Quarterly report pursuant to Section 13 or 15(d)


3 Months Ended
Apr. 04, 2021
Segment Reporting [Abstract]  
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 President and Chief Operating Officer.
Our reportable operating segments consist of Engine, Distribution, Components, Power Systems and New Power. 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 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 Components segment sells filtration products, aftertreatment systems, turbochargers, electronics, fuel systems and automated transmissions. 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 New Power segment designs, manufactures, sells and supports hydrogen production solutions as well as electrified power systems ranging from fully electric to hybrid along with innovative components and subsystems, including battery and fuel cell technologies. 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 primary 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 to individual segments. 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 Engine Distribution Components Power Systems New Power Total Segments
Intersegment Eliminations (1)
Three months ended April 4, 2021        
Segment sales $ 2,459  $ 1,835  $ 2,152  $ 1,022  $ 35  $ 7,503  $ (1,411) $ 6,092 
Less: Intersegment sales 564  8  428  410  1  1,411  (1,411)  
External sales 1,895  1,827  1,724  612  34  6,092    6,092 
Research, development and engineering expenses 92  13  75  57  23  260    260 
Equity, royalty and interest income from investees 113  17  19  12  5  166    166 
Interest income 3  1  1  1    6    6 
EBITDA 354  160  421  126  (51) 1,010  (30) 980 
Depreciation and amortization (2)
51  30  48  35  5  169    169 
Three months ended March 29, 2020          
Segment sales $ 2,158  $ 1,814  $ 1,502  $ 884  $ 10  $ 6,368  $ (1,357) $ 5,011 
Less: Intersegment sales 579  387  384  —  1,357  (1,357) — 
External sales 1,579  1,807  1,115  500  10  5,011  —  5,011 
Research, development and engineering expenses 80  68  54  29  238  —  238 
Equity, royalty and interest income from investees 78  21  21  —  129  —  129 
Interest income —  — 
EBITDA 365  158  279  77  (43) 836  10  846 
Depreciation and amortization (2)
53  31  48  32  168  —  168 
(1) Includes intersegment sales, intersegment profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the three months ended April 4, 2021 and March 29, 2020.
(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 $1 million and less than $1 million for the three months ended April 4, 2021 and March 29, 2020, respectively. A portion of depreciation expense is included in "Research, development and engineering expenses."
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
In millions April 4,
March 29,
TOTAL SEGMENT EBITDA $ 1,010  $ 836 
Intersegment elimination (30) 10 
TOTAL EBITDA 980  846 
Interest expense 28  23 
Depreciation and amortization 169  168 
Less: Income tax expense 172  127 
Less: Net income attributable to noncontrolling interests 8  17