Annual report pursuant to Section 13 and 15(d)

INVESTMENTS IN EQUITY INVESTEES

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INVESTMENTS IN EQUITY INVESTEES
 12 Months Ended
Dec. 31, 2018
Equity Method Investments and Joint Ventures [Abstract]  
INVESTMENTS IN EQUITY INVESTEES NOTE 3. INVESTMENTS IN EQUITY INVESTEES
Investments and advances related to equity method investees and our ownership percentage was as follows:
 
 
 
 
December 31,
In millions
 
Ownership %
 
2018
 
2017
Komatsu alliances
 
20-50%
 
$
238

 
$
219

Beijing Foton Cummins Engine Co., Ltd.
 
50%
 
203

 
223

Dongfeng Cummins Engine Company, Ltd.
 
50%
 
160

 
146

Chongqing Cummins Engine Company, Ltd.
 
50%
 
102

 
84

Cummins-Scania XPI Manufacturing, LLC
 
50%
 
101

 
87

Tata Cummins, Ltd.
 
50%
 
58

 
59

Other
 
Various
 
360

 
338

Investments and advances related to equity method investees
 
 
 
$
1,222

 
$
1,156



We have approximately $743 million in our investment account at December 31, 2018, that represents cumulative undistributed income in our equity investees. Dividends received from our unconsolidated equity investees were $242 million, $219 million and $212 million in 2018, 2017 and 2016, respectively.
Equity, royalty and interest income from investees, net of applicable taxes, was as follows:
 
 
Years ended December 31,
 
In millions
 
2018
 
2017
 
2016
 
Manufacturing entities
 
 
 
 
 
 
 
Beijing Foton Cummins Engine Co., Ltd.
 
$
72

 
$
94

 
$
52

 
Dongfeng Cummins Engine Company, Ltd.
 
58

 
73

 
46

 
Chongqing Cummins Engine Company, Ltd.
 
51

 
41

 
38

 
Cummins Westport, Inc.
 
28

 
9

(1) 
11

 
Dongfeng Cummins Emission Solutions Co., Ltd.
 
14

 
13

 
9

 
Tata Cummins, Ltd.
 
14

 
(7
)
(1) 
6

 
All other manufacturers
 
73

 
56

(1) 
43

 
Distribution entities
 
 
 
 
 
 
 
Komatsu Cummins Chile, Ltda.
 
26

 
30

 
34

 
North American distributors
 
—

 
—

 
21

(2) 
All other distributors
 
—

 
(1
)
 
—

 
Cummins share of net income
 
336

 
308

 
260

 
Royalty and interest income
 
58

 
49

 
41

 
Equity, royalty and interest income from investees
 
$
394

 
$
357

 
$
301

 

