Annual report pursuant to Section 13 and 15(d)

OPERATING SEGMENTS

v2.4.0.8
OPERATING SEGMENTS
 12 Months Ended
Dec. 31, 2013
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, 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, Components, Power Generation and Distribution.  This reporting structure is organized according to the products and markets each segment serves and allows management to focus its efforts on providing enhanced service to a wide range of customers.  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 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.  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.
We use segment EBIT (defined as earnings before interest expense, 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 have allocated 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, flood damage gains or losses, divestiture gains or losses or income taxes 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
 
Components
 
Power
Generation
 
Distribution
 
Non-segment
Items(1)
 
Total
2013
 
 
 
 
 
 
 
 
 
 
 
 
External sales
 
$
8,270

 
$
3,151

 
$
2,154

 
$
3,726

 
$
—

 
$
17,301

Intersegment sales
 
1,743

 
1,191

 
877

 
23

 
(3,834
)
 
—

Total sales
 
10,013

 
4,342

 
3,031

 
3,749

 
(3,834
)
 
17,301

Depreciation and amortization(2)
 
205

 
96

 
50

 
54

 
—

 
405

Research, development and engineering expenses
 
416

 
218

 
73

 
6

 
—

 
713

Equity, royalty and interest income from investees
 
136

 
28

 
32

 
165

 
—

 
361

Interest income
 
16

 
3

 
6

 
2

 
—

 
27

Segment EBIT
 
1,041

 
527

 
218

 
388

(4) 
(14
)
 
2,160

Net assets
 
4,323

 
1,885

 
1,801

 
1,637

 
—

 
9,646

Investments and advances to equity investees
 
419

 
140

 
110

 
262

 
—

 
931

Capital expenditures
 
372

 
141

 
106

 
57

 
—

 
676

2012
 
 
 
 
 
 
 
 
 
 
 
 
External sales
 
$
9,101

 
$
2,809

 
$
2,163

 
$
3,261

 
$
—

 
$
17,334

Intersegment sales
 
1,632

 
1,203

 
1,105

 
16

 
(3,956
)
 
—

Total sales
 
10,733

 
4,012

 
3,268

 
3,277

 
(3,956
)
 
17,334

Depreciation and amortization(2)
 
192

 
82

 
47

 
34

 
—

 
355

Research, development and engineering expenses
 
433

 
213

 
76

 
6

 
—

 
728

Equity, royalty and interest income from investees
 
127

 
29

 
40

 
188

 
—

 
384

Interest income
 
11

 
3

 
9

 
2

 
—

 
25

Segment EBIT(3)
 
1,248

 
426

 
285

 
369

(4) 
(25
)
 
2,303

Net assets
 
3,373

 
1,830

 
1,582

 
1,392

 
—

 
8,177

Investments and advances to equity investees
 
401

 
127

 
88

 
281

 
—

 
897

Capital expenditures
 
399

 
134

 
95

 
62

 
—

 
690

2011
 
 
 
 
 
 
 
 
 
 
 
 
External sales
 
$
9,649

 
$
2,886

 
$
2,492

 
$
3,021

 
$
—

 
$
18,048

Intersegment sales
 
1,658

 
1,177

 
1,006

 
23

 
(3,864
)
 
—

Total sales
 
11,307

 
4,063

 
3,498

 
3,044

 
(3,864
)
 
18,048

Depreciation and amortization(2)
 
