NOTE 2. REVENUE FROM CONTRACTS WITH CUSTOMERS
Long-term Contracts
We have certain arrangements, primarily long-term maintenance agreements, construction contracts, product sales with associated performance obligations extending beyond a year, product sales with lead times extending beyond one year that are non-cancellable or for which the customer incurs a penalty for cancellation and extended warranty coverage arrangements that span a period in excess of one year. The aggregate amount of the transaction price for these contracts, excluding extended warranty coverage arrangements, at December 31, 2025, was $6.3 billion. We expect to recognize the related revenue of $3.6 billion over the next 12 months and $2.7 billion over periods up to 10 years. See NOTE 13, “PRODUCT WARRANTY LIABILITY,” for additional disclosures on extended warranty coverage arrangements. Our other contracts generally are for a duration of less than one year, include payment terms that correspond to the timing of costs incurred when providing goods and services to our customers or represent sales-based royalties.
Deferred and Unbilled Revenue
The following is a summary of our unbilled and deferred revenue and related activity:
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| | December 31, | | |
| In millions | | 2025 | | 2024 | | |
| Unbilled revenue | | $ | 439 | | | $ | 403 | | | |
| Deferred revenue | | 2,660 | | | 2,412 | | | |
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We recognized revenue of $1.1 billion and $850 million in 2025 and 2024, respectively, that was included in the deferred revenue balance at the beginning of each year.
Disaggregation of Revenue
Consolidated Revenue
The table below presents our consolidated net sales by country based on the location of the customer:
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| | Years ended December 31, | | | | |
| In millions | | 2025 | | 2024 | | 2023 | | |
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| United States | | $ | 18,974 | | | $ | 19,422 | | | $ | 19,302 | | | | | |
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| China | | 3,298 | | | 2,948 | | | 3,115 | | | | | |
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| India | | 1,721 | | | 1,779 | | | 1,678 | | | | | |
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| Other international | | 9,677 | | | 9,953 | | | 9,970 | | | | | |
| Total net sales | | $ | 33,670 | | | $ | 34,102 | | | $ | 34,065 | | | | | |
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Segment Revenue
Engine segment external sales by market were as follows:
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| | Years ended December 31, |
| In millions | | 2025 | | 2024 | | 2023 |
| Heavy-duty truck | | $ | 2,544 | | | $ | 3,320 | | | $ | 3,391 | |
| Medium-duty truck and bus | | 2,547 | | | 3,100 | | | 2,622 | |
| Light-duty automotive | | 1,930 | | | 1,585 | | | 1,748 | |
| Total on-highway | | 7,021 | | | 8,005 | | | 7,761 | |
| Off-highway | | 1,083 | | | 982 | | | 1,113 | |
| Total sales | | $ | 8,104 | | | $ | 8,987 | | | $ | 8,874 | |
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Components segment external sales by business were as follows:
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| | Years ended December 31, |
| In millions | | 2025 | | 2024 | | 2023 |
| Drivetrain and braking systems | | $ | 3,983 | | | $ | 4,731 | | | $ | 4,822 | |
| Emission solutions | | 3,034 | | | 3,180 | | | 3,425 | |
| Components and software | | 1,203 | | | 1,106 | | | 1,225 | |
| Automated transmissions | | 423 | | | 588 | | | 714 | |
| Atmus | | — | | | 289 | | (1) | 1,345 | |
| Total sales | | $ | 8,643 | | | $ | 9,894 | | | $ | 11,531 | |
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(1) Included sales through the March 18, 2024, divestiture. See NOTE 21, “ATMUS DIVESTITURE,” for additional information. |
Distribution segment external sales by region were as follows:
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| | Years ended December 31, |
| In millions | | 2025 | | 2024 | | 2023 |
| North America | | $ | 8,619 | | | $ | 7,617 | | | $ | 7,054 | |
| Europe | | 1,186 | | | 1,179 | | | 848 | |
| Asia Pacific | | 1,150 | | | 1,243 | | | 1,091 | |
| China | | 509 | | | 469 | | | 424 | |
| India | | 363 | | | 310 | | | 264 | |
| Latin America | | 293 | | | 266 | | | 224 | |
| Africa and Middle East | | 266 | | | 268 | | | 294 | |
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| Total sales | | $ | 12,386 | | | $ | 11,352 | | | $ | 10,199 | |
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Distribution segment external sales by product line were as follows:
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| | Years ended December 31, |
| In millions | | 2025 | | 2024 | | 2023 |
| Power generation | | $ | 4,928 | | | $ | 3,961 | | | $ | 2,496 | |
| Parts | | 4,073 | | | 3,966 | | | 4,052 | |
| Service | | 1,798 | | | 1,747 | | | 1,664 | |
| Engines | | 1,587 | | | 1,678 | | | 1,987 | |
| Total sales | | $ | 12,386 | | | $ | 11,352 | | | $ | 10,199 | |
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Power Systems segment external sales by product line were as follows:
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| | Years ended December 31, |
| In millions | | 2025 | | 2024 | | 2023 |
| Power generation | | $ | 2,229 | | | $ | 1,896 | | | $ | 1,698 | |
| Industrial | | 1,238 | | | 1,130 | | | 970 | |
| Generator technologies | | 647 | | | 474 | | | 457 | |
| Total sales | | $ | 4,114 | | | $ | 3,500 | | | $ | 3,125 | |
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About Revenue Disclosures
Revenue disclosures under ASC 606 explain how a company identifies performance obligations, allocates transaction prices, and determines when revenue is recognized. This section is essential for understanding whether reported revenue reflects genuine economic activity or aggressive accounting choices. Analysts examine the mix of point-in-time versus over-time recognition, which directly affects revenue timing and comparability.
Key signals: rising contract liabilities (deferred revenue) suggest strong future revenue visibility, while declining contract assets may indicate slowing project milestones. Watch for variable consideration estimates — rebates, returns, and performance bonuses that require management judgment. Significant changes in disaggregated revenue by geography or product line can reveal shifting business mix before it appears in headline numbers. Compare revenue growth against contract liability growth to assess sustainability, and scrutinize any changes in the timing of recognition that coincide with earnings pressure.