Annual report pursuant to Section 13 and 15(d)

OPERATING SEGMENTS

v3.22.4
OPERATING SEGMENTS
 12 Months Ended
Dec. 31, 2022
Segment Reporting [Abstract]  
OPERATING SEGMENTS
NOTE 24. 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, Components, Distribution, 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 Components segment sells filtration products, aftertreatment systems, turbochargers, electronics, fuel systems, automated transmissions, axles, drivelines, brakes and suspension systems. 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 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 electrolyzers 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 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 at December 31, is shown in the table below:
In millions Engine Components Distribution Power Systems New Power Total Segments
2022    
External sales $ 8,199  $ 7,847  $ 8,901  $ 2,951  $ 176  $ 28,074 
Intersegment sales 2,746  1,889  28  2,082  22  6,767 
Total sales 10,945  9,736  8,929  5,033  198  34,841 
Research, development and engineering expenses 506  309  52  240  171  1,278 
Equity, royalty and interest income (loss) from investees 166 
(1)
 71  77  43  (8) 349 
Interest income 14  12  16  7  —  49 
Russian suspension costs (2)
33 
(3)
 5  54  19  —  111 
Segment EBITDA 1,541  1,346 
(4)
 888  596  (340) 4,031 
Depreciation and amortization (5)
205  304  114  120  38  781 
Net assets 1,451  7,306  2,698  2,382  1,158  14,995 
Investments and advances to equity investees 590  617  352  138  60  1,757 
Capital expenditures 368  264  114  96  74  916 
2021    
External sales $ 7,589  $ 5,932  $ 7,742  $ 2,650  $ 108  $ 24,021 
Intersegment sales 2,365  1,733  30  1,765  8  5,901 
Total sales 9,954  7,665  7,772  4,415  116  29,922 
Research, development and engineering expenses 399  307  48  234  102  1,090 
Equity, royalty and interest income (loss) from investees 340  50  63  56  (3) 506 
Interest income 8  5  7  5  —  25 
Segment EBITDA 1,411  1,180  731  496  (223) 3,595 
Depreciation and amortization (5)
205  183  116  131  24  659 
Net assets 1,554  2,938  2,294  2,251  602  9,639 
Investments and advances to equity investees 742  254  329  164  49  1,538 
Capital expenditures 341  184  92  80  37  734 
2020
External sales $ 5,925  $ 4,650  $ 7,110  $ 2,055  $ 71  $ 19,811 
Intersegment sales 2,097  1,374  26  1,576  1  5,074 
Total sales 8,022  6,024  7,136  3,631  72  24,885 
Research, development and engineering expenses 290  264  31  212  109  906 
Equity, royalty and interest income (loss) from investees 312  61  62  21  (4) 452 
Interest income 9  4  4  4  —  21 
Segment EBITDA 1,235  961  665  343  (172) 3,032 
Depreciation and amortization (5)
208  192  122  130  18  670 
Capital expenditures 202  140  89  79  18  528 
(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 23, "RUSSIAN OPERATIONS," to our Consolidated Financial Statements for additional information.
(2) See NOTE 23, "RUSSIAN OPERATIONS," to our 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 $83 million of costs related to the acquisition and integration of Meritor and $28 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 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 2022, 2021 and 2020, respectively. A portion of depreciation expense is included in research, development and engineering expense.
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 2022 2021 2020
TOTAL SEGMENT EBITDA $ 4,031  $ 3,595  $ 3,032 
Intersegment eliminations and other (232)
(1)
 (74) 76 
Less:
Interest expense 199  111  100 
Depreciation and amortization 781  659  670 
INCOME BEFORE INCOME TAXES 2,819  2,751  2,338 
Less: Income tax expense 636  587  527 
CONSOLIDATED NET INCOME 2,183  2,164  1,811 
Less: Net income attributable to noncontrolling interests 32  33  22 
NET INCOME ATTRIBUTABLE TO CUMMINS INC. $ 2,151  $ 2,131  $ 1,789 
(1)Intersegment eliminations and other included $53 million of costs associated with the planned separation of our filtration business.
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 2022 2021
Net assets for operating segments $ 14,995  $ 9,639 
Cash, cash equivalents and marketable securities 2,573  3,187 
Net liabilities deducted in arriving at net segment assets (1)
11,270  9,486 
Pension and OPEB adjustments excluded from net segment assets 832  966 
Deferred tax assets not allocated to segments 625  428 
Deferred debt costs not allocated to segments 4  4 
Total assets $ 30,299  $ 23,710 
(1) Liabilities deducted in arriving at net segment assets include certain accounts payable, accrued expenses, long-term liabilities and other items.
See NOTE 3, "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 2022 2021
United States $ 4,714  $ 3,978 
China 1,052  1,136 
India 665  573 
United Kingdom 431  384 
Mexico 429  195 
Netherlands 334  314 
Brazil 256  76 
Canada 168  163 
Other international countries 731  478 
Total long-lived assets $ 8,780  $ 7,297 
Our largest customer is PACCAR Inc. Worldwide sales to this customer were approximately $4.5 billion, $3.6 billion and $2.9 billion for the years ended December 31, 2022, 2021 and 2020, representing 16 percent, 15 percent and 15 percent, respectively, of our consolidated net sales. No other customer accounted for more than 10 percent of consolidated net sales.