Quarterly report pursuant to Section 13 or 15(d)

OPERATING SEGMENTS

v3.23.3
OPERATING SEGMENTS
 9 Months Ended
Sep. 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 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 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 nine months ended September 30, 2023 and 2022 is shown in the table below:
In millions Components Engine Distribution Power Systems Accelera Total Segments
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 
(1)
 395  306  234  (114) 1,262 
Depreciation and amortization (2)
120  59  28  30  18  255 
Three months ended September 30, 2022
External sales $ 2,220  $ 2,063  $ 2,232  $ 773  $ 45  $ 7,333 
Intersegment sales 483  716  7  576  5  1,787 
Total sales 2,703  2,779  2,239  1,349  50  9,120 
Research, development and engineering expenses 87  140  13  62  46  348 
Equity, royalty and interest income (loss) from investees 17  27  20  10  (4) 70 
Interest income 4  3  4  3  —  14 
Russian suspension costs (3)
1  —  —  —  —  1 
Segment EBITDA 297 
(4)
 362  225  193  (95) 982 
Depreciation and amortization (2)
95  51  29  30  10  215 
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 
(1)
 1,277  940  654  (322) 3,983 
Depreciation and amortization (2)
368  166  84  91  47  756 
Nine months ended September 30, 2022    
External sales $ 5,214  $ 6,204  $ 6,590  $ 2,190  $ 106  $ 20,304 
Intersegment sales 1,427  2,103  19  1,522  17  5,088 
Total sales 6,641  8,307  6,609  3,712  123  25,392 
Research, development and engineering expenses 236  365  39  184  121  945 
Equity, royalty and interest income (loss) from investees 54  127 
(5)
 57  31  (8) 261 
Interest income 7  8  9  5  —  29 
Russian suspension costs (3)
5  33 
(6)
 55  19  —  112 
Segment EBITDA 969 
(4)
 1,173  632  411  (239) 2,946 
Depreciation and amortization (2)
187  151  86  92  25  541 
(1) Includes $20 million and $50 million of costs associated with the IPO and separation of Atmus for the three and nine months ended September 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 $4 million and $3 million for the nine months ended September 30, 2023 and September 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 $45 million and $56 million of costs related to the acquisition and integration of Meritor and $10 million and $15 million of costs associated with the separation of Atmus for three and nine months ended September 30, 2022, respectively. See NOTE 15, "FORMATION OF ATMUS AND IPO," and NOTE 16 "ACQUISITIONS," to our Condensed Consolidated Financial Statements for additional information.
(5) 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.
(6) 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 Nine months ended
  September 30, September 30,
In millions 2023 2022 2023 2022
TOTAL SEGMENT EBITDA $ 1,262  $ 982  $ 3,983  $ 2,946 
Intersegment eliminations and other (1)
(32) (98) (88) (252)
Less:
Interest expense 97  61  283  112 
Depreciation and amortization 255  215  756  541 
INCOME BEFORE INCOME TAXES $ 878  $ 608  $ 2,856  $ 2,041 
(1) Intersegment eliminations and other included $6 million and $17 million of costs associated with the IPO and separation of Atmus for the three and nine month periods ended September 30, 2023, respectively and $6 million and $47 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.