Annual report pursuant to Section 13 and 15(d)

OPERATING SEGMENTS

v3.22.0.1
OPERATING SEGMENTS
 12 Months Ended
Dec. 31, 2021
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. The New Power segment is currently in the development phase with a primary focus on research and development activities for our power systems, components and subsystems. 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
2021      
External sales $ 7,589  $ 7,742  $ 5,932  $ 2,650  $ 108  $ 24,021 
Intersegment sales 2,365  30  1,733  1,765  8  5,901 
Total sales 9,954  7,772  7,665  4,415  116  29,922 
Research, development and engineering expenses 399  48  307  234  102  1,090 
Equity, royalty and interest income (loss) from investees 340  63  50  56  (3) 506 
Interest income 8  7  5  5  —  25 
Segment EBITDA 1,411  731  1,180  496  (223) 3,595 
Depreciation and amortization (1)
205  116  183  131  24  659 
Net assets 1,554  2,294  2,938  2,251  602  9,639 
Investments and advances to equity investees 742  329  254  164  49  1,538 
Capital expenditures 341  92  184  80  37  734 
2020      
External sales $ 5,925  $ 7,110  $ 4,650  $ 2,055  $ 71  $ 19,811 
Intersegment sales 2,097  26  1,374  1,576  1  5,074 
Total sales 8,022  7,136  6,024  3,631  72  24,885 
Research, development and engineering expenses 290  31  264  212  109  906 
Equity, royalty and interest income (loss) from investees 312  62  61  21  (4) 452 
Interest income 9  4  4  4  —  21 
Segment EBITDA 1,235  665  961  343  (172) 3,032 
Depreciation and amortization (1)
208  122  192  130  18  670 
Net assets 1,306  2,444  2,878  2,134  504  9,266 
Investments and advances to equity investees 681  313  215  200  32  1,441 
Capital expenditures 202  89  140  79  18  528 
(Table continued on next page)
In millions Engine Distribution Components Power Systems New Power Total Segments
2019
External sales $ 7,570  $ 8,040  $ 5,253  $ 2,670    $ 38  $ 23,571 
Intersegment sales 2,486  31  1,661  1,790    —  5,968 
Total sales 10,056  8,071  6,914  4,460  38  29,539 
Research, development and engineering expenses 337  28  300  230    106  1,001 
Equity, royalty and interest income from investees 200  52  40  38    —  330 
Interest income 15  15  8  8    —  46 
Segment EBITDA (excluding restructuring actions) 1,472  693  1,117  524  (148) 3,658 
Restructuring actions (2)
18  37  20  12  1  88 
Segment EBITDA 1,454  656  1,097  512  (149) 3,570 
Depreciation and amortization (1)
202  115  222  118    12  669 
Capital expenditures 240  136  191  107  26  700 
(1) 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 $3 million for the years ended 2021, 2020 and 2019, respectively. A portion of depreciation expense is included in "Research, development and engineering expense."
(2) See Note 21 "RESTRUCTURING ACTIONS," for additional information.
A reconciliation of our total segment sales to total net sales in the Consolidated Statements of Net Income was as follows:
  Years ended December 31,
In millions 2021 2020 2019
Total segment sales $ 29,922  $ 24,885  $ 29,539 
Elimination of intersegment sales (5,901) (5,074) (5,968)
Total net sales $ 24,021  $ 19,811  $ 23,571 
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 2021 2020 2019
TOTAL SEGMENT EBITDA $ 3,595  $ 3,032  $ 3,570 
Intersegment elimination (74) 76  42 
Less:
Interest expense 111  100  109 
Depreciation and amortization 659  670  669 
INCOME BEFORE INCOME TAXES 2,751  2,338  2,834 
Less: Income tax expense 587  527  566 
CONSOLIDATED NET INCOME 2,164  1,811  2,268 
Less: Net income attributable to noncontrolling interests 33  22  8 
NET INCOME ATTRIBUTABLE TO CUMMINS INC. $ 2,131  $ 1,789  $ 2,260 
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 2021 2020
Net assets for operating segments $ 9,639  $ 9,266 
Cash, cash equivalents and marketable securities 3,187  3,862 
Net liabilities deducted in arriving at net assets (1)
9,486  8,947 
Pension and OPEB adjustments excluded from net assets 966  67 
Deferred tax assets not allocated to segments 428  479 
Deferred debt costs not allocated to segments 4  3 
Total assets $ 23,710  $ 22,624 
(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 2021 2020
United States $ 3,978  $ 3,776 
China 1,136  1,010 
India 573  595 
United Kingdom 384  370 
Netherlands 314  295 
Mexico 195  187 
Canada 163  149 
Other international countries 554  545 
Total long-lived assets $ 7,297  $ 6,927 
Our largest customer is PACCAR Inc. Worldwide sales to this customer were approximately $3.6 billion, $2.9 billion and $3.9 billion for the years ended December 31, 2021, 2020 and 2019, representing 15 percent, 15 percent and 17 percent, respectively, of our consolidated net sales. No other customer accounted for more than 10 percent of consolidated net sales.