Annual report pursuant to Section 13 and 15(d)

OPERATING SEGMENTS

v3.3.1.900
OPERATING SEGMENTS
 12 Months Ended
Dec. 31, 2015
Segment Reporting [Abstract]  
OPERATING SEGMENTS
NOTE 21. 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, or decision-making group, in deciding how to allocate resources and in assessing performance. Cummins' chief operating decision-maker (CODM) is the Chief Executive Officer.
Our reportable operating segments consist of the following: Engine, Distribution, Components and Power Generation. This reporting structure is organized according to the products and markets each segment serves. The Engine segment produces engines and parts for sale to customers in on-highway and various industrial markets. Our engines are used in trucks of all sizes, buses and recreational vehicles, as well as in various industrial applications, including construction, mining, agriculture, marine, oil and gas, rail and military equipment. 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 and fuel systems. The Power Generation segment is an integrated provider of power systems, which sells engines, generator sets and alternators.
We use segment EBIT (defined as earnings before interest expense, income taxes and noncontrolling interests) as a primary basis for the CODM to evaluate the performance of each of our operating segments. 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 and finance. We also do not allocate debt-related items, actuarial gains or losses, prior service costs or credits, changes in cash surrender value of corporate owned life insurance, income taxes or corporate restructuring actions and other charges to individual segments. Segment EBIT 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 Generation
 
Non-segment
Items(1)
 
Total
2015
 
 
 
 
 
 
 
 
 
 
 
 
External sales
 
$
7,540

 
$
6,198

 
$
3,745

 
$
1,627

 
$
—

 
$
19,110

Intersegment sales
 
2,909

 
31

 
1,427

 
1,113

 
(5,480
)
 
—

Total sales
 
10,449

 
6,229

 
5,172

 
2,740

 
(5,480
)
 
19,110

Depreciation and amortization(2)
 
239

 
105

 
109

 
58

 
—

 
511

Research, development and engineering expenses
 
428

 
10

 
236

 
61

 
—

 
735

Equity, royalty and interest income from investees
 
171

 
78

 
35

 
31

 
—

 
315

Interest income
 
13

 
4

 
4

 
3

 
—

 
24

 
 
 
 
 
 
 
 
 
 
 
 
 
Segment EBIT (excluding impairment of light-duty diesel assets and restructuring actions and other charges)
 
1,035

(5) 
435

(6) 
749

 
175

 
(3
)
 
2,391

Impairment of light-duty diesel assets(3)
 
202

 
—

 
9

 
—

 
—

 
211

Restructuring actions and other charges(4)
 
26

 
23

 
13

 
19

 
9

 
90

Segment EBIT
 
807

(5) 
412

(6) 
727

 
156

 
(12
)
 
2,090

Net assets
 
3,238

 
2,330

 
1,891

 
1,605

 
—

 
9,064

Investments and advances to equity investees
 
491

 
192

 
150

 
142

 
—

 
975

Capital expenditures
 
428

 
125

 
137

 
54

 
—

 
744

2014
 
 
 
 
 
 
 
 
 
 
 
 
External sales
 
$
8,437

 
$
5,135

 
$
3,791

 
$
1,858

 
$
—

 
$
19,221

Intersegment sales
 
2,525

 
39

 
1,327

 
1,038

 
(4,929
)
 
—

Total sales
 
10,962

 
5,174

 
5,118

 
2,896

 
(4,929
)
 
19,221

Depreciation and amortization(2)
 
207

 
86

 
106

 
53

 
—

 
452

Research, development and engineering expenses
 
438

 
9

 
230

 
77

 
—

 
754

Equity, royalty and interest income from investees
 
147

 
148

 
36

 
39

 
—

 
370

Interest income
 
12

 
4

 
4

 
3

 
—

 
23

Segment EBIT
 
1,225

 
491

(6) 
684

 
168

(7) 
(70
)
 
2,498

Net assets
 
3,450

 
2,441

 
2,152

 
1,694

 
—

 
9,737

Investments and advances to equity investees
 
468

 
209

 
164

 
140

 
—

 
981

Capital expenditures
 
395

 
89

 
162

 
97

 
—

 
743

2013
 
 
 
 
 
 
 
 
 
 
 
 
External sales
 
$
8,270

 
$
3,726

 
$
3,151

 
$
2,154

 
$
—

 
$
17,301

Intersegment sales
 
1,743

 
23

 
1,191

 
877

 
(3,834
)
 
