Annual report pursuant to Section 13 and 15(d)

OPERATING SEGMENTS

v3.20.4
OPERATING SEGMENTS
 12 Months Ended
Dec. 31, 2020
Segment Reporting [Abstract]  
OPERATING SEGMENTS
NOTE 22. 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. 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 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 at December 31, is shown in the table below:
In millions Engine Distribution Components Power Systems New Power Total Segments
Intersegment Eliminations(1)
Total
2020          
External sales $ 5,925  $ 7,110  $ 4,650  $ 2,055  $ 71  $ 19,811  $ —  $ 19,811 
Intersegment sales 2,097  26  1,374  1,576  1  5,074  (5,074) — 
Total sales 8,022  7,136  6,024  3,631  72  24,885  (5,074) 19,811 
Research, development and engineering expenses 290  31  264  212  109  906  —  906 
Equity, royalty and interest income (loss) from investees 312  62  61  21  (4) 452  —  452 
Interest income 9  4  4  4  —  21  —  21 
EBITDA 1,235  665  961  343  (172) 3,032  76  3,108 
Depreciation and amortization (2)
208  122  192  130  18  670  —  670 
Net assets 1,306  2,444  2,878  2,134  504  9,266  —  9,266 
Investments and advances to equity investees 681  313  215  200  32  1,441  —  1,441 
Capital expenditures 202  89  140  79  18  528  —  528 
2019          
External sales $ 7,570  $ 8,040  $ 5,253  $ 2,670  $ 38  $ 23,571  $ —  $ 23,571 
Intersegment sales 2,486  31  1,661  1,790  —  5,968  (5,968) — 
Total sales 10,056  8,071  6,914  4,460  38  29,539  (5,968) 23,571 
Research, development and engineering expenses 337  28  300  230  106  1,001  —  1,001 
Equity, royalty and interest income from investees 200  52  40  38  —  330  —  330 
Interest income 15  15  8  8  —  46  —  46 
EBITDA (excluding restructuring actions) 1,472  693  1,117  524  (148) 3,658  73  3,731 
Restructuring actions (3)
18  37  20  12  1  88  31  119 
EBITDA 1,454  656  1,097  512  (149) 3,570  42  3,612 
Depreciation and amortization (2)
202  115  222  118  12  669  —  669 
Net assets 1,094  2,536  2,911  2,245  472  9,258  —  9,258 
Investments and advances to equity investees 575  296  193  171  2  1,237  —  1,237 
Capital expenditures 240  136  191  107  26  700  —  700 
(Table continued on next page)
In millions Engine Distribution Components Power Systems New Power Total Segments
Intersegment Eliminations(1)
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 
EBITDA 1,446  563  1,030  614  (90) 3,563  (87) 3,476 
Depreciation and amortization (2)
190  109  185  119    6  609  —  609 
Net assets 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 
(1) Includes intersegment sales, intersegment profit in inventory eliminations and unallocated corporate expenses. The year ended December 31, 2019, includes a $31 million restructuring charge related to corporate functions. There were no significant unallocated corporate expenses for the years ended December 31, 2020 and 2018.
(2) Depreciation and amortization, as shown on a segment basis, excludes the amortization of debt discount and deferred costs included in the Consolidated Statements of Net Income as "Interest expense." The amortization of debt discount and deferred costs were $3 million, $3 million and $2 million for the years ended 2020, 2019 and 2018, respectively. A portion of depreciation expense is included in "Research, development and engineering expense."
(3) See Note 21 "RESTRUCTURING ACTIONS," for additional information.
A reconciliation of our segment information to the corresponding amounts in the Consolidated Statements of Net Income is shown in the table below:
  Years ended December 31,
In millions 2020 2019 2018
TOTAL SEGMENT EBITDA $ 3,032  $ 3,570  $ 3,563 
Intersegment elimination 76  42  (87)
TOTAL EBITDA 3,108  3,612  3,476 
Less:
Interest expense 100  109  114 
Depreciation and amortization 670  669  609 
INCOME BEFORE INCOME TAXES 2,338  2,834  2,753 
Less: Income tax expense 527  566  566 
CONSOLIDATED NET INCOME 1,811  2,268  2,187 
Less: Net income attributable to noncontrolling interests 22  8  46 
NET INCOME ATTRIBUTABLE TO CUMMINS INC. $ 1,789  $ 2,260  $ 2,141 
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 2020 2019 2018
Net assets for operating segments $ 9,266  $ 9,258  $ 9,220 
Cash, cash equivalents and marketable securities 3,862  1,470  1,525 
Net liabilities deducted in arriving at net assets (1)
8,947  8,498  7,836 
Pension and OPEB adjustments excluded from net assets 67  67  68 
Deferred tax assets not allocated to segments 479  441  410 
Deferred debt costs not allocated to segments 3  3  3 
Total assets $ 22,624  $ 19,737  $ 19,062 
(1) Liabilities deducted in arriving at net assets include certain accounts payable, accrued expenses, long-term liabilities and other items.
See Note 2, "REVENUE FROM CONTRACTS WITH CUSTOMERS," for segment net sales by geographic area.
Long-lived assets include property, plant and equipment, net of depreciation, investments and advances to equity investees and other assets, excluding deferred tax assets, refundable taxes and deferred debt expenses. Long-lived segment assets by geographic area were as follows:
December 31,
In millions 2020 2019 2018
United States $ 3,776  $ 3,555  $ 3,174 
China 1,010  893  823 
India 595  616  577 
United Kingdom 370  370  337 
Netherlands 295  253  234 
Mexico 187  175  171 
Canada 149  139  114 
Brazil 79  106  104 
Other international countries 466  489  329 
Total long-lived assets $ 6,927  $ 6,596  $ 5,863 
Our largest customer is PACCAR Inc. Worldwide sales to this customer were $2,900 million, $3,937 million and $3,643 million for the years ended December 31, 2020, 2019 and 2018, representing 15 percent, 17 percent and 15 percent, respectively, of our consolidated net sales. No other customer accounted for more than 10 percent of consolidated net sales.