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

Annual report pursuant to Section 13 and 15(d)

INVESTMENTS IN EQUITY INVESTEES

INVESTMENTS IN EQUITY INVESTEES

12 Months Ended

Dec. 31, 2019

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 percentages were as follows:



		December 31,
Dollars in millions	Ownership %	2019		2018
Komatsu alliances	20-50%	$	267	$	238
Beijing Foton Cummins Engine Co., Ltd.	50%	193		203
Dongfeng Cummins Engine Company, Ltd.	50%	149		160
Chongqing Cummins Engine Company, Ltd.	50%	110		102
Cummins-Scania XPI Manufacturing, LLC	50%	96		101
Tata Cummins, Ltd.	50%	60		58
Other	Various	362		360
Investments and advances related to equity method investees		$	1,237	$	1,222

We have approximately $758 million in our investment account at December 31, 2019, that represents cumulative undistributed income in our equity investees. Dividends received from our unconsolidated equity investees were $260 million, $242 million and $219 million in 2019, 2018 and 2017, respectively.

Equity, royalty and interest income from investees, net of applicable taxes, was as follows:



	Years ended December 31,
In millions	2019		2018		2017
Manufacturing entities
Beijing Foton Cummins Engine Co., Ltd.	$	60	$	72	$	94
Dongfeng Cummins Engine Company, Ltd.	52		58		73
Chongqing Cummins Engine Company, Ltd.	41		51		41
All other manufacturers	88		129		71			⁽¹⁾
Distribution entities
Komatsu Cummins Chile, Ltda.	28		26		30
All other distributors	2		—		(1		)
Cummins share of net income	271		336		308
Royalty and interest income	59		58		49
Equity, royalty and interest income from investees	$	330	$	394	$	357

___________________________________________________________

⁽¹⁾Tax legislation passed in December 2017 decreased our equity earnings at certain equity investees by $39 million due to withholding tax adjustments on foreign earnings and remeasurement of deferred taxes. See Note 5, "INCOME TAXES," to our Consolidated Financial Statements for additional information.

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 automated 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 which is consolidated due to our majority voting interest) are included in “Equity, royalty and interest income from investees” and “Investments and advances related to equity method investees” in our Consolidated Statements of Net 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 has 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, ranging from 10.5 liter to 12.9 liter, high performance heavy-duty diesel engines in Beijing, and is nearing the launch of the X13 engine. 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 and one of the largest medium-duty and heavy-duty truck manufacturers in China. DCEC produces 3.9 liter to 14 liter diesel engines, with a power range from 80 to 680 horsepower, and natural gas engines. On-highway engines are used in multiple applications in light-duty and medium-duty trucks, special purpose vehicles, buses and heavy-duty trucks with a main market in China. Off-highway engines are used in a variety of construction, power generation, marine and agriculture markets in China.


•	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.

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 value 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	2019			2018			2017
Net sales	$	7,068		$	7,352		$	7,050
Gross margin	1,274			1,373			1,422
Net income	566			647			680

Cummins share of net income	$	271		$	336		$	308
Royalty and interest income	59			58			49
Total equity, royalty and interest from investees	$	330		$	394		$	357

Current assets	$	3,282		$	3,401
Non-current assets	1,622			1,449
Current liabilities	(2,654		)	(2,669		)
Non-current liabilities	(326		)	(218		)
Net assets	$	1,924		$	1,963

Cummins share of net assets	$	1,159		$	1,144