| INVESTMENTS IN EQUITY INVESTEES |
NOTE 3. INVESTMENTS IN EQUITY INVESTEES
Investments in and advances to equity investees and our ownership percentage was as follows:
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December 31, |
In millions |
|
Ownership % |
|
2013 |
|
2012 |
Dongfeng Cummins Engine Company, Ltd. |
|
50% |
|
$ |
135 |
|
|
$ |
113 |
|
Komatsu alliances |
|
20-50% |
|
132 |
|
|
132 |
|
North American distributors |
|
37-50% |
|
114 |
|
|
139 |
|
Beijing Foton Cummins Engine Co., Ltd. (1)
|
|
50% |
|
103 |
|
|
107 |
|
Cummins-Scania XPI Manufacturing, LLC |
|
50% |
|
71 |
|
|
65 |
|
Chongqing Cummins Engine Company, Ltd. |
|
50% |
|
67 |
|
|
58 |
|
Tata Cummins, Ltd. |
|
50% |
|
50 |
|
|
52 |
|
Cummins Olayan Energy |
|
49% |
|
34 |
|
|
34 |
|
Shanghai Fleetguard Filter Co., Ltd. |
|
50% |
|
33 |
|
|
31 |
|
Guangxi Cummins Industrial Power Co., Ltd. |
|
50% |
|
26 |
|
|
30 |
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Other |
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Various |
|
166 |
|
|
136 |
|
Total |
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|
|
$ |
931 |
|
|
$ |
897 |
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_______________________________________________________________
(1) Includes both the Light-duty and the Heavy-duty businesses.
Equity, royalty and interest income from investees, net of applicable taxes, was as follows:
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Years ended December 31, |
In millions |
|
2013 |
|
2012 |
|
2011 |
Distribution Entities |
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|
|
|
|
North American distributors |
|
$ |
129 |
|
|
$ |
147 |
|
|
$ |
134 |
|
Komatsu Cummins Chile, Ltda. |
|
25 |
|
|
26 |
|
|
22 |
|
All other distributors |
|
1 |
|
|
4 |
|
|
4 |
|
Manufacturing Entities |
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|
|
|
|
|
Dongfeng Cummins Engine Company, Ltd. |
|
63 |
|
|
52 |
|
|
80 |
|
Chongqing Cummins Engine Company, Ltd. |
|
58 |
|
|
61 |
|
|
68 |
|
Beijing Foton Cummins Engine Co., Ltd. (Heavy-duty) |
|
(21 |
) |
|
(13 |
) |
|
(6 |
) |
Beijing Foton Cummins Engine Co., Ltd. (Light-duty) |
|
17 |
|
|
5 |
|
|
(7 |
) |
Shanghai Fleetguard Filter Co., Ltd. |
|
13 |
|
|
13 |
|
|
15 |
|
Tata Cummins, Ltd. |
|
5 |
|
|
11 |
|
|
14 |
|
Cummins Westport, Inc. |
|
4 |
|
|
14 |
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|
14 |
|
All other manufacturers |
|
31 |
|
|
27 |
|
|
37 |
|
Cummins share of net income |
|
325 |
|
|
347 |
|
|
375 |
|
Royalty and interest income |
|
36 |
|
|
37 |
|
|
41 |
|
Equity, royalty and interest income from investees |
|
$ |
361 |
|
|
$ |
384 |
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|
$ |
416 |
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Distribution Entities
We have an extensive worldwide distributor and dealer network through which we sell and distribute our products and services. Generally, our distributors are divided by geographic region with some of our distributors being wholly-owned by Cummins, some partially-owned and the majority independently owned. We consolidate all wholly-owned distributors and partially-owned distributors where we are the primary beneficiary and account for other partially-owned distributors using the equity method of accounting.
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• |
North American Distributors - As of December 31, 2013, our distribution channel in North America included 9 unconsolidated partially-owned distributors. Our equity interests in these nonconsolidated entities ranged from 37 percent to 50 percent. We also had more than a 50 percent ownership interest in three partially owned distributors which we consolidate. While each distributor is a separate legal entity, the business of each is substantially the same as that of our wholly-owned distributors based in other parts of the world. All of our distributors, irrespective of their legal structure or ownership, offer the full range of our products and services to customers and end-users in their respective markets.
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• |
Komatsu Cummins Chile, Ltda. - Komatsu Cummins Chile, Ltda. is a joint venture with Komatsu America Corporation. The joint venture is a distributor that offers the full range of our products and services to customers and end-users in the Chilean and Peruvian markets.
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We also have 50 percent equity interests in five other international distributors.
We are contractually obligated to repurchase new engines, parts and components, special tools and signage from our North American distributors following an ownership transfer or termination of the distributor. In addition, in certain cases where we own a partial interest in a distributor, we are obligated to purchase the other equity holders' interests if certain events occur (such as the death or resignation of the distributor principal or a change in control of Cummins Inc.). The purchase price of the equity interests is determined based on the fair value of the distributor's assets. Outside of North America, repurchase obligations and practices vary by region. All distributors that are partially-owned are considered to be related parties in our Consolidated Financial Statements.
Manufacturing Entities
Our manufacturing joint ventures have generally been formed with customers and generally are intended to allow us to increase our market penetration in geographic regions, reduce capital spending, streamline our supply chain management and develop technologies. Our largest manufacturing joint ventures are based in China and are included in the list below. Our engine manufacturing joint ventures are supplied by our Components segment in the same manner as it supplies our wholly-owned Engine segment and Power Generation segment manufacturing facilities. Our Components segment joint ventures and wholly owned entities provide fuel systems, filtration, aftertreatment systems and turbocharger products that are used in our engines as well as some competitors' products. The results and investments in our joint ventures in which we have 50 percent or less ownership interest are included in “Equity, royalty and interest income from investees” and “Investments and advances related to equity method investees” in our Consolidated Statements of Income and Consolidated Balance Sheets, respectively.
