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OPERATING SEGMENTS
 9 Months Ended
Sep. 27, 2020
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 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 or losses before interest expense, income taxes, depreciation and amortization and noncontrolling interests) 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 millionsEngineDistributionComponentsPower SystemsNew PowerTotal Segments
Intersegment Eliminations (1)
Total
Three months ended September 27, 2020    
External sales$1,617 $1,715 $1,201 $567 $18 $5,118 $— $5,118 
Intersegment sales495 6 340 414 — 1,255 (1,255)— 
Total sales2,112 1,721 1,541 981 18 6,373 (1,255)5,118 
Research, development and engineering expenses72 9 64 53 26 224 — 224 
Equity, royalty and interest income (loss) from investees74 13 13 — (2)98 — 98 
Interest income1 1 1 1 — 4 — 4 
EBITDA382 182 261 101 (40)886 (10)876 
Depreciation and amortization (2)
51 30 47 32 5 165 — 165 
Three months ended September 29, 2019      
External sales$1,822 $2,001 $1,253 $683 $9 $5,768 $— $5,768 
Intersegment sales594 3 397 443 — 1,437 (1,437)— 
Total sales2,416 2,004 1,650 1,126 9 7,205 (1,437)5,768 
Research, development and engineering expenses79 7 73 58 25 242 — 242 
Equity, royalty and interest income from investees34 12 9 13 — 68 — 68 
Interest income5 4 2 3 — 14 — 14 
EBITDA341 186 286 158 (36)935 23 958 
Depreciation and amortization (2)
50 29 67 29 2 177 — 177 
(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 September 27, 2020 and September 29, 2019.
(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." A portion of depreciation expense is included in "Research, development and engineering expenses."
Summarized financial information regarding our reportable operating segments for the nine months ended is shown in the table below:
In millionsEngineDistributionComponentsPower SystemsNew PowerTotal Segments
Intersegment Eliminations (1)
Total
Nine months ended September 27, 2020      
External sales$4,133 $5,123 $3,192 $1,495 $38 $13,981 $— $13,981 
Intersegment sales1,560 17 1,001 1,147 — 3,725 (3,725)— 
Total sales5,693 5,140 4,193 2,642 38 17,706 (3,725)13,981 
Research, development and engineering expenses217 20 187 148 79 651 — 651 
Equity, royalty and interest income (loss) from investees236 45 46 18 (3)342 — 342 
Interest income6 3 3 3 — 15 — 15 
EBITDA897 500 681 269 (121)2,226 45 2,271 
Depreciation and amortization(2)
155 91 142 96 13 497 — 497 
Nine months ended September 29, 2019      
External sales$5,879 $6,009 $4,055 $2,030 $20 $17,993 $— $17,993 
Intersegment sales1,893 24 1,302 1,376 — 4,595 (4,595)— 
Total sales7,772 6,033 5,357 3,406 20 22,588 (4,595)17,993 
Research, development and engineering expenses245 21 223 171 70 730 — 730 
Equity, royalty and interest income from investees152 35 30 39 — 256 — 256 
Interest income13 12 6 7 — 38 — 38 
EBITDA1,195 529 908 469 (98)3,003 46 3,049 
Depreciation and amortization(2)
151 86 160 88 6 491 — 491 
(1) Includes intersegment sales, intersegment profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the nine months ended September 27, 2020 and September 29, 2019.
(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 nine months ended September 27, 2020 and September 29, 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 endedNine months ended
In millionsSeptember 27,
2020		September 29,
2019		September 27,
2020		September 29,
2019
Total EBITDA$876 $958 $2,271 $3,049 
Less:
Depreciation and amortization165 177 497 491 
Interest expense25 26 71 87 
Income before income taxes$686 $755 $1,703 $2,471