Cummins Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

OPERATING SEGMENTS (Tables)

OPERATING SEGMENTS (Tables)

12 Months Ended

Dec. 31, 2018

Financial information regarding reportable operating segments

Summarized financial information regarding our reportable operating segments at December 31, is shown in the table below:



In millions	Engine		Distribution		Components ⁽¹⁾		Power Systems		Electrified Power			Total Segments		Intersegment Eliminations ⁽²⁾			Total
2018
External sales	$	8,002	$	7,807	$	5,331	$	2,625	$	6		$	23,771	$	—		$	23,771
Intersegment sales	2,564		21		1,835		2,001		1			6,422		(6,422		)	—
Total sales	10,566		7,828		7,166		4,626		7			30,193		(6,422		)	23,771
Research, development and engineering expenses	311		20		272		230		69			902		—			902
Equity, royalty and interest income from investees	238		46		54		56		—			394		—			394
Interest income	11		13		5		6		—			35		—			35
Segment EBITDA	1,446		563		1,030		614		(90		)	3,563		(87		)	3,476
Depreciation and amortization ⁽³⁾	190		109		185		119		6			609		—			609
Net assets ⁽⁴⁾	1,265		2,677		2,878		2,262		138			9,220		—			9,220
Investments and advances to equity investees	561		278		206		177		—			1,222		—			1,222
Capital expenditures	254		133		182		129		11			709		—			709
2017
External sales	$	6,661	$	7,029	$	4,363	$	2,375	$	—		$	20,428	$	—		$	20,428
Intersegment sales	2,292		29		1,526		1,683		—			5,530		(5,530		)	—
Total sales	8,953		7,058		5,889		4,058		—			25,958		(5,530		)	20,428
Research, development and engineering expenses	280		19		241		214		—			754		—			754
Equity, royalty and interest income from investees ⁽⁵⁾	219		44		40		54		—			357		—			357
Interest income	6		6		3		3		—			18		—			18
Loss contingency ⁽⁶⁾	5		—		—		—		—			5		—			5
Segment EBITDA	1,143		500		917		411		—			2,971		55			3,026
Depreciation and amortization ⁽³⁾	184		116		163		117		—			580		—			580
Net assets ⁽⁴⁾	1,180		2,446		2,811		2,137		—			8,574		—			8,574
Investments and advances to equity investees	531		267		194		164		—			1,156		—			1,156
Capital expenditures	188		101		127		90		—			506		—			506

(Table continued on next page)



In millions	Engine		Distribution			Components		Power Systems			Electrified Power		Total Segments		Intersegment Eliminations ⁽²⁾			Total
2016
External sales	$	5,774	$	6,157		$	3,514	$	2,064		$	—	$	17,509	$	—		$	17,509
Intersegment sales	2,030		24			1,322		1,453			—		4,829		(4,829		)	—
Total sales	7,804		6,181			4,836		3,517			—		22,338		(4,829		)	17,509
Research, development and engineering expenses	227		13			208		189			—		637		—			637
Equity, royalty and interest income from investees	148		70			41		42			—		301		—			301
Interest income	10		4			4		5			—		23		—			23
Loss contingency ⁽⁶⁾	138		—			—		—			—		138		—			138
Segment EBITDA	849		508		⁽⁷⁾	774		378		⁽⁸⁾	—		2,509		17			2,526
Depreciation and amortization ⁽³⁾	163		116			133		115			—		527		—			527
Net assets ⁽⁴⁾	1,334		2,157			1,643		2,202			—		7,336		—			7,336
Investments and advances to equity investees	427		204			176		139			—		946		—			946
Capital expenditures	200		96			143		92			—		531		—			531

____________________________________________________


⁽¹⁾	Includes Eaton Cummins Automated Transmission Technologies joint venture results consolidated during the third quarter of 2017. See Note 19, "ACQUISITIONS," for additional information.


⁽²⁾	Includes intersegment sales, intersegment profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the years ended 2018, 2017 and 2016, respectively.

⁽³⁾

Depreciation and amortization as shown on a segment basis excludes the amortization of debt discount and deferred costs that are included in the Consolidated Statements of Income as "Interest expense." The amortization of debt discount and deferred costs were $2 million, $3 million and $3 million for the years ended 2018, 2017 and 2016, respectively. A portion of depreciation expense is included in "Research, development and engineering expense."

⁽⁴⁾

In 2018, we reevaluated our net asset allocation methodology and realigned it to both simplify and better represent our reportable segments consistent with how the Chief Operating Decision Maker evaluates them. In accordance with the realignment, we reclassified historical segment net assets for 2016 and 2017 to be consistent with our 2018 presentation. Key changes during the realignment were to remove cash equivalents and marketable securities from segment net assets as these corporate items are not managed and evaluated at the segment level.


⁽⁵⁾	U.S. tax legislation passed in December 2017 decreased our equity earnings at certain equity investees, negatively impacting our equity, royalty and interest income from investees by $23 million, $4 million and $12 million for the Engine, Distribution and Components segments, respectively. See Note 4, "INCOME TAXES," for additional information.


⁽⁶⁾	See Note 9, "PRODUCT WARRANTY LIABILITY," for additional information.


⁽⁷⁾	Distribution segment EBITDA included gains on the fair value adjustment resulting from the acquisition of controlling interests in North American distributors of $15 million for the year ended December 31, 2016. See Note 19, "ACQUISITIONS," for additional information.

⁽⁸⁾

Power Systems segment EBITDA included a $17 million gain on the sale of an equity investee for the year ended December 31, 2016. See Note 3, "INVESTMENTS IN EQUITY INVESTEES," for additional information.

Reconciliation of segment information

A reconciliation of our segment information to the corresponding amounts in the Consolidated Statements of Income is shown in the table below:



	Years ended December 31,
In millions	2018		2017		2016
Total EBITDA	$	3,476	$	3,026	$	2,526
Less:
Depreciation and amortization	609		$	580	527
Interest expense	114		$	81	$	69
Income before income taxes	$	2,753	$	2,365	$	1,930

Reconciliation of segment information from net assets to total assets

A reconciliation of our segment net assets to the corresponding amounts in the Consolidated Balance Sheets is shown in the table below:



	December 31,
In millions	2018		2017			2016
Net assets for operating segments ⁽¹⁾	$	9,220	$	8,574		$	7,336
Cash, cash equivalents and marketable securities	1,525		1,567			1,380
Brammo Inc. assets	—		72		⁽²⁾	—
Liabilities deducted in arriving at net assets	7,836		7,398			6,157
Pension and other postretirement benefit adjustments excluded from net assets	68		156			(284		)
Deferred tax assets not allocated to segments	410		306			420
Deferred debt costs not allocated to segments	3		2			2
Total assets	$	19,062	$	18,075		$	15,011

____________________________________________________

⁽¹⁾

⁽²⁾

Assets associated with the Brammo Inc. acquisition were presented as a reconciling item as Brammo Inc. had not yet been assigned to a reportable segment at December 31, 2017. See Note 19, "ACQUISITIONS," for additional information.

Long-lived assets attributed to geographic areas

Long-lived segment assets by geographic area were as follows:



	December 31,
In millions	2018		2017		2016
United States	$	3,174	$	3,157	$	3,092
China	823		795		652
India	577		563		475
United Kingdom	337		339		254
Netherlands	234		221		197
Mexico	171		136		131
Canada	114		116		132
Brazil	104		149		149
Other international countries	329		293		236
Total long-lived assets	$	5,863	$	5,769	$	5,318