Quarterly report pursuant to Section 13 or 15(d)

OPERATING SEGMENTS

v3.22.2.2
OPERATING SEGMENTS
 9 Months Ended
Sep. 30, 2022
Segment Reporting [Abstract]  
OPERATING SEGMENTS
NOTE 17. 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 Chief Executive 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, automated transmissions, axles, drivelines, brakes and suspension systems. 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 with innovative components and subsystems, including battery, fuel cell and electric powertrain technologies. The New Power segment is currently in the early stages of commercializing these technologies with efforts primarily focused on the development of our electroloyzers for hydrogen production and electrified power systems and related 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 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 and certain filtration separation costs 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 September 30, 2022    
External sales $ 2,063  $ 2,232  $ 2,220  $ 773  $ 45  $ 7,333 
Intersegment sales 716  7  483  576  5  1,787 
Total sales 2,779  2,239  2,703  1,349  50  9,120 
Research, development and engineering expenses 140  13  87  62  46  348 
Equity, royalty and interest income (loss) from investees 28  20  17  10  (5) 70 
Interest income 3  4  4  3  —  14 
Russian suspension costs(1)
—  —  1  —  —  1 
Segment EBITDA 363  225  297 
(2)
 193  (96) 982 
Depreciation and amortization(3)
51  29  95  30  10  215 
Three months ended October 3, 2021        
External sales $ 1,961  $ 1,952  $ 1,347  $ 688  $ 20  $ 5,968 
Intersegment sales 617  7  446  476  3  1,549 
Total sales 2,578  1,959  1,793  1,164  23  7,517 
Research, development and engineering expenses 97  10  78  55  26  266 
Equity, royalty and interest income (loss) from investees 61  15  10  11  (3) 94 
Interest income 3  2  1  1  —  7 
Segment EBITDA 391  192  253  134  (58) 912 
Depreciation and amortization(3)
53  28  44  29  5  159 
(1) See NOTE 3, "RUSSIAN OPERATIONS," to our Condensed Consolidated Financial Statements for additional information.
(2) Includes $45 million of costs related to the acquisition and integration of Meritor and $10 million of costs associated with the planned separation of our filtration business.
(3) 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 nine months ended is shown in the table below:
In millions Engine Distribution Components Power Systems New Power Total Segments
Nine months ended September 30, 2022        
External sales $ 6,204  $ 6,590  $ 5,214  $ 2,190  $ 106  $ 20,304 
Intersegment sales 2,103  19  1,427  1,522  17  5,088 
Total sales 8,307  6,609  6,641  3,712  123  25,392 
Research, development and engineering expenses 365  39  236  184  121  945 
Equity, royalty and interest income (loss) from investees 131 
(1)
 57  54  31  (12) 261 
Interest income 8  9  7  5  —  29 
Russian suspension costs(2)
33 
(3)
 55  5  19  —  112 
Segment EBITDA 1,177  632  969 
(4)
 411  (243) 2,946 
Depreciation and amortization(5)
151  86  187  92  25  541 
Nine months ended October 3, 2021        
External sales $ 5,776  $ 5,692  $ 4,627  $ 1,999  $ 77  $ 18,171 
Intersegment sales 1,752  22  1,312  1,330  5  4,421 
Total sales 7,528  5,714  5,939  3,329  82  22,592 
Research, development and engineering expenses 288  35  232  172  75  802 
Equity, royalty and interest income (loss) from investees 278  47  41  32  (1) 397 
Interest income 7  5  3  3  —  18 
Segment EBITDA 1,147  553  975  399  (169) 2,905 
Depreciation and amortization(5)
154  88  138  97  17  494 
(1) Includes a $28 million impairment of our joint venture with KAMAZ and $3 million of royalty charges as part of our costs associated with the suspension of our Russian operations. See NOTE 3, "RUSSIAN OPERATIONS," to our Condensed Consolidated Financial Statements for additional information.
(2) See NOTE 3, "RUSSIAN OPERATIONS," to our Condensed Consolidated Financial Statements for additional information.
(3) Includes $31 million of Russian suspension costs reflected in the Equity, royalty and interest income (loss) from investees line above.
(4) Includes $56 million of costs related to the acquisition and integration of Meritor and $15 million of costs associated with the planned separation of our filtration business.
(5) 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 $3 million and $3 million for the nine months ended September 30, 2022 and October 3, 2021, 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 Nine months ended
In millions September 30,
2022		 October 3,
2021		 September 30,
2022		 October 3,
2021
Total segment sales $ 9,120  $ 7,517  $ 25,392  $ 22,592 
Elimination of intersegment sales (1,787) (1,549) (5,088) (4,421)
Total net sales $ 7,333  $ 5,968  $ 20,304  $ 18,171 
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 Nine months ended
In millions September 30,
2022		 October 3,
2021		 September 30,
2022		 October 3,
2021
TOTAL SEGMENT EBITDA $ 982  $ 912  $ 2,946  $ 2,905 
Intersegment eliminations and other(1)
(98) (50) (252) (89)
Less:
Interest expense 61  28  112  85 
Depreciation and amortization 215  159  541  494 
INCOME BEFORE INCOME TAXES 608  675  2,041  2,237 
Less: Income tax expense 199  134  502  473 
CONSOLIDATED NET INCOME 409  541  1,539  1,764 
Less: Net income attributable to noncontrolling interests 9  7  19  27 
NET INCOME ATTRIBUTABLE TO CUMMINS INC. $ 400  $ 534  $ 1,520  $ 1,737 
(1)Intersegment eliminations and other included $6 million and $47 million of costs associated with the planned separation of our Filtration business for the three and nine months ended September 30, 2022.