  328  55  236  226 
(1)
 1,461 
Equity, royalty and interest income (loss) from investees 212  64  90  79  (50)
(1)
 395 
Other income (expense) (2)
23  (59) 54  —  (183)
(1)
 (165)
Add back: Depreciation and amortization (3)
245  493  123  131  61  1,053 
Segment EBITDA $ 1,653  $ 1,591 
(4)
 $ 1,378  $ 1,180  $ (764)
(1)
 $ 5,038 
Interest income (5)
$ 17  $ 25  $ 37  $ 7  $ 1  $ 87 
Net assets 2,076  6,433  3,151  2,350  1,234  15,244 
Investments and advances to equity investees 653  504  394  145  187  1,883 
Capital expenditures 556  339  111  143  59  1,208 
2023  
External sales $ 8,874  $ 11,531  $ 10,199  $ 3,125  $ 336  $ 34,065 
Intersegment sales 2,810  1,878  50  2,548  18  7,304 
Total sales 11,684  13,409  10,249  5,673  354  41,369 
Cost of goods sold (excluding warranty expenses) 8,825  10,717  8,239  4,173  524  32,478 
Warranty expenses 377  138  16  71  29  631 
Selling expenses 199  227  642  168  33  1,269 
Administrative expenses 587  634  354  399  57  2,031 
Research, development and engineering expenses 614  387  57  237  203  1,498 
Equity, royalty and interest income (loss) from investees 251  97  97  53  (15) 483 
Other income (expense) (2)
72  (54) 56  36  1  111 
Add back: Depreciation and amortization (3)
225  491  115  122  63  1,016 
Segment EBITDA $ 1,630  $ 1,840 
(6)
 $ 1,209  $ 836  $ (443) $ 5,072 
Interest income (5)
$ 19  $ 31  $ 34  $ 9  $ 2  $ 95 
Net assets 930  6,965  2,348  1,938  1,159  13,340 
Investments and advances to equity investees 660  582  396  132  25  1,795 
Capital expenditures 538  373  103  115  84  1,213 
(Table continues on next page)
In millions Engine Components Distribution Power Systems Accelera Total Segments
2022
External sales $ 8,199  $ 7,847  $ 8,901  $ 2,951  $ 176  $ 28,074 
Intersegment sales 2,746  1,889  28  2,082  22  6,767 
Total sales 10,945  9,736  8,929  5,033  198  34,841 
Cost of goods sold (excluding warranty expenses) 8,346  7,727  7,285  3,884  310  27,552 
Warranty expenses 329  64  6  70  20  489 
Selling expenses 165  158  550  147  18  1,038 
Administrative expenses 462  513  304  269  47  1,595 
Research, development and engineering expenses 506  309  52  240  171  1,278 
Equity, royalty and interest income (loss) from investees 160 
(7)
 71  77  43  (2) 349 
Other income (expense) (2)
33  6  (35) 10  (2) 12 
Russian suspension costs (8)
33 
(9)
 5  54  19  —  111 
Add back: Depreciation and amortization (3)
205  304  114  120  38  781 
Segment EBITDA $ 1,535  $ 1,346 
(10)
 $ 888  $ 596  $ (334) $ 4,031 
Interest income (5)
$ 14  $ 12  $ 16  $ 7  $ —  $ 49 
Net assets 1,451  7,306  2,698  2,382  1,158  14,995 
Investments and advances to equity investees 617  617  352  138  33  1,757 
Capital expenditures 368  264  114  96  74  916 
(1) Included $112 million of charges in cost of sales, $10 million of charges in selling, general and administrative expenses, $2 million of charges in research and development expenses, $17 million of charges in equity, royalty and interest income (loss) from investees, $171 million of charges in other operating expenses and $312 million of charges in EBITDA, all related to Accelera strategic reorganization actions in the fourth quarter of 2024. See NOTE 22, "ACCELERA STRATEGIC REORGANIZATION ACTIONS," for additional information.