181

 
73

 
42

 
25

 
—

 
321

Research, development and engineering expenses
 
397

 
175

 
54

 
3

 
—

 
629

Equity, royalty and interest income from investees
 
166

 
31

 
47

 
172

 
—

 
416

Interest income
 
18

 
5

 
8

 
3

 
—

 
34

Segment EBIT
 
1,384

 
470

 
373

 
386

 
102

 
2,715

Net assets
 
3,167

 
1,467

 
1,547

 
1,123

 
—

 
7,304

Investments and advances to equity investees
 
398

 
123

 
79

 
238

 
—

 
838

Capital expenditures
 
339

 
141

 
87

 
55

 
—

 
622

____________________________________________________
(1) 
Includes intersegment sales and profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the year ended December 31, 2013. The year ended December 31, 2012, included a $6 million gain ($4 million after-tax) related to adjustments from our 2011 divestitures and a $20 million charge ($12 million after-tax) related to legal matters. The year ended December 31, 2011, included a $68 million gain ($37 million after-tax) and a $53 million gain ($33 million after-tax) related to the Component segment sales of certain assets and liabilities from our exhaust and light-duty filtration businesses, respectively, and a $38 million gain ($24 million after-tax) related to the insurance settlement regarding the June 2008 flood in Southern Indiana. The gains and losses have been excluded from segment results as they were not considered in our evaluation of operating results for the years ended December 31, 2012 and 2011.
(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."
(3) 
Segment EBIT included restructuring and other charges for each business segment of $20 million (Engine), $6 million (Components), $12 million (Power Generation) and $14 million (Distribution). See NOTE 19, "RESTRUCTURING AND OTHER CHARGES," for additional detail.
(4) 
Distribution segment EBIT for the year ended December 31, 2013, included a $7 million gain and $5 million gain for the fair value adjustment resulting from the acquisitions of a controlling interest in Northwest and Rocky Mountain, respectively. Distribution segment EBIT for the year ended December 31, 2012, included a $7 million gain on the fair value adjustment resulting from the acquisition of a controlling interest in Central Power. See NOTE 2, "ACQUISITIONS AND DIVESTITURES," for additional detail.
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
 
2013
 
2012
 
2011
Total EBIT
 
$
2,160

 
$
2,303

 
$
2,715

Less: Interest expense
 
41

 
32

 
44

Income before income taxes
 
$
2,119

 
$
2,271

 
$
2,671


 
 
December 31,
In millions
 
2013
 
2012
 
2011
Net assets for operating segments
 
$
9,646

 
$
8,177

 
$
7,304

Liabilities deducted in arriving at net assets
 
5,103

 
4,913

 
4,832

Pension and other postretirement benefit adjustments excluded from net assets
 
(346
)
 
(977
)
 
(928
)
Deferred tax assets not allocated to segments
 
292

 
410

 
435

Debt-related costs not allocated to segments
 
33

 
25

 
25

Total assets
 
$
14,728

 
$
12,548

 
$
11,668


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.
In millions
 
Years ended as of December 31,
Net Sales
 
2013
 
2012
 
2011
United States
 
$
8,382

 
$
8,107

 
$
7,354

China
 
1,194

 
1,056

 
1,452

Brazil
 
882

 
798

 
1,286

India
 
630

 
757

 
859

Mexico
 
556

 
692

 
631

United Kingdom
 
453

 
660

 
727

Canada
 
655

 
642

 
653

Other foreign countries
 
4,549

 
4,622

 
5,086

Total net sales
 
$
17,301

 
$
17,334

 
$
18,048


In millions
 
Years ended as of December 31,
Long-lived assets
 
2013
 
2012
 
2011
United States
 
$
2,606

 
$
2,440

 
$
2,218

China
 
646

 
589

 
520

India
 
330

 
243

 
203

United Kingdom
 
319

 
339

 
318

Brazil
 
172

 
170

 
151

Netherlands
 
138

 
130

 
111

Mexico
 
87

 
77

 
72

Germany
 
69

 
49

 
47

Canada
 
68

 
69

 
64

Korea
 
37

 
37

 
27

Turkey
 
28

 
29

 
19

Romania
 
27

 
15

 
10

Australia
 
18

 
25

 
34

Singapore
 
17

 
16

 
9

United Arab Emirates
 
15

 
16

 
14

France
 
13

 
13

 
13

Other foreign countries
 
34

 
33

 
32

Total long-lived assets
 
$
4,624

 
$
4,290

 
$
3,862


Our largest customer is PACCAR Inc. Worldwide sales to this customer were $2,085 million in 2013, $2,232 million in 2012 and $2,144 million in 2011, representing 12 percent, 13 percent and 12 percent, respectively, of our consolidated net sales. No other customer accounted for more than 10 percent of consolidated net sales.