Quarterly report [Sections 13 or 15(d)]

REPORTABLE SEGMENTS

v3.26.1
REPORTABLE SEGMENTS
 6 Months Ended
Jun. 30, 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 and six months ended June 30, 2026 and 2025 is shown in the table below:
In millions Engine Components Distribution Power Systems Accelera Total Segments
Three months ended June 30, 2026
External sales $ 2,349  $ 2,431  $ 3,320  $ 1,217  $ 140  $ 9,457 
Intersegment sales 735  460  6  1,038  5  2,244 
Total sales 3,084  2,891  3,326  2,255  145  11,701 
Cost of goods sold (excluding warranty expenses) 2,337  2,300  2,633  1,516  151  8,937 
Warranty expenses 100  62  14  25  30  231 
Selling expenses 69  52  175  50  5  351 
Administrative expenses 173  141  110  106  12  542 
Research, development and engineering expenses 181  88  15  79  22  385 
Equity, royalty and interest income (loss) from investees 79  10  34  34  (3) 154 
Other income (expense) (1)
6  (3) 4  4  1  12 
Add back: Depreciation and amortization (2)
77  126  34  35  8  280 
Segment EBITDA $ 386  $ 381  $ 451  $ 552  $ (69) $ 1,701 
Interest income (3)
$ 10  $ 11  $ 7  $ 5  $ —  $ 33 
Three months ended June 30, 2025
External sales $ 2,162  $ 2,295  $ 3,034  $ 1,054  $ 98  $ 8,643 
Intersegment sales 737  410  7  835  7  1,996 
Total sales 2,899  2,705  3,041  1,889  105  10,639 
Cost of goods sold (excluding warranty expenses) 2,168  2,161  2,419  1,290  132  8,170 
Warranty expenses 119  28  5  26  12  190 
Selling expenses 61  40  154  41  7  303 
Administrative expenses 146  121  89  106  14  476 
Research, development and engineering expenses 151  77  14  69  46  357 
Equity, royalty and interest income (loss) from investees 60  10  26  27  (5) 118 
Other income (expense) (1)
18  (18) 27  11  (2) 36 
Add back: Depreciation and amortization (2)
68  127  32  35  13  275 
Segment EBITDA $ 400  $ 397  $ 445  $ 430  $ (100) $ 1,572 
Interest income (3)
$ 8  $ 10  $ 7  $ 4  $ 1  $ 30 
In millions Engine Components Distribution Power Systems Accelera Total Segments
Six months ended June 30, 2026
External sales $ 4,315  $ 4,569  $ 6,429  $ 2,310  $ 232  $ 17,855 
Intersegment sales 1,441  852  13  1,901  14  4,221 
Total sales 5,756  5,421  6,442  4,211  246  22,076 
Cost of goods sold (excluding warranty expenses) 4,411  4,324  5,096  2,744  272  16,847 
Warranty expenses 193  89  21  42  43  388 
Selling expenses 138  99  339  98  11  685 
Administrative expenses 335  275  214  207  22  1,053 
Research, development and engineering expenses 345  169  30  145  54  743 
Equity, royalty and interest income (loss) from investees 159  20  62  70  (9) 302 
Other income (expense) (1)
23  (21) 22  13  (198)
(4)
 (161)
Add back: Depreciation and amortization (2)
149  254  69  71  17  560 
Segment EBITDA $ 665  $ 718  $ 895  $ 1,129  $ (346)
(4)
 $ 3,061 
Interest income (3)
$ 20  $ 22  $ 13  $ 10  $ —  $ 65 
Six months ended June 30, 2025
External sales $ 4,202  $ 4,565  $ 5,936  $ 1,926  $ 188  $ 16,817 
Intersegment sales 1,468  810  12  1,612  20  3,922 
Total sales 5,670  5,375  5,948  3,538  208  20,739 
Cost of goods sold (excluding warranty expenses) 4,204  4,300  4,751  2,380  253  15,888 
Warranty expenses 204  54  11  58  20  347 
Selling expenses 120  81  311  87  14  613 
Administrative expenses 284  240  180  206  27  937 
Research, development and engineering expenses 306  152  28  126  89  701 
Equity, royalty and interest income (loss) from investees 133  17  54  56  (11) 249 
Other income (expense) (1)
38  (35) 36  14  (5) 48 
Add back: Depreciation and amortization (2)
135  249  64  68  25  541 
Segment EBITDA $ 858  $ 779  $ 821  $ 819  $ (186) $ 3,091 
Interest income (3)
$ 18  $ 17  $ 12  $ 8  $ 1  $ 56 
(1) Other income (expense) includes other operating expense, net and other income, net (excluding unallocated corporate expenses) 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. A portion of depreciation expense is included in research, development and engineering expenses.
(3) Interest income is a component of other income (expense).
(4) In the first quarter of 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.
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 Six months ended
June 30, June 30,
In millions 2026 2025 2026 2025
TOTAL SEGMENT EBITDA $ 1,701  $ 1,572  $ 3,061  $ 3,091 
Intersegment eliminations and other (1)
(48) 15  (118) (44)
Less:
Interest expense 80  87  156  164 
Depreciation and amortization 280  275  560  541 
INCOME BEFORE INCOME TAXES $ 1,293  $ 1,225  $ 2,227  $ 2,342 
(1) Included intersegment sales, intersegment profit in inventory and unallocated corporate expenses.