Quarterly report pursuant to Section 13 or 15(d)

OPERATING SEGMENTS

v2.3.0.15
OPERATING SEGMENTS
9 Months Ended
Sep. 25, 2011
OPERATING SEGMENTS  
OPERATING SEGMENTS

NOTE 15.  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, Power Generation, Components 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.  The engines are used in trucks of all sizes, buses and recreational vehicles, as well as various industrial applications including construction, mining, agriculture, marine, oil and gas, rail and military.  The Power Generation segment is an integrated provider of power systems which sells engines, generator sets and alternators.  The Components segment sells filtration products, exhaust aftertreatment systems, turbochargers and fuel 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.

 

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 the Condensed 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 services costs or credits, changes in cash surrender value of corporate owned life insurance 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 for the three and nine month periods is shown in the table below:

 

In millions

 

Engine

 

Power
Generation

 

Components

 

Distribution

 

Non-segment
Items(1)

 

Total

 

Three months ended September 25, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

External sales

 

$

2,539

 

$

604

 

$

704

 

$

779

 

$

—

 

$

4,626

 

Intersegment sales

 

416

 

270

 

311

 

4

 

(1,001

)

—

 

Total sales

 

2,955

 

874

 

1,015

 

783

 

(1,001

)

4,626

 

Depreciation and amortization(2)

 

46

 

11

 

19

 

6

 

—

 

82

 

Research, development and engineering expenses

 

103

 

14

 

46

 

1

 

—

 

164

 

Equity, royalty and interest income from investees

 

35

 

16

 

7

 

44

 

—

 

102

 

Interest income

 

5

 

2

 

1

 

1

 

—

 

9

 

Segment EBIT

 

349

 

92

 

113

 

104

 

(18

)

640

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 26, 2010

 

 

 

 

 

 

 

 

 

 

 

 

 

External sales

 

$

1,727

 

$

564

 

$

540

 

$

570

 

$

—

 

$

3,401

 

Intersegment sales

 

342

 

227

 

229

 

3

 

(801

)

—

 

Total sales

 

2,069

 

791

 

769

 

573

 

(801

)

3,401

 

Depreciation and amortization(2)

 

42

 

10

 

20

 

5

 

—

 

77

 

Research, development and engineering expenses

 

65

 

8

 

30

 

—

 

—

 

103

 

Equity, royalty and interest income from investees

 

37

 

12

 

6

 

33

 

—

 

88

 

Interest income

 

3

 

2

 

—

 

1

 

—

 

6

 

Segment EBIT

 

223

 

97

 

63

 

74

 

(8

)

449

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended
September 25, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

External sales

 

$

7,021

 

$

1,810

 

$

2,105

 

$

2,191

 

$

—

 

$

13,127

 

Intersegment sales

 

1,225

 

768

 

866

 

19

 

(2,878

)

—

 

Total sales

 

8,246

 

2,578

 

2,971

 

2,210

 

(2,878

)

13,127

 

Depreciation and amortization(2)

 

135

 

32

 

55

 

17

 

—

 

239

 

Research, development and engineering expenses

 

285

 

37

 

126

 

2

 

—

 

450

 

Equity, royalty and interest income from investees

 

126

 

37

 

24

 

128

 

—

 

315

 

Interest income

 

14

 

6

 

3

 

2

 

—

 

25

 

Segment EBIT

 

1,016

 

286

 

338

 

299

 

8

 

1,947

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended
September 26, 2010

 

 

 

 

 

 

 

 

 

 

 

 

 

External sales

 

$

4,495

 

$

1,460

 

$

1,515

 

$

1,617

 

$

—

 

$

9,087

 

Intersegment sales

 

896

 

556

 

613

 

8

 

(2,073

)

—

 

Total sales

 

5,391

 

2,016

 

2,128

 

1,625

 

(2,073

)

9,087

 

Depreciation and amortization(2)

 

125

 

31

 

61

 

19

 

—

 

236

 

Research, development and engineering expenses

 

187

 

23

 

81

 

—

 

—

 

291

 

Equity, royalty and interest income from investees

 

124

 

27

 

17

 

93

 

—

 

261

 

Interest income

 

7

 

4

 

1

 

2

 

—

 

14

 

Segment EBIT

 

553

 

207

 

195

 

215

 

(54

)

1,116

 

 

(1)    Includes intersegment sales and profit in inventory eliminations and unallocated corporate expenses.  The nine months ended September 25, 2011, include a $68 million gain ($37 million after-tax) related to the sale of our exhaust business from the Components segment.  The gain has been excluded from segment results as it was not considered by management in its evaluation of operating results for the nine months ended September 25, 2011.  For the three and nine months ended September 26, 2010, unallocated corporate expenses included $32 million of Brazil tax recoveries ($21 million after-tax) and $2 million in flood damage expenses.  In the third quarter of 2010, it was determined that we overpaid a Brazilian revenue based tax during 2004-2008.  Our 2010 results include a pre-tax recovery related to tax credits on imported products arising from this overpayment.  The recovery has been excluded from segment results as it was not considered by management it its evaluation of operating results for the quarter.  There were no other significant unallocated corporate expenses for the three and nine months ended September 25, 2011 and September 26, 2010.

(2)    Depreciation and amortization as shown on a segment basis excludes the amortization of debt discount that is included in the Condensed Consolidated Statements of Income as “Interest expense.”

 

A reconciliation of our segment information to the corresponding amounts in the Condensed Consolidated Statements of Income is shown in the table below:

 

 

 

Three months ended

 

Nine months ended

 

 

 

September 25,

 

September 26,

 

September 25,

 

September 26,

 

In millions

 

2011

 

2010

 

2011

 

2010

 

Segment EBIT

 

$

640

 

$

449

 

$

1,947

 

$

1,116

 

Less:

 

 

 

 

 

 

 

 

 

Interest expense

 

11

 

11

 

34

 

29

 

Income before income taxes

 

$

629

 

$

438

 

$

1,913

 

$

1,087