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• |
Chongqing Cummins Engine Company, Ltd. - Chongqing Cummins Engine Company, Ltd. (CCEC) is a joint venture in China with Chongqing Machinery and Electric Co. Ltd. This joint venture manufactures several models of our heavy-duty and high-horsepower diesel engines, primarily serving the industrial and stationary power markets in China.
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• |
Dongfeng Cummins Engine Company, Ltd. - Dongfeng Cummins Engine Company, Ltd. (DCEC) is a joint venture in China with Dongfeng Automotive Co. Ltd., a subsidiary of Dongfeng Motor Corporation (Dongfeng), one of the largest medium-duty and heavy-duty truck manufacturers in China. DCEC produces Cummins 4- to 13-liter mechanical engines, full-electric diesel engines, with a power range from 125 to 545 horsepower, and natural gas engines.
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• |
Beijing Foton Cummins Engine Co., Ltd. - Beijing Foton Cummins Engine Co., Ltd. is a joint venture in China with Beiqi Foton Motor Co., Ltd., a commercial vehicle manufacturer, which consists of two distinct lines of business, a light-duty business and a heavy-duty business. The light-duty business produces ISF 2.8 liter and ISF 3.8 liter families of our high performance light-duty diesel engines in Beijing. These engines are used in light-duty commercial trucks, pickup trucks, buses, multipurpose and sport utility vehicles with main markets in China, Brazil and Russia. Certain types of marine, small construction equipment and industrial applications are also served by these engine families. The heavy-duty business has been in the development stage for the past several years but is scheduled to start the production of ISG 10.5 liter and ISG 11.8 liter families of our high performance heavy-duty diesel engines in the second quarter of 2014 in Beijing. These engines will be used in heavy-duty commercial trucks in China and subsequently in world wide markets. Certain types of construction equipment and industrial applications will also be served by these engine families in the future.
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• |
Shanghai Fleetguard Filter Co., Ltd. - Shanghai Fleetguard Filter Co., Ltd. is a joint venture in China with Dongfeng that manufactures filtration systems.
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|
• |
Cummins Westport, Inc. - Cummins Westport, Inc. is a joint venture in Canada with Westport Innovations Inc. to market and sell automotive spark-ignited natural gas engines and to participate in joint technology projects on low-emission technologies.
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• |
Tata Cummins, Ltd. - Tata Cummins, Ltd. is a joint venture in India with Tata Motors Ltd., the largest automotive company in India and a member of the Tata group of companies. This joint venture manufactures engines in India for use in trucks manufactured by Tata Motors, as well as for various industrial and power generation applications.
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•
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Komatsu manufacturing alliances - Komatsu manufacturing alliances consists of two manufacturing joint ventures and one design joint venture including Komatsu Cummins Engine Company (KCEC) in Japan and Cummins Komatsu Engine Company (CKEC) in the United States (U.S.) with Komatsu Ltd. These joint ventures manufacture Cummins-designed medium-duty engines in Japan and Komatsu-designed high-horsepower engines in the U.S. The industrial engine design joint venture is located in Japan.
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• |
Cummins-Scania XPI Manufacturing, LLC - Cummins-Scania XPI Manufacturing, LLC is a joint venture in the United States with Scania Holding, Inc. This joint venture manufactures several models of advanced fuel systems for heavy-duty and midrange diesel engines.
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• |
Cummins Olayan Energy Ltd. - Cummins Olayan Energy Ltd. is a joint venture in the Kingdom of Saudi Arabia with General Contracting Company to operate certain rental power generation equipment, which is primarily utilized within the Kingdom of Saudi Arabia.
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• |
Guangxi Cummins Industrial Power Co., Ltd. - Guangxi Cummins Industrial Power Co., Ltd. is a joint venture in China with Guangxi LiuGong Machinery Co. This joint venture manufactures 6.7 liter and 9.3 liter diesel engines for use in various construction equipment.
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Equity Investee Financial Summary
We have approximately $482 million in our investment account at December 31, 2013, that represents cumulative undistributed income in our equity investees. Dividends received from our unconsolidated equity investees were $271 million, $329 million and $341 million in 2013, 2012 and 2011, respectively. Summary financial information for our equity investees was as follows:
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As of and for the years ended December 31, |
In millions |
|
2013 |
|
2012 |
|
2011 |
Net sales |
|
$ |
7,799 |
|
|
$ |
8,296 |
|
|
$ |
8,659 |
|
Gross margin |
|
1,719 |
|
|
1,870 |
|
|
1,948 |
|
Net income |
|
690 |
|
|
747 |
|
|
788 |
|
|
|
|
|
|
|
|
Cummins share of net income |
|
$ |
325 |
|
|
$ |
347 |
|
|
$ |
375 |
|
Royalty and interest income |
|
36 |
|
|
37 |
|
|
41 |
|
Total equity, royalty and interest from investees |
|
$ |
361 |
|
|
$ |
384 |
|
|
$ |
416 |
|
|
|
|
|
|
|
|
Current assets |
|
$ |
2,742 |
|
|
$ |
2,843 |
|
|
|
|
Non-current assets |
|
1,794 |
|
|
1,588 |
|
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|
Current liabilities |
|
(2,090 |
) |
|
(2,039 |
) |
|
|
|
Non-current liabilities |
|
(541 |
) |
|
(431 |
) |
|
|
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Net assets |
|
$ |
1,905 |
|
|
$ |
1,961 |
|
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|
Cummins share of net assets |
|
$ |
967 |
|
|
$ |
886 |
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|