Quarterly report pursuant to Section 13 or 15(d)

OPERATING SEGMENTS

v3.22.1
OPERATING SEGMENTS
 3 Months Ended
Mar. 31, 2022
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 hydrogen production solutions as well as electrified power systems ranging from fully electric to hybrid along with innovative components and subsystems, including battery and fuel cell technologies. The New Power segment is currently in the development phase with a primary focus on research and development activities for our power systems, 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 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 millions Engine Distribution Components Power Systems New Power Total Segments
Three months ended March 31, 2022    
External sales $ 2,049  $ 2,111  $ 1,517  $ 683  $ 25  $ 6,385 
Intersegment sales 704  6  471  477  6  1,664 
Total sales 2,753  2,117  1,988  1,160  31  8,049 
Research, development and engineering expenses 109  13  76  64  36  298 
Equity, royalty and interest income (loss) from investees 44  (1) 16  28  11  (3) 96 
Interest income 4  2  1  1  —  8 
Russian suspension costs(2)
32  (3) 100  6  20  —  158 
Segment EBITDA 392  110  320  90  (67) 845 
Depreciation and amortization(4)
51  28  43  31  7  160 
Three months ended April 4, 2021        
External sales $ 1,895  $ 1,827  $ 1,724  $ 612  $ 34  $ 6,092 
Intersegment sales 564  8  428  410  1  1,411 
Total sales 2,459  1,835  2,152  1,022  35  7,503 
Research, development and engineering expenses 92  13  75  57  23  260 
Equity, royalty and interest income from investees 113  17  19  12  5  166 
Interest income 3  1  1  1  —  6 
Segment EBITDA 354  160  421  126  (51) 1,010 
Depreciation and amortization(4)
51  30  48  35  5  169 
(1) 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 suspension of our Russian operations. See Note 3, "RUSSIAN OPERATIONS" to our Condensed Consolidated Financial Statements for additional information.
(2) See Note 3, "RUSSIAN OPERATIONS" to our Condensed Consolidated Financial Statements for additional information.
(3) Includes $31 million of Russian suspension costs reflected in the Equity, royalty and interest income (loss) from investees line above.
(4) 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 $1 million and $1 million for the three months ended March 31, 2022 and April 4, 2021, respectively. A portion of depreciation expense is included in Research, development and engineering expenses.
A reconciliation of our total segment sales to total net sales in the Condensed Consolidated Statements of Net Income was as follows:
  Three months ended
In millions March 31,
2022		 April 4,
2021
Total segment sales $ 8,049  $ 7,503 
Elimination of intersegment sales (1,664) (1,411)
Total net sales $ 6,385  $ 6,092 
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 31,
2022		 April 4,
2021
TOTAL SEGMENT EBITDA $ 845  $ 1,010 
Intersegment eliminations and other (1)
(90) (30)
Less:
Interest expense 17  28 
Depreciation and amortization 160  169 
INCOME BEFORE INCOME TAXES 578  783 
Less: Income tax expense 155  172 
CONSOLIDATED NET INCOME 423  611 
Less: Net income attributable to noncontrolling interests 5  8 
NET INCOME ATTRIBUTABLE TO CUMMINS INC. $ 418  $ 603 
(1)Intersegment eliminations and other for the three months ended March 31, 2022, included $17 million of costs associated with the planned separation of our Filtration business.