Quarterly report [Sections 13 or 15(d)]

OPERATING SEGMENTS

v3.25.1
OPERATING SEGMENTS
 3 Months Ended
Mar. 31, 2025
Segment Reporting [Abstract]  
OPERATING SEGMENTS
NOTE 15. 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 Condensed 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 and the gain and certain costs related to the divestiture of Atmus. See NOTE 14, "ATMUS DIVESTITURE," for additional information. EBITDA may not be consistent with measures used by other companies.
Summarized financial information regarding our reportable operating segments for the three months ended March 31, 2025 and 2024 is shown in the table below:
In millions Engine Components Distribution Power Systems Accelera Total Segments
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 (2)
67  122  32  33  12  266 
Segment EBITDA $ 458  $ 382  $ 376  $ 389  $ (86) $ 1,519 
Interest income (3)
$ 10  $ 7  $ 5  $ 4  $ —  $ 26 
Three months ended March 31, 2024    
External sales $ 2,240  $ 2,842  $ 2,529  $ 708  $ 84  $ 8,403 
Intersegment sales 688  490  6  681  9  1,874 
Total sales 2,928  3,332  2,535  1,389  93  10,277 
Cost of goods sold (excluding warranty expenses) 2,190  2,636  2,046  997  120  7,989 
Warranty expenses 105  62  5  15  8  195 
Selling expenses 52  55  153  40  8  308 
Administrative expenses 144  158  91  99  13  505 
Research, development and engineering expenses 154  84  14  60  55  367 
Equity, royalty and interest income (loss) from investees 57  26  24  19  (3) 123 
Other income (expense) (1)
16  (15) 13  6  (1) 19 
Add back: Depreciation and amortization (2)
58  125  31  34  14  262 
Segment EBITDA $ 414  $ 473 
(4)
 $ 294  $ 237  $ (101) $ 1,317 
Interest income (3)
$ 7  $ 8  $ 11  $ 3  $ —  $ 29 
(1) Other income (expense) includes other operating expense, net and other income, net from our Condensed Consolidated Statements of Net Income.
(2) 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 $3 million and $3 million for the three months ended March 31, 2025 and March 31, 2024, respectively. A portion of depreciation expense is included in research, development and engineering expenses.
(3) Interest income is a component of other income (expense).
(4) Included $21 million of costs associated with the divestiture of Atmus for the three months ended March 31, 2024. See NOTE 14, "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
  March 31,
In millions 2025 2024
TOTAL SEGMENT EBITDA $ 1,519  $ 1,317 
Intersegment eliminations and other (1)
(59) 1,255 
(2)
Less:
Interest expense 77  89 
Depreciation and amortization 266  262 
INCOME BEFORE INCOME TAXES $ 1,117  $ 2,221 
(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 three months ended March 31, 2024. See NOTE 14, "ATMUS DIVESTITURE," for additional information.