Quarterly report pursuant to Section 13 or 15(d)

OPERATING SEGMENTS

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OPERATING SEGMENTS
 3 Months Ended
Mar. 31, 2024
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 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, 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 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 information technology, 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 is shown in the table below:
In millions Components Engine Distribution Power Systems Accelera Total Segments
Three months ended March 31, 2024    
External sales $ 2,842  $ 2,240  $ 2,529  $ 708  $ 84  $ 8,403 
Intersegment sales 490  688  6  681  9  1,874 
Total sales 3,332  2,928  2,535  1,389  93  10,277 
Research, development and engineering expenses 84  154  14  60  55  367 
Equity, royalty and interest income (loss) from investees 26  57  24  19  (3) 123 
Interest income 8  7  11  3  —  29 
Segment EBITDA 473 
(1)
 414  294  237  (101) 1,317 
Depreciation and amortization (2)
125  58  31  34  14  262 
Three months ended March 31, 2023      
External sales $ 3,043  $ 2,252  $ 2,399  $ 679  $ 80  $ 8,453 
Intersegment sales 514  734  7  664  5  1,924 
Total sales 3,557  2,986  2,406  1,343  85  10,377 
Research, development and engineering expenses 91  134  14  63  48  350 
Equity, royalty and interest income (loss) from investees 21  65  24  13  (4) 119 
Interest income 6  3  7  2  —  18 
Segment EBITDA 507 
(3)
 457  335  219  (94) 1,424 
Depreciation and amortization (2)
123  51  28  29  14  245 
(1) Included $21 million costs associated with the divestiture of Atmus for the three months ended March 31, 2024. See NOTE 14, "ATMUS DIVESTITURE," for additional information.
(2) Depreciation and amortization, as shown on a segment basis, excludes the amortization of debt discount and deferred costs included in the Condensed Consolidated Statements of Net Income as interest expense. The amortization of debt discount and deferred costs was $3 million and $1 million for the three months ended March 31, 2024 and 2023, respectively. A portion of depreciation expense is included in research, development and engineering expenses.
(3) Included $12 million of costs associated with the divestiture of Atmus for the three months ended March 31, 2023.
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 2024 2023
TOTAL SEGMENT EBITDA $ 1,317  $ 1,424 
Intersegment eliminations and other (1)
1,255 
(2)
 (63)
(3)
Less:
Interest expense 89  87 
Depreciation and amortization 262  245 
INCOME BEFORE INCOME TAXES $ 2,221  $ 1,029 
(1) Included intersegment sales, intersegment profit in inventory and unallocated corporate expenses.
(2) Included $1.3 billion of 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.
(3) Included $6 million of costs associated with the divestiture of Atmus for the three months ended March 31, 2023.