Quarterly report pursuant to Section 13 or 15(d)

OPERATING SEGMENTS

v3.23.2
OPERATING SEGMENTS
 6 Months Ended
Jun. 30, 2023
Segment Reporting [Abstract]  
OPERATING SEGMENTS
NOTE 17. 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 filtration products, aftertreatment systems, turbochargers, electronics, fuel systems, automated transmissions, axles, drivelines, brakes and suspension systems. 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 solutions 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 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 for the three and six months ended June 30, 2023 and 2022 is shown in the table below:
In millions Components Engine Distribution Power Systems Accelera Total Segments
Three months ended June 30, 2023
External sales $ 2,924  $ 2,263  $ 2,576  $ 794  $ 81  $ 8,638 
Intersegment sales 501  725  19  663  4  1,912 
Total sales 3,425  2,988  2,595  1,457  85  10,550 
Research, development and engineering expenses 103  148  15  66  52  384 
Equity, royalty and interest income (loss) from investees 24  71  24  18  (4) 133 
Interest income 7  7  8  2  1  25 
Segment EBITDA 486 
(1)
 425  299  201  (114) 1,297 
Depreciation and amortization (2)
125  56  28  32  15  256 
Three months ended June 30, 2022
External sales $ 1,477  $ 2,092  $ 2,247  $ 734  $ 36  $ 6,586 
Intersegment sales 473  683  6  469  6  1,637 
Total sales 1,950  2,775  2,253  1,203  42  8,223 
Research, development and engineering expenses 73  116  13  58  39  299 
Equity, royalty and interest income (loss) from investees 9  58  21  10  (3) 95 
Interest income 2  1  3  1  —  7 
Russian suspension (recoveries) costs (3)
(2) 1  (45) (1) —  (47)
Segment EBITDA 352  421  297  128  (79) 1,119 
Depreciation and amortization (2)
49  49  29  31  8  166 
Six months ended June 30, 2023    
External sales $ 5,967  $ 4,515  $ 4,975  $ 1,473  $ 161  $ 17,091 
Intersegment sales 1,015  1,459  26  1,327  9  3,836 
Total sales 6,982  5,974  5,001  2,800  170  20,927 
Research, development and engineering expenses 194  282  29  129  100  734 
Equity, royalty and interest income (loss) from investees 45  136  48  31  (8) 252 
Interest income 13  10  15  4  1  43 
Segment EBITDA 993 
(1)
 882  634  420  (208) 2,721 
Depreciation and amortization (2)
248  107  56  61  29  501 
Six months ended June 30, 2022    
External sales $ 2,994  $ 4,141  $ 4,358  $ 1,417  $ 61  $ 12,971 
Intersegment sales 944  1,387  12  946  12  3,301 
Total sales 3,938  5,528  4,370  2,363  73  16,272 
Research, development and engineering expenses 149  225  26  122  75  597 
Equity, royalty and interest income (loss) from investees 37  100 
(4)
 37  21  (4) 191 
Interest income 3  5  5  2  —  15 
Russian suspension costs (3)
4  33 
(5)
 55  19  —  111 
Segment EBITDA 672  811  407  218  (144) 1,964 
Depreciation and amortization (2)
92  100  57  62  15  326 
(1) Includes $18 million and $30 million of costs associated with the IPO and separation of Atmus for the three and six months ended June 30, 2023, respectively. See NOTE 15, "FORMATION OF ATMUS AND IPO," to our Condensed Consolidated Financial Statements 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 $2 million and $2 million for the six months ended June 30, 2023 and June 30, 2022, respectively. A portion of depreciation expense is included in research, development and engineering expenses.
(3) See NOTE 14, "RUSSIAN OPERATIONS," to our Condensed Consolidated Financial Statements for additional information.
(4) 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 14, "RUSSIAN OPERATIONS," to our Condensed Consolidated Financial Statements for additional information.
(5) Includes $31 million of Russian suspension costs reflected in the equity, royalty and interest income (loss) from investees line above.
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 Six months ended
  June 30, June 30,
In millions 2023 2022 2023 2022
TOTAL SEGMENT EBITDA $ 1,297  $ 1,119  $ 2,721  $ 1,964 
Intersegment eliminations and other (1)
7  (64) (56) (154)
Less:
Interest expense 99  34  186  51 
Depreciation and amortization 256  166  501  326 
INCOME BEFORE INCOME TAXES $ 949  $ 855  1,978  1,433 
(1) Intersegment eliminations and other included $5 million and $11 million of costs associated with the IPO and separation of Atmus for the three and six month periods ended June 30, 2023, respectively and $24 million and $41 million for the comparable periods in 2022, respectively. See NOTE 15, "FORMATION OF ATMUS AND IPO," to our Condensed Consolidated Financial Statements for additional information.