___________________________________________________________
(1) U.S. tax legislation passed in December 2017 decreased our equity earnings at certain equity investees, including a $7 million unfavorable impact to Cummins Westport, Inc. due to the remeasurement of deferred taxes and $15 million unfavorable impact to Tata Cummins, Ltd. and a $17 million unfavorable impact to "All other manufacturers" due to withholding tax adjustments on foreign earnings. See Note 4, "INCOME TAXES," to our Consolidated Financial Statements for additional information.
(2) During 2016, we acquired the remaining interest in the final unconsolidated North American distributor joint venture.
Manufacturing Entities
Our manufacturing joint ventures have generally been formed with customers and are primarily intended to allow us to increase our market penetration in geographic regions, reduce capital spending, streamline our supply chain management and develop technologies. Our largest manufacturing joint ventures are based in China and are included in the list below. Our engine manufacturing joint ventures are supplied by our Components segment in the same manner as it supplies our wholly-owned Engine segment and Power Systems segment manufacturing facilities. Our Components segment joint ventures and wholly owned entities provide electronics, fuel systems, filtration, aftertreatment systems, turbocharger products and transmissions that are used with our engines as well as some competitors' products. The results and investments in our joint ventures in which we have 50 percent or less ownership interest (except for Eaton Cummins Automated Transmission Technologies joint venture) are included in “Equity, royalty and interest income from investees” and “Investments and advances related to equity method investees” in our Consolidated Statements of Income and Consolidated Balance Sheets, respectively.
•
Beijing Foton Cummins Engine Co., Ltd. - Beijing Foton Cummins Engine Co., Ltd. is a joint venture in China with Beiqi Foton Motor Co., Ltd., a commercial vehicle manufacturer, which consists of two distinct lines of business, a light-duty business and a heavy-duty business. The light-duty business produces our families of ISF 2.8 liter to 4.5 liter high performance light-duty diesel engines in Beijing. These engines are used in light-duty and medium duty commercial trucks, pick-up trucks, buses, multipurpose and sport utility vehicles with main markets in China, Brazil and Russia. Certain types of small construction equipment and industrial applications are also served by these engine families. The heavy-duty business produces the X11 and X12 high performance heavy-duty diesel engines in Beijing. These engines are used in heavy-duty commercial trucks in China and will be used by Cummins either directly sourced from China and/or locally assembled in other markets. Certain types of construction equipment and industrial applications are also served by these engine families.
•
Dongfeng Cummins Engine Company, Ltd. - Dongfeng Cummins Engine Company, Ltd. (DCEC) is a joint venture in China with Dongfeng Automotive Co. Ltd., a subsidiary of Dongfeng Motor Corporation, one of the largest medium-duty and heavy-duty truck manufacturers in China. DCEC produces Cummins 3.9 to 13-liter diesel engines, with a power range from 80 to 680 horsepower, and natural gas engines.
•
Chongqing Cummins Engine Company, Ltd. - Chongqing Cummins Engine Company, Ltd. is a joint venture in China with Chongqing Machinery and Electric Co. Ltd. This joint venture manufactures several models of our heavy-duty and high-horsepower diesel engines, primarily serving the industrial and stationary power markets in China.
•
Cummins Westport, Inc. - Cummins Westport, Inc. is a joint venture in Canada with Westport Innovations Inc. to market and sell automotive spark-ignited natural gas engines worldwide and to participate in joint technology projects on low-emission technologies.
•
Dongfeng Cummins Emission Solutions Co., Ltd. - Dongfeng Cummins Emission Solutions Co. Ltd. is a joint venture in China with Dongfeng Industrial Company, a subsidiary of Dongfeng Motor Group Company Limited, a manufacturer of numerous on-highway vehicles. This joint venture produces, purchases and sells advanced diesel engine aftertreatment solutions to support the full line of Dongfeng's commercial vehicles.
•
Tata Cummins, Ltd. - Tata Cummins, Ltd. is a joint venture in India with Tata Motors Ltd., the largest automotive company in India and a member of the Tata group of companies. This joint venture manufactures Cummins' 3.8 to 8.9-liter diesel engines in India with a power range from 75 to 400 horsepower for use in trucks manufactured by Tata Motors, as well as for various industrial and power generation applications.
Distribution Entities
We have an extensive worldwide distributor and dealer network through which we sell and distribute our products and services. Generally, our distributors are divided by geographic region with some of our distributors being wholly-owned by Cummins, some partially-owned and some independently owned. We consolidate all wholly-owned distributors and partially-owned distributors where we are the primary beneficiary and account for other partially-owned distributors using the equity method of accounting.
Komatsu Cummins Chile, Ltda. - Komatsu Cummins Chile, Ltda. is a joint venture with Komatsu America Corporation. The joint venture is a distributor that offers the full range of our products and services to customers and end-users in Chile and Peru.
In certain cases where we own a partial interest in a distributor, we may be obligated to purchase the other equity holders' interests if certain events occur (such as the death or resignation of the distributor principal or a change in control of Cummins Inc.). The purchase consideration of the equity interests may be determined based on the fair vale of the distributor's assets. Repurchase obligations and practices vary by geographic region.
All distributors that are partially-owned are considered to be related parties in our Consolidated Financial Statements.
Equity Investee Financial Summary
Summary financial information for our equity investees was as follows:
 
 
For the years ended and at December 31,
In millions
 
2018
 
2017
 
2016
Net sales
 
$
7,352

 
$
7,050

 
$
5,654

Gross margin
 
1,373

 
1,422

 
1,182

Net income
 
647

 
680

 
499

 
 
 
 
 
 
 
Cummins share of net income
 
$
336

 
$
308

 
$
260

Royalty and interest income
 
58

 
49

 
41

Total equity, royalty and interest from investees
 
$
394

 
$
357

 
$
301

 
 
 
 
 
 
 
Current assets
 
$
3,401

 
$
3,416

 
 

Non-current assets
 
1,449

 
1,379

 
 

Current liabilities
 
(2,669
)
 
(2,567
)
 
 

Non-current liabilities
 
(218
)
 
(237
)
 
 

Net assets
 
$
1,963

 
$
1,991

 
 

 
 
 
 
 
 
 
Cummins share of net assets
 
$
1,144

 
$
1,116

 
 


Sale of Equity Investee
In the fourth quarter of 2016, we sold our remaining 49 percent interest in Cummins Olayan Energy for $61 million and recognized a gain of $17 million. We received cash of $58 million with the remaining balance receivable in subsequent periods.