Quarterly report pursuant to Section 13 or 15(d)

OPERATING SEGMENTS

v3.22.2
OPERATING SEGMENTS
 6 Months Ended
Jun. 30, 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 Chief Executive 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 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 June 30, 2022    
External sales $ 2,092  $ 2,247  $ 1,477  $ 734  $ 36  $ 6,586 
Intersegment sales 683  6  473  469  6  1,637 
Total sales 2,775  2,253  1,950  1,203  42  8,223 
Research, development and engineering expenses 116  13  73  58  39  299 
Equity, royalty and interest income (loss) from investees 59  21  9  10  (4) 95 
Interest income 1  3  2  1  —  7 
Russian suspension costs (recoveries)(1)
1  (45) (2) (1) —  (47)
Segment EBITDA 422  297  352  128  (80) 1,119 
Depreciation and amortization(2)
49  29  49  31  8  166 
Three months ended July 4, 2021        
External sales $ 1,920  $ 1,913  $ 1,556  $ 699  $ 23  $ 6,111 
Intersegment sales 571  7  438  444  1  1,461 
Total sales 2,491  1,920  1,994  1,143  24  7,572 
Research, development and engineering expenses 99  12  79  60  26  276 
Equity, royalty and interest income (loss) from investees 104  15  12  9  (3) 137 
Interest income 1  2  1  1  —  5 
Segment EBITDA 402  201  301  139  (60) 983 
Depreciation and amortization(2)
50  30  46  33  7  166 
(1) See NOTE 3, "RUSSIAN OPERATIONS," to our Condensed Consolidated Financial Statements for additional information.
(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 six months ended is shown in the table below:
In millions Engine Distribution Components Power Systems New Power Total Segments
Six months ended June 30, 2022        
External sales $ 4,141  $ 4,358  $ 2,994  $ 1,417  $ 61  $ 12,971 
Intersegment sales 1,387  12  944  946  12  3,301 
Total sales 5,528  4,370  3,938  2,363  73  16,272 
Research, development and engineering expenses 225  26  149  122  75  597 
Equity, royalty and interest income (loss) from investees 103 
(1)
 37  37  21  (7) 191 
Interest income 5  5  3  2  —  15 
Russian suspension costs(2)
33 
(3)
 55  4  19  —  111 
Segment EBITDA 814  407  672  218  (147) 1,964 
Depreciation and amortization(4)
100  57  92  62  15  326 
Six months ended July 4, 2021        
External sales $ 3,815  $ 3,740  $ 3,280  $ 1,311  $ 57  $ 12,203 
Intersegment sales 1,135  15  866  854  2  2,872 
Total sales 4,950  3,755  4,146  2,165  59  15,075 
Research, development and engineering expenses 191  25  154  117  49  536 
Equity, royalty and interest income from investees 217  32  31  21  2  303 
Interest income 4  3  2  2  —  11 
Segment EBITDA 756  361  722  265  (111) 1,993 
Depreciation and amortization(4)
101  60  94  68  12  335 
(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 $2 million and $2 million for the six months ended June 30, 2022 and July 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 Six months ended
In millions June 30,
2022		 July 4,
2021		 June 30,
2022		 July 4,
2021
Total segment sales $ 8,223  $ 7,572  $ 16,272  $ 15,075 
Elimination of intersegment sales (1,637) (1,461) (3,301) (2,872)
Total net sales $ 6,586  $ 6,111  $ 12,971  $ 12,203 
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
In millions June 30,
2022		 July 4,
2021		 June 30,
2022		 July 4,
2021
TOTAL SEGMENT EBITDA $ 1,119  $ 983  $ 1,964  $ 1,993 
Intersegment eliminations and other(1)
(64) (9) (154) (39)
Less:
Interest expense 34  29  51  57 
Depreciation and amortization 166  166  326  335 
INCOME BEFORE INCOME TAXES 855  779  1,433  1,562 
Less: Income tax expense 148  167  303  339 
CONSOLIDATED NET INCOME 707  612  1,130  1,223 
Less: Net income attributable to noncontrolling interests 5  12  10  20 
NET INCOME ATTRIBUTABLE TO CUMMINS INC. $ 702  $ 600  $ 1,120  $ 1,203 
(1)Intersegment eliminations and other included $24 million and $41 million of costs associated with the planned separation of our Filtration business for the three and six months ended June 30, 2022.