| INVESTMENTS IN EQUITY INVESTEES |
NOTE 3. INVESTMENTS IN EQUITY INVESTEES Investments and advances related to equity method investees and our ownership percentage was as follows:
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December 31, |
In millions |
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Ownership % |
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2017 |
|
2016 |
Beijing Foton Cummins Engine Co., Ltd. |
|
50% |
|
$ |
223 |
|
|
$ |
163 |
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Komatsu alliances |
|
20-50% |
|
219 |
|
|
197 |
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Dongfeng Cummins Engine Company, Ltd. |
|
50% |
|
146 |
|
|
111 |
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Cummins-Scania XPI Manufacturing, LLC |
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50% |
|
87 |
|
|
82 |
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Chongqing Cummins Engine Company, Ltd. |
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50% |
|
84 |
|
|
73 |
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Tata Cummins, Ltd. |
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50% |
|
59 |
|
|
63 |
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Other |
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Various |
|
338 |
|
|
257 |
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Investments and advances related to equity method investees |
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|
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$ |
1,156 |
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|
$ |
946 |
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We have approximately $614 million in our investment account at December 31, 2017, that represents cumulative undistributed income in our equity investees. Dividends received from our unconsolidated equity investees were $219 million, $212 million and $248 million in 2017, 2016 and 2015, respectively.
Equity, royalty and interest income from investees, net of applicable taxes, was as follows:
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Years ended December 31, |
In millions |
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2017 |
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2016 |
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2015 |
Distribution entities |
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Komatsu Cummins Chile, Ltda. |
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$ |
30 |
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$ |
34 |
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$ |
31 |
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North American distributors |
|
— |
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|
21 |
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|
33 |
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All other distributors |
|
(1 |
) |
|
— |
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|
3 |
|
Manufacturing entities |
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|
|
|
|
|
Beijing Foton Cummins Engine Co., Ltd. |
|
94 |
|
|
52 |
|
|
62 |
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Dongfeng Cummins Engine Company, Ltd. |
|
73 |
|
|
46 |
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|
51 |
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Chongqing Cummins Engine Company, Ltd. |
|
41 |
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|
38 |
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41 |
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Dongfeng Cummins Emission Solutions Co., Ltd. |
|
13 |
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|
9 |
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6 |
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Shanghai Fleetguard Filter Co., Ltd. |
|
12 |
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10 |
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10 |
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Cummins Westport, Inc. |
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9 |
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(1) |
11 |
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|
18 |
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All other manufacturers |
|
37 |
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(1) |
39 |
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|
18 |
|
Cummins share of net income |
|
308 |
|
|
260 |
|
|
273 |
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Royalty and interest income |
|
49 |
|
|
41 |
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|
42 |
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Equity, royalty and interest income from investees |
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$ |
357 |
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$ |
301 |
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$ |
315 |
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___________________________________________________________
(1) U.S. tax legislation passed in December 2017 decreased our equity earnings at certain equity investees, including a $7 million unfavorable impact to Cummins Westport, Inc. due to the remeasurement of deferred taxes and a $32 million unfavorable impact to "All other manufacturers" due to withholding tax adjustments on foreign earnings. See Note 2, "INCOME TAXES," to our Consolidated Financial Statements for additional information.
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 some 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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• |
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 Chile and Peru.
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• |
North American Distributors - During 2016, we acquired the remaining interest in the final unconsolidated North American distributor joint venture.
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In certain cases where we own a partial interest in a distributor, we may be 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 consideration of the equity interests may be determined based on the fair vale of the distributor's assets. Repurchase obligations and practices vary by geographic 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 Systems segment manufacturing facilities. Our Components segment joint ventures and wholly owned entities provide fuel systems, filtration, aftertreatment systems, turbocharger products and transmissions that are used with 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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• |
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 our families of ISF 2.8 liter to 4.5 liter 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 produces ISG 10.5 liter and ISG 11.8 liter families of our high performance heavy-duty diesel engines in Beijing. These engines are used in heavy-duty commercial trucks in China and will be used by Cummins either directly sourced from China and/or locally assembled in other markets. Certain types of construction equipment and industrial applications are also served by these engine families.
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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, one of the largest medium-duty and heavy-duty truck manufacturers in China. DCEC produces Cummins 3.9 to 13-liter mechanical engines, full-electric diesel engines, with a power range from 80 to 680 horsepower, and natural gas engines.
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• |
Chongqing Cummins Engine Company, Ltd. - Chongqing Cummins Engine Company, Ltd. 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 Emission Solutions Co., Ltd. - Dongfeng Cummins Emission Solutions Co. Ltd. is a joint venture in China with Dongfeng Industrial Company, a subsidiary of Dongfeng Motor Group Company Limited, a manufacturer of numerous on-highway vehicles. This joint venture produces, purchases and sells advanced diesel engine aftertreatment solutions to support the full line of Dongfeng's commercial vehicles.
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• |
Shanghai Fleetguard Filter Co., Ltd. - Shanghai Fleetguard Filter Co. Ltd. is a joint venture in China with Dongfeng Motor Co., Ltd., a manufacturer of numerous on-highway vehicles. This joint venture produces and sells filters and filter parts to support the full line of Dongfeng's commercial vehicles.
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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 worldwide and to participate in joint technology projects on low-emission technologies.
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Equity Investee Financial Summary
Summary financial information for our equity investees was as follows:
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For the years ended and at December 31, |
In millions |
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2017 |
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2016 |
|
2015 |
Net sales |
|
$ |
7,050 |
|
|
$ |
5,654 |
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|
$ |
5,946 |
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Gross margin |
|
1,422 |
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|
1,182 |
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|
1,265 |
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Net income |
|
680 |
|
|
499 |
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|
521 |
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|
|
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|
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Cummins share of net income |
|
$ |
308 |
|
|
$ |
260 |
|
|
$ |
273 |
|
Royalty and interest income |
|
49 |
|
|
41 |
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|
42 |
|
Total equity, royalty and interest from investees |
|
$ |
357 |
|
|
$ |
301 |
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|
$ |
315 |
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Current assets |
|
$ |
3,416 |
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$ |
2,602 |
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Non-current assets |
|
1,379 |
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|
1,377 |
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Current liabilities |
|
(2,567 |
) |
|
(1,938 |
) |
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Non-current liabilities |
|
(237 |
) |
|
(232 |
) |
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Net assets |
|
$ |
1,991 |
|
|
$ |
1,809 |
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Cummins share of net assets |
|
$ |
1,116 |
|
|
$ |
927 |
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Sale of Equity Investee
In the fourth quarter of 2016, we sold our remaining 49 percent interest in Cummins Olayan Energy for $61 million and recognized a gain of $17 million. We received cash of $58 million with the remaining balance receivable in future periods.
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