Quarterly report pursuant to Section 13 or 15(d)

OPERATING SEGMENTS

v2.4.0.6
OPERATING SEGMENTS
 3 Months Ended
Mar. 31, 2013
OPERATING SEGMENTS  
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, or decision-making group, in deciding how to allocate resources and in assessing performance.  Cummins chief operating decision-maker (CODM) is the Chief Executive Officer.

 

Our reportable operating segments consist of the following: Engine, Components, Power Generation and Distribution.  This reporting structure is organized according to the products and markets each segment serves and allows management to focus its efforts on providing enhanced service to a wide range of customers.  The Engine segment produces engines and parts for sale to customers in on-highway and various industrial markets.  Our engines are used in trucks of all sizes, buses and recreational vehicles, as well as in various industrial applications, including construction, mining, agriculture, marine, oil and gas, rail and military equipment.  The Components segment sells filtration products, aftertreatment systems, turbochargers and fuel systems.  The Power Generation segment is an integrated provider of power systems, which sells engines, generator sets and alternators.  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.

 

We use segment EBIT (defined as earnings before interest expense, taxes and noncontrolling interests) as a primary basis for the CODM to evaluate the performance of each of our operating segments.  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 have allocated 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 and finance.  We also do not allocate debt-related items, actuarial gains or losses, prior service costs or credits, changes in cash surrender value of corporate owned life insurance or income taxes to individual segments.  Segment EBIT may not be consistent with measures used by other companies.

 

Summarized financial information regarding our reportable operating segments for the three month periods is shown in the table below:

 

In millions

 

Engine

 

Components

 

Power
Generation

 

Distribution

 

Non-segment
Items(1)

 

Total

 

Three months ended March 31, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

External sales

 

$

1,885

 

$

722

 

$

539

 

$

776

 

$

—

 

$

3,922

 

Intersegment sales

 

418

 

296

 

207

 

2

 

(923

)

—

 

Total sales

 

2,303

 

1,018

 

746

 

778

 

(923

)

3,922

 

Depreciation and amortization(2)

 

52

 

24

 

12

 

10

 

—

 

98

 

Research, development and engineering expenses

 

105

 

57

 

18

 

2

 

—

 

182

 

Equity, royalty and interest income from investees

 

23

 

7

 

7

 

45

 

—

 

82

 

Interest income

 

2

 

1

 

2

 

—

 

—

 

5

 

Segment EBIT

 

195

 

119

 

51

 

95

(3)

(23

)

437

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended April 1, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

External sales

 

$

2,412

 

$

774

 

$

516

 

$

770

 

$

—

 

$

4,472

 

Intersegment sales

 

447

 

325

 

264

 

5

 

(1,041

)

—

 

Total sales

 

2,859

 

1,099

 

780

 

775

 

(1,041

)

4,472

 

Depreciation and amortization(2)

 

47

 

19

 

11

 

7

 

—

 

84

 

Research, development and engineering expenses

 

111

 

51

 

18

 

1

 

—

 

181

 

Equity, royalty and interest income from investees

 

38

 

8

 

10

 

48

 

—

 

104

 

Interest income

 

4

 

1

 

2

 

1

 

—

 

8

 

Segment EBIT

 

381

 

143

 

76

 

94

 

(36

)

658

 

 

 

(1)         Includes intersegment sales and profit in inventory eliminations and unallocated corporate expenses.  There were no significant unallocated corporate expenses for the three months ended March 31, 2013, and April 1, 2012.

(2)         Depreciation and amortization as shown on a segment basis excludes the amortization of debt discount that is included in the Condensed Consolidated Statements of Income as “Interest expense.”

(3)         Distribution segment EBIT includes a $7 million gain on the fair value adjustment resulting from the acquisition of a controlling interest in Cummins Northwest.

 

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

 

 

 

Three months ended

 

In millions

 

March 31, 2013

 

April 1, 2012

 

Segment EBIT

 

$

437

 

$

658

 

Less: Interest expense

 

6

 

8

 

Income before income taxes

 

$

431

 

$

650