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OPERATING SEGMENTS | 3 Months Ended
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Mar. 29, 2020
Segment Reporting [Abstract] |
OPERATING SEGMENTS | NOTE 15. 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 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 electrified power systems ranging from fully electric to hybrid along with innovative components and subsystems, including battery, fuel cell and hydrogen production 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 EBITDA (defined as earnings before interest expense, income taxes, noncontrolling interests, depreciation and amortization) 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 (losses) of corporate owned life insurance or restructuring charges related to corporate functions 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) |  | Total
Three months ended March 29, 2020 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
External sales |  | $ | 1,579 |  |  | $ | 1,807 |  |  | $ | 1,115 |  |  | $ | 500 |  |  | $ | 10 |  |  | $ | 5,011 |  |  | $ | — |  |  | $ | 5,011 |
Intersegment sales |  | 579 |  |  | 7 |  |  | 387 |  |  | 384 |  |  | — |  |  | 1,357 |  |  | (1,357) |  |  | — |
Total sales |  | 2,158 |  |  | 1,814 |  |  | 1,502 |  |  | 884 |  |  | 10 |  |  | 6,368 |  |  | (1,357) |  |  | 5,011 |
Research, development and engineering expenses |  | 80 |  |  | 7 |  |  | 68 |  |  | 54 |  |  | 29 |  |  | 238 |  |  | — |  |  | 238 |
Equity, royalty and interest income from investees |  | 78 |  |  | 21 |  |  | 21 |  |  | 9 |  |  | — |  |  | 129 |  |  | — |  |  | 129 |
Interest income (2) |  | 4 |  |  | 1 |  |  | 1 |  |  | 1 |  |  | — |  |  | 7 |  |  | — |  |  | 7 |
Segment EBITDA |  | 365 |  |  | 158 |  |  | 279 |  |  | 77 |  |  | (43) |  |  | 836 |  |  | 10 |  |  | 846 |
Depreciation and amortization (3) |  | 53 |  |  | 31 |  |  | 48 |  |  | 32 |  |  | 4 |  |  | 168 |  |  | — |  |  | 168 |
Three months ended March 31, 2019 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
External sales |  | $ | 1,984 |  |  | $ | 1,993 |  |  | $ | 1,401 |  |  | $ | 623 |  |  | $ | 3 |  |  | $ | 6,004 |  |  | $ | — |  |  | $ | 6,004 |
Intersegment sales |  | 669 |  |  | 8 |  |  | 460 |  |  | 454 |  |  | — |  |  | 1,591 |  |  | (1,591) |  |  | — |
Total sales |  | 2,653 |  |  | 2,001 |  |  | 1,861 |  |  | 1,077 |  |  | 3 |  |  | 7,595 |  |  | (1,591) |  |  | 6,004 |
Research, development and engineering expenses |  | 78 |  |  | 7 |  |  | 75 |  |  | 56 |  |  | 21 |  |  | 237 |  |  | — |  |  | 237 |
Equity, royalty and interest income from investees |  | 56 |  |  | 11 |  |  | 10 |  |  | 15 |  |  | — |  |  | 92 |  |  | — |  |  | 92 |
Interest income (2) |  | 4 |  |  | 4 |  |  | 2 |  |  | 2 |  |  | — |  |  | 12 |  |  | — |  |  | 12 |
Segment EBITDA |  | 438 |  |  | 171 |  |  | 325 |  |  | 138 |  |  | (29) |  |  | 1,043 |  |  | (10) |  |  | 1,033 |
Depreciation and amortization (3) |  | 50 |  |  | 29 |  |  | 46 |  |  | 29 |  |  | 2 |  |  | 156 |  |  | — |  |  | 156 |
(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 March 29, 2020 and March 31, 2019. |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
(2) "Interest income" is managed at the corporate level and allocated to each operating segment. |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
(3) 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 less than $1 million and $1 million for the three months ended March 29, 2020 and March 31, 2019, 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 |  | March 29, 2020 |  | March 31, 2019 |  |  |  |
Total EBITDA |  | $ | 846 |  |  | $ | 1,033 |  |  |  |  |
Less: |  |  |  |  |  |  |  |
Depreciation and amortization |  | 168 |  |  | 156 |  |  |  |  |
Interest expense |  | 23 |  |  | 32 |  |  |  |  |
Income before income taxes |  | $ | 655 |  |  | $ | 845 |  |  |  |  |

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- Definition The entire disclosure for reporting segments including data and tables. Reportable segments include those that meet any of the following quantitative thresholds a) it's reported revenue, including sales to external customers and intersegment sales or transfers is 10 percent or more of the combined revenue, internal and external, of all operating segments b) the absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount of 1) the combined reported profit of all operating segments that did not report a loss or 2) the combined reported loss of all operating segments that did report a loss c) its assets are 10 percent or more of the combined assets of all operating segments. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -URI http://asc.fasb.org/topic&trid=2134510 + Details
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