Quarterly report pursuant to Section 13 or 15(d)

OPERATING SEGMENTS

v3.24.3
OPERATING SEGMENTS
 9 Months Ended
Sep. 30, 2024
Segment Reporting [Abstract]  
OPERATING SEGMENTS
NOTE 16. 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 INITIAL PUBLIC OFFERING (IPO) AND 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 and nine months ended September 30, 2024 and 2023 is shown in the table below:
In millions Components Engine Distribution Power Systems Accelera Total Segments
Three months ended September 30, 2024    
External sales $ 2,287  $ 2,215  $ 2,942  $ 912  $ 100  $ 8,456 
Intersegment sales 437  698  10  775  10  1,930 
Total sales 2,724  2,913  2,952  1,687  110  10,386 
Research, development and engineering expenses 85  147  13  57  57  359 
Equity, royalty and interest income (loss) from investees 12  53  25  20  (11) 99 
Interest income 4  2  7  1  —  14 
Segment EBITDA 351  427  370  328  (115) 1,361 
Depreciation and amortization (1)
121  62  31  33  16  263 
Three months ended September 30, 2023      
External sales $ 2,780  $ 2,236  $ 2,519  $ 798  $ 98  $ 8,431 
Intersegment sales 456  695  16  646  5  1,818 
Total sales 3,236  2,931  2,535  1,444  103  10,249 
Research, development and engineering expenses 93  159  14  60  50  376 
Equity, royalty and interest income (loss) from investees 26  62  22  11  (3) 118 
Interest income 8  4  9  3  —  24 
Segment EBITDA 441 
(2)
 395  306  234  (114) 1,262 
Depreciation and amortization (1)
120  59  28  30  18  255 
Nine months ended September 30, 2024
External sales $ 7,647  $ 6,923  $ 8,292  $ 2,508  $ 285  $ 25,655 
Intersegment sales 1,391  2,069  24  2,157  29  5,670 
Total sales 9,038  8,992  8,316  4,665  314  31,325 
Research, development and engineering expenses 250  468  41  180  166  1,105 
Equity, royalty and interest income (loss) from investees 51  158  73  65  (22) 325 
Interest income 21  16  29  7  —  73 
Segment EBITDA 1,230 
(2)
 1,286  978  866  (333) 4,027 
Depreciation and amortization (1)
367  181  92  99  45  784 
Nine months ended September 30, 2023
External sales $ 8,747  $ 6,751  $ 7,494  $ 2,271  $ 259  $ 25,522 
Intersegment sales 1,471  2,154  42  1,973  14  5,654 
Total sales 10,218  8,905  7,536  4,244  273  31,176 
Research, development and engineering expenses 287  441  43  189  150  1,110 
Equity, royalty and interest income (loss) from investees 71  198  70  42  (11) 370 
Interest income 21  14  24  7  1  67 
Segment EBITDA 1,434 
(2)
 1,277  940  654  (322) 3,983 
Depreciation and amortization (1)
368  166  84  91  47  756 
(1) 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 $10 million and $4 million for the nine months ended September 30, 2024 and September 30, 2023, respectively. A portion of depreciation expense is included in research, development and engineering expenses.
(2) Included $21 million of costs associated with the divestiture of Atmus for the nine months ended September 30, 2024. Included $20 million and $50 million of costs associated with the divestiture of Atmus for the three and nine months ended September 30, 2023. See NOTE 14, "ATMUS INITIAL PUBLIC OFFERING (IPO) AND 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 Nine months ended
  September 30, September 30,
In millions 2024 2023 2024 2023
TOTAL SEGMENT EBITDA $ 1,361  $ 1,262  $ 4,027  $ 3,983 
Intersegment eliminations and other (1)
28  (32)
(2)
 1,279 
(3)
 (88)
(2)
Less:
Interest expense 83  97  281  283 
Depreciation and amortization 263  255  784  756 
INCOME BEFORE INCOME TAXES $ 1,043  $ 878  $ 4,241  $ 2,856 
(1) Included intersegment sales, intersegment profit in inventory and unallocated corporate expenses.
(2) Included $6 million and $17 million of costs associated with the divestiture of Atmus for the three and nine months ended September 30, 2023.
(3) 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 nine months ended September 30, 2024. See NOTE 14, "ATMUS INITIAL PUBLIC OFFERING (IPO) AND DIVESTITURE," for additional information.