Annual report pursuant to Section 13 and 15(d)

OPERATING SEGMENTS

v3.24.0.1
OPERATING SEGMENTS
 12 Months Ended
Dec. 31, 2023
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 Components, Engine, Distribution, Power Systems and Accelera. This reporting structure is organized according to the products and markets each segment serves. The Components segment sells axles, drivelines, brakes and suspension systems for commercial diesel and natural gas applications, aftertreatment systems, turbochargers, fuel systems, valvetrain technologies, filtration products, automated transmissions and electronics. 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 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 and maintaining relationships with various OEMs throughout the world. The Power Systems segment is an integrated power provider, which designs, manufactures and sells engines (16 liters and larger) for industrial applications (including mining, oil and gas, marine and rail), standby and prime power generator sets, alternators and other power components. The Accelera segment designs, manufactures, sells and supports hydrogen production technologies as well as electrified power systems with innovative components and subsystems, including battery, fuel cell 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 our electrolyzers for hydrogen production and electrified power systems and related components and subsystems. 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.
We use 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. We believe EBITDA is a useful measure of our operating performance as it assists investors and debt holders in comparing our performance on a consistent basis without regard to financing methods, capital structure, income taxes or depreciation and amortization methods, which can vary significantly depending upon many factors. 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 information technology, human resources, legal, finance and supply chain management. We do not allocate gains or losses of corporate owned life insurance and certain Atmus separation costs to individual segments. EBITDA may not be consistent with measures used by other companies.
As previously announced, in March 2023, we rebranded our New Power segment as "Accelera" to better represent our commitment to zero-emission technologies. In addition, we moved our NPROXX joint venture from the Accelera segment to the Engine segment, which adjusted both the equity, royalty and interest income from investees and segment EBITDA line items for the current and prior year. We started to report results for the changes within our operating segments effective January 1, 2023, and reflected these changes in the historical periods presented.
Summarized financial information regarding our reportable operating segments at December 31, is shown in the table below:
In millions Components Engine Distribution Power Systems Accelera Total Segments
2023    
External sales $ 11,531  $ 8,874  $ 10,199  $ 3,125  $ 336  $ 34,065 
Intersegment sales 1,878  2,810  50  2,548  18  7,304 
Total sales 13,409  11,684  10,249  5,673  354  41,369 
Research, development and engineering expenses 387  614  57  237  203  1,498 
Equity, royalty and interest income (loss) from investees 97  251  97  53  (15) 483 
Interest income 31  19  34  9  2  95 
Segment EBITDA 1,840 
(1)
 1,630  1,209  836  (443) 5,072 
Depreciation and amortization (2)
491  225  115  122  63  1,016 
Net assets 6,965  930  2,348  1,938  1,159  13,340 
Investments and advances to equity investees 582  660  396  132  25  1,795 
Capital expenditures 373  538  103  115  84  1,213 
2022    
External sales $ 7,847  $ 8,199  $ 8,901  $ 2,951  $ 176  $ 28,074 
Intersegment sales 1,889  2,746  28  2,082  22  6,767 
Total sales 9,736  10,945  8,929  5,033  198  34,841 
Research, development and engineering expenses 309  506  52  240  171  1,278 
Equity, royalty and interest income (loss) from investees 71  160 
(3)
 77  43  (2) 349 
Interest income 12  14  16  7  —  49 
Russian suspension costs (4)
5  33 
(5)
 54  19  —  111 
Segment EBITDA 1,346 
(6)
 1,535  888  596  (334) 4,031 
Depreciation and amortization (2)
304  205  114  120  38  781 
Net assets 7,306  1,451  2,698  2,382  1,158  14,995 
Investments and advances to equity investees 617  617  352  138  33  1,757 
Capital expenditures 264  368  114  96  74  916 
2021
External sales $ 5,932  $ 7,589  $ 7,742  $ 2,650  $ 108  $ 24,021 
Intersegment sales 1,733  2,365  30  1,765  8  5,901 
Total sales 7,665  9,954  7,772  4,415  116  29,922 
Research, development and engineering expenses 307  399  48  234  102  1,090 
Equity, royalty and interest income from investees 50  335  63  56  2  506 
Interest income 5  8  7  5  —  25 
Segment EBITDA 1,180  1,406  731  496  (218) 3,595 
Depreciation and amortization (2)
183  205  116  131  24  659 
Net assets 2,938  1,554  2,294  2,251  602  9,639 
Investments and advances to equity investees 254  771  329  164  20  1,538 
Capital expenditures 184  341  92  80  37  734 
(1) Includes $78 million of costs associated with the IPO and separation of Atmus for the year ended December 31, 2023.
(2) Depreciation and amortization, as shown on a segment basis, excludes the amortization of debt discount and deferred costs included in the Consolidated Statements of Net Income as interest expense. The amortization of debt discount and deferred costs were $8 million, $3 million and $3 million for the years ended 2023, 2022 and 2021, respectively. A portion of depreciation expense is included in research, development and engineering expense.
(3) Includes 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 22, "RUSSIAN OPERATIONS," for additional information.
(4) See NOTE 22, "RUSSIAN OPERATIONS," for additional information.
(5) Includes $31 million of Russian suspension costs reflected in the equity, royalty and interest income (loss) from investees line above.
(6) Includes $83 million of costs related to the acquisition and integration of Meritor and $28 million of costs associated with the separation of Atmus.
A reconciliation of our segment information to the corresponding amounts in the Consolidated Statements of Net Income is shown in the table below:
  Years ended December 31,
In millions 2023 2022 2021
TOTAL SEGMENT EBITDA $ 5,072  $ 4,031  $ 3,595 
Intersegment eliminations and other (1)
(2,055) (232) (74)
Less:
Interest expense 375  199  111 
Depreciation and amortization 1,016  781  659 
INCOME BEFORE INCOME TAXES $ 1,626  $ 2,819  $ 2,751 
(1) Intersegment eliminations and other included $2.0 billion related to the Agreement in Principle, $22 million of costs associated with the IPO and separation of Atmus and $21 million of voluntary retirement and voluntary separation charges for the year ended December 31, 2023. The year ended December 31, 2022, included $53 million of costs associated with the planned separation of Atmus. See NOTE 2, "AGREEMENT IN PRINCIPLE," 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 2023 2022
Net assets for operating segments $ 13,340  $ 14,995 
Cash, cash equivalents and marketable securities 2,741  2,573 
Net liabilities deducted in arriving at net segment assets (1)
14,531  11,270 
Pension and OPEB adjustments excluded from net segment assets 307  832 
Deferred tax assets not allocated to segments 1,082  625 
Deferred debt costs not allocated to segments 4  4 
Total assets $ 32,005  $ 30,299 
(1) Liabilities deducted in arriving at net segment assets include certain accounts payable, accrued expenses, long-term liabilities and other items.
See NOTE 3, "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 2023 2022
United States $ 5,013  $ 4,714 
China 1,030  1,052 
India 681  665 
Mexico 583  429 
United Kingdom 489  431 
Netherlands 437  334 
Brazil 261  256 
Canada 171  168 
Other international countries 819  731 
Total long-lived assets $ 9,484  $ 8,780 
Our largest customer is PACCAR Inc. Worldwide sales to this customer were approximately $5.5 billion, $4.5 billion and $3.6 billion for the years ended December 31, 2023, 2022 and 2021, representing 16 percent, 16 percent and 15 percent, respectively, of our consolidated net sales. No other customer accounted for more than 10 percent of consolidated net sales.