Quarterly report pursuant to Section 13 or 15(d)

OPERATING SEGMENTS

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OPERATING SEGMENTS
 6 Months Ended
Jun. 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 six months ended June 30, 2024 and 2023 is shown in the table below:
In millions Components Engine Distribution Power Systems Accelera Total Segments
Three months ended June 30, 2024    
External sales $ 2,518  $ 2,468  $ 2,821  $ 888  $ 101  $ 8,796 
Intersegment sales 464  683  8  701  10  1,866 
Total sales 2,982  3,151  2,829  1,589  111  10,662 
Research, development and engineering expenses 81  167  14  63  54  379 
Equity, royalty and interest income (loss) from investees 13  48  24  26  (8) 103 
Interest income 9  7  11  3  —  30 
Segment EBITDA 406  445  314  301  (117) 1,349 
Depreciation and amortization (1)
121  61  30  32  15  259 
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 
(2)
 425  299  201  (114) 1,297 
Depreciation and amortization (1)
125  56  28  32  15  256 
Six months ended June 30, 2024
External sales $ 5,360  $ 4,708  $ 5,350  $ 1,596  $ 185  $ 17,199 
Intersegment sales 954  1,371  14  1,382  19  3,740 
Total sales 6,314  6,079  5,364  2,978  204  20,939 
Research, development and engineering expenses 165  321  28  123  109  746 
Equity, royalty and interest income (loss) from investees 39  105  48  45  (11) 226 
Interest income 17  14  22  6  —  59 
Segment EBITDA 879 
(2)
 859  608  538  (218) 2,666 
Depreciation and amortization (1)
246  119  61  66  29  521 
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 
(2)
 882  634  420  (208) 2,721 
Depreciation and amortization (1)
248  107  56  61  29  501 
(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 $7 million and $2 million for the six months ended June 30, 2024 and June 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 six months ended June 30, 2024. Included $18 million and $30 million of costs associated with the divestiture of Atmus for the three and six months ended June 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 Six months ended
  June 30, June 30,
In millions 2024 2023 2024 2023
TOTAL SEGMENT EBITDA $ 1,349  $ 1,297  $ 2,666  $ 2,721 
Intersegment eliminations and other (1)
(4) 7 
(2)
 1,251 
(3)
 (56)
(2)
Less:
Interest expense 109  99  198  186 
Depreciation and amortization 259  256  521  501 
INCOME BEFORE INCOME TAXES $ 977  $ 949  $ 3,198  $ 1,978 
(1) Included intersegment sales, intersegment profit in inventory and unallocated corporate expenses.
(2) Included $5 million and $11 million of costs associated with the divestiture of Atmus for the three and six months ended June 30, 2023.
(3) 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 six months ended June 30, 2024. See NOTE 14, "ATMUS DIVESTITURE," for additional information.