(2) Other income (expense) includes other operating expense, net and other income, net from our 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 Consolidated Statements of Net Income as interest expense. The amortization of debt discount and deferred costs were $12 million, $8 million and $3 million for the years ended 2024, 2023 and 2022, respectively. A portion of depreciation expense is included in research, development and engineering expense.
(4) Included $21 million of costs associated with the divestiture of Atmus for the year ended December 31, 2024.
(5) Interest income is a component of other income (expense).
(6) Included $78 million of costs associated with the divestiture of Atmus for the year ended December 31, 2023.
(7) Included a $28 million impairment of our joint venture with KAMAZ and $3 million of royalty charges as part of our costs associated with the indefinite suspension of our Russian operations. See NOTE 24, "RUSSIAN OPERATIONS," for additional information.
(8) See NOTE 24, "RUSSIAN OPERATIONS," for additional information.
(9) Included $31 million of Russian suspension costs reflected in the equity, royalty and interest income (loss) from investees line above.
(10) Included $83 million of costs related to the acquisition and integration of Meritor and $28 million of costs associated with the divestiture of Atmus.
A reconciliation of our segment information to the corresponding amounts in our Consolidated Statements of Net Income is shown in the table below:
  Years ended December 31,
In millions 2024 2023 2022
TOTAL SEGMENT EBITDA $ 5,038  $ 5,072  $ 4,031 
Intersegment eliminations and other (1)
1,288  (2,055) (232)
Less:
Interest expense 370  375  199 
Depreciation and amortization 1,053  1,016  781 
INCOME BEFORE INCOME TAXES $ 4,903  $ 1,626  $ 2,819 
(1) Intersegment eliminations and other included a $1.3 billion gain related to the divestiture of Atmus and $14 million of costs associated with the divestiture of Atmus for the year ended December 31, 2024. The year ended December 31, 2023, included $2.0 billion related to the Settlement Agreements charge, $22 million of costs associated with the divestiture of Atmus and $21 million of voluntary retirement and voluntary separation charges. The year ended December 31, 2022, included $53 million of costs associated with the divestiture of Atmus. See NOTE 14, "COMMITMENTS AND CONTINGENCIES," and NOTE 21, "ATMUS INITIAL PUBLIC OFFERING (IPO) AND DIVESTITURE," for additional information.
A reconciliation of our segment net assets to the corresponding amounts in the Consolidated Balance Sheets is shown in the table below:
  December 31,
In millions 2024 2023
Net assets for operating segments $ 15,244  $ 13,340 
Cash, cash equivalents and marketable securities 2,264  2,741 
Net liabilities deducted in arriving at net segment assets (1)
12,556  14,531 
Pension and OPEB adjustments excluded from net segment assets 352  307 
Deferred tax assets not allocated to segments 1,119  1,082 
Deferred debt costs not allocated to segments 5  4 
Total assets $ 31,540  $ 32,005 
(1) Liabilities deducted in arriving at net segment assets include certain accounts payable, accrued expenses, long-term liabilities and other items.
See NOTE 2, "REVENUE FROM CONTRACTS WITH CUSTOMERS," for segment net sales by geographic area.
Long-lived assets include property, plant and equipment, net of depreciation, investments and advances to equity investees and other assets, excluding deferred tax assets, refundable taxes and deferred debt expenses. Long-lived segment assets by geographic area were as follows:
December 31,
In millions 2024 2023
United States $ 5,751  $ 5,013 
China 968  1,030 
India 566  681 
Other countries 2,426  2,760 
Total long-lived assets $ 9,711  $ 9,484 
Our largest customer is PACCAR Inc. Worldwide sales to this customer were approximately $5.4 billion, $5.5 billion and $4.5 billion for the years ended December 31, 2024, 2023 and 2022, representing 16 percent, 16 percent and 16 percent, respectively, of our consolidated net sales. No other customer accounted for more than 10 percent of consolidated net sales.