—

Total sales
 
10,013

 
3,749

 
4,342

 
3,031

 
(3,834
)
 
17,301

Depreciation and amortization(2)
 
205

 
54

 
96

 
50

 
—

 
405

Research, development and engineering expenses
 
416

 
6

 
218

 
73

 
—

 
713

Equity, royalty and interest income from investees
 
136

 
165

 
28

 
32

 
—

 
361

Interest income
 
16

 
2

 
3

 
6

 
—

 
27

Segment EBIT
 
1,041

 
388

(6) 
527

 
218

 
(14
)
 
2,160

Net assets
 
4,323

 
1,637

 
1,885

 
1,801

 
—

 
9,646

Investments and advances to equity investees
 
419

 
262

 
140

 
110

 
—

 
931

Capital expenditures
 
372

 
57

 
141

 
106

 
—

 
676

____________________________________________________
(1) 
Includes intersegment sales and profit in inventory eliminations and unallocated corporate expenses. The year ended December 31, 2015, includes a $9 million corporate restructuring charge. There were no significant unallocated corporate expenses for the years ended December 31, 2014 and 2013.
(2) 
Depreciation and amortization as shown on a segment basis excludes the amortization of debt discount and deferred costs that are included in the Consolidated Statements of Income as "Interest expense." The amortization of debt discount and deferred costs were $3 million, $3 million and $2 million for the years ended December 31, 2015, 2014 and 2013, respectively.
(3) 
See Note 3, "IMPAIRMENT OF LIGHT-DUTY DIESEL ASSETS," for additional information.
(4) 
See Note 4, "RESTRUCTURING ACTIONS AND OTHER CHARGES," for additional information.
(5) 
Engine segment EBIT for the year ended December 31, 2015 included an accrual for a loss contingency of $60 million. See Note 14, "COMMITMENTS AND CONTINGENCIES," for additional information.
(6) 
Distribution segment EBIT included gains on the fair value adjustment resulting from the acquisition of controlling interests in North American distributors of $18 million, $73 million and $12 million for the periods ended December 31, 2015, 2014 and 2013, respectively. See Note 20, "ACQUISITIONS," for additional information.
(7) 
Power Generation segment EBIT included $32 million of restructuring charges primarily related to the closure of a plant in Germany.
A reconciliation of our segment information to the corresponding amounts in the Consolidated Statements of Income is shown in the table below:
 
 
Years ended December 31,
In millions
 
2015
 
2014
 
2013
Total segment EBIT
 
$
2,090

 
$
2,498

 
$
2,160

Less: Interest expense
 
65

 
64

 
41

Income before income taxes
 
$
2,025

 
$
2,434

 
$
2,119


 
 
December 31,
In millions
 
2015
 
2014
 
2013
Net assets for operating segments
 
$
9,064

 
$
9,737

 
$
9,646

Liabilities deducted in arriving at net assets
 
5,920

 
6,009

 
5,103

Pension and other postretirement benefit adjustments excluded from net assets
 
(242
)
 
(319
)
 
(346
)
Deferred tax assets not allocated to segments
 
390

 
314

 
292

Debt-related costs not allocated to segments
 
2

 
23

 
33

Total assets
 
$
15,134

 
$
15,764

 
$
14,728


The tables below present certain segment information by geographic area. Net sales attributed to geographic areas were based on the location of the customer. 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.
In millions
 
Years ended December 31,
Net Sales
 
2015
 
2014
 
2013
United States
 
$
10,757

 
$
10,058

 
$
8,382

International
 
8,353

 
9,163

 
8,919

Total net sales
 
$
19,110

 
$
19,221

 
$
17,301


In millions
 
December 31,
Long-lived assets
 
2015
 
2014
 
2013
United States
 
$
2,968

 
$
2,949

 
$
2,606

China
 
668

 
692

 
646

India
 
450

 
391

 
330

United Kingdom
 
349

 
339

 
319

Netherlands
 
172

 
156

 
138

Canada
 
133

 
126

 
68

Brazil
 
124

 
161

 
172

Mexico
 
108

 
96

 
87

Other international countries
 
261

 
274

 
258

Total long-lived assets
 
$
5,233

 
$
5,184

 
$
4,624


Our largest customer is PACCAR Inc. Worldwide sales to this customer were $2,949 million in 2015, $2,706 million in 2014 and $2,085 million in 2013, representing 15 percent, 14 percent and 12 percent, respectively, of our consolidated net sales. No other customer accounted for more than 10 percent of consolidated net sales.