Quarterly report pursuant to Section 13 or 15(d)

OPERATING SEGMENTS

v3.21.2
OPERATING SEGMENTS
 6 Months Ended
Jul. 04, 2021
Segment Reporting [Abstract]  
OPERATING SEGMENTS
NOTE 13. 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 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 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 
EBITDA 402  201  301  139  (60) 983 
Depreciation and amortization(1)
50  30  46  33  7  166 
Three months ended June 28, 2020        
External sales $ 937  $ 1,601  $ 876  $ 428  $ 10  $ 3,852 
Intersegment sales 486  4  274  349  —  1,113 
Total sales 1,423  1,605  1,150  777  10  4,965 
Research, development and engineering expenses 65  4  55  41  24  189 
Equity, royalty and interest income (loss) from investees 84  11  12  9  (1) 115 
Interest income 1  1  1  1  —  4 
EBITDA 150  160  141  91  (38) 504 
Depreciation and amortization(1)
51  30  47  32  4  164 
(1) 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 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 
EBITDA 756  361  722  265  (111) 1,993 
Depreciation and amortization(1)
101  60  94  68  12  335 
Six months ended June 28, 2020        
External sales $ 2,516  $ 3,408  $ 1,991  $ 928  $ 20  $ 8,863 
Intersegment sales 1,065  11  661  733  —  2,470 
Total sales 3,581  3,419  2,652  1,661  20  11,333 
Research, development and engineering expenses 145  11  123  95  53  427 
Equity, royalty and interest income (loss) from investees 162  32  33  18  (1) 244 
Interest income 5  2  2  2  —  11 
EBITDA 515  318  420  168  (81) 1,340 
Depreciation and amortization(1)
104  61  95  64  8  332 
(1) 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 $1 million for the six months ended July 4, 2021 and June 28, 2020, 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 July 4,
2021		 June 28,
2020		 July 4,
2021		 June 28,
2020
Total segment sales $ 7,572  $ 4,965  $ 15,075  $ 11,333 
Elimination of intersegment sales (1,461) (1,113) (2,872) (2,470)
Total net sales $ 6,111  $ 3,852  $ 12,203  $ 8,863 
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 July 4,
2021		 June 28,
2020		 July 4,
2021		 June 28,
2020
TOTAL SEGMENT EBITDA $ 983  $ 504  $ 1,993  $ 1,340 
Intersegment elimination (9) 45  (39) 55 
Less:
Interest expense 29  23  57  46 
Depreciation and amortization 166  164  335  332 
INCOME BEFORE INCOME TAXES 779  362  1,562  1,017 
Less: Income tax expense 167  93  339  220 
CONSOLIDATED NET INCOME 612  269  1,223  797 
Less: Net income (loss) attributable to noncontrolling interests 12  (7) 20  10 
NET INCOME ATTRIBUTABLE TO CUMMINS INC. $ 600  $ 276  $ 1,203  $ 787