Document_and_Entity_Informatio
Document and Entity Information (USD $) | 12 Months Ended | ||
In Billions, except Share data, unless otherwise specified | Dec. 31, 2014 | Jan. 30, 2015 | Jun. 29, 2014 |
Document and Entity Information | |||
Entity Registrant Name | CUMMINS INC | ||
Entity Central Index Key | 26172 | ||
Document Type | 10-K | ||
Document Period End Date | 31-Dec-14 | ||
Amendment Flag | FALSE | ||
Current Fiscal Year End Date | -19 | ||
Entity Well-known Seasoned Issuer | Yes | ||
Entity Voluntary Filers | No | ||
Entity Current Reporting Status | Yes | ||
Entity Filer Category | Large Accelerated Filer | ||
Entity Public Float | $28.40 | ||
Entity Common Stock, Shares Outstanding | 181,945,783 | ||
Document Fiscal Year Focus | 2014 | ||
Document Fiscal Period Focus | FY |
CONSOLIDATED_STATEMENTS_OF_INC
CONSOLIDATED STATEMENTS OF INCOME (USD $) | 12 Months Ended | |||
In Millions, except Per Share data, unless otherwise specified | Dec. 31, 2014 | Dec. 31, 2013 | Dec. 31, 2012 | |
NET SALES | $19,221 | $17,301 | $17,334 | [1] |
Cost of sales | 14,360 | 13,021 | 12,918 | |
GROSS MARGIN | 4,861 | 4,280 | 4,416 | |
OPERATING EXPENSES AND INCOME | ||||
Selling, general and administrative expenses | 2,095 | 1,817 | 1,808 | |
Research, development and engineering expenses | 754 | 713 | 728 | |
Equity, royalty and interest income from investees (Note 3) | 370 | 361 | 384 | |
Other operating income (expense), net | -17 | -10 | -10 | |
OPERATING INCOME | 2,365 | 2,101 | 2,254 | |
Interest income | 23 | 27 | 25 | |
Interest expense (Note 9) | 64 | 41 | 32 | |
Other income (expense), net | 110 | 32 | 24 | |
INCOME BEFORE INCOME TAXES | 2,434 | 2,119 | 2,271 | |
Income tax expense (Note 4) | 698 | 531 | 533 | |
CONSOLIDATED NET INCOME | 1,736 | 1,588 | 1,738 | |
Less: Net income attributable to noncontrolling interests | 85 | 105 | 93 | |
NET INCOME ATTRIBUTABLE TO CUMMINS INC. | $1,651 | $1,483 | $1,645 | |
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC. (Note 18) | ||||
Basic (in dollars per share) | $9.04 | $7.93 | $8.69 | |
Diluted (in dollars per share) | $9.02 | $7.91 | $8.67 | |
[1] | Includes sales to nonconsolidated equity investees of $2,063 million, $2,319 million and $2,427 million for the years ended December 31, 2014, 2013 and 2012, respectively. |
CONSOLIDATED_STATEMENTS_OF_INC1
CONSOLIDATED STATEMENTS OF INCOME (Parenthetical) (USD $) | 12 Months Ended | ||
In Millions, unless otherwise specified | Dec. 31, 2014 | Dec. 31, 2013 | Dec. 31, 2012 |
Income Statement [Abstract] | |||
Sales to nonconsolidated equity investees | $2,063 | $2,319 | $2,427 |
CONSOLIDATED_STATEMENTS_OF_COM
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (USD $) | 12 Months Ended | ||
In Millions, unless otherwise specified | Dec. 31, 2014 | Dec. 31, 2013 | Dec. 31, 2012 |
CONSOLIDATED NET INCOME | $1,736 | $1,588 | $1,738 |
Other comprehensive (loss) income, net of tax (Note 15) | |||
Foreign currency translation adjustments | -234 | -46 | 29 |
Unrealized (loss) gain on derivatives | -1 | -1 | 20 |
Change in pension and other postretirement defined benefit plans | -58 | 183 | -70 |
Unrealized (loss) gain on marketable securities | -12 | 1 | 2 |
Total other comprehensive (loss) income, net of tax | -305 | 137 | -19 |
COMPREHENSIVE INCOME | 1,431 | 1,725 | 1,719 |
Less: Comprehensive income attributable to noncontrolling interests | 74 | 76 | 86 |
COMPREHENSIVE INCOME ATTRIBUTABLE TO CUMMINS INC. | $1,357 | $1,649 | $1,633 |
CONSOLIDATED_BALANCE_SHEETS
CONSOLIDATED BALANCE SHEETS (USD $) | Dec. 31, 2014 | Dec. 31, 2013 |
In Millions, unless otherwise specified | ||
Current assets | ||
Cash and cash equivalents | $2,301 | $2,699 |
Marketable securities (Note 5) | 93 | 150 |
Total cash, cash equivalents and marketable securities | 2,394 | 2,849 |
Accounts and notes receivable, net | ||
Trade and other | 2,744 | 2,362 |
Nonconsolidated equity investees | 202 | 287 |
Inventories (Note 6) | 2,866 | 2,381 |
Prepaid expenses and other current assets | 849 | 760 |
Total current assets | 9,055 | 8,639 |
Long-term assets | ||
Property, plant and equipment, net (Note 7) | 3,686 | 3,156 |
Investments and advances related to equity method investees (Note 3) | 981 | 931 |
Goodwill (Note 8) | 479 | 461 |
Other intangible assets, net (Note 8) | 343 | 357 |
Prepaid pensions (Note 11) | 637 | 514 |
Other assets | 595 | 670 |
Total assets | 15,776 | 14,728 |
Current liabilities | ||
Loans payable (Note 9) | 86 | 17 |
Accounts payable (principally trade) | 1,881 | 1,557 |
Current maturities of long-term debt (Note 9) | 23 | 51 |
Current portion of accrued product warranty (Note 10) | 363 | 360 |
Accrued compensation, benefits and retirement costs | 508 | 433 |
Deferred revenue | 401 | 285 |
Taxes payable (including taxes on income) | 70 | 99 |
Other accrued expenses | 689 | 566 |
Total current liabilities | 4,021 | 3,368 |
Long-term liabilities | ||
Long-term debt (Note 9) | 1,589 | 1,672 |
Pensions (Note 11) | 289 | 232 |
Postretirement benefits other than pensions (Note 11) | 369 | 356 |
Other liabilities and deferred revenue (Note 12) | 1,415 | 1,230 |
Total liabilities | 7,683 | 6,858 |
Commitments and contingencies (Note 13) | ||
Cummins Inc. shareholders’ equity (Note 14) | ||
Common stock, $2.50 par value, 500 shares authorized, 222.3 and 222.3 shares issued | 2,139 | 2,099 |
Retained earnings | 9,545 | 8,406 |
Treasury stock, at cost, 40.1 and 35.6 shares | -2,844 | -2,195 |
Common stock held by employee benefits trust, at cost, 1.1 and 1.3 shares | -13 | -16 |
Accumulated other comprehensive loss (Note 15) | ||
Defined benefit postretirement plans | -669 | -611 |
Other | -409 | -173 |
Total accumulated other comprehensive loss | -1,078 | -784 |
Total Cummins Inc. shareholders' equity | 7,749 | 7,510 |
Noncontrolling interests (Note 17) | 344 | 360 |
Total equity | 8,093 | 7,870 |
Total liabilities and equity | $15,776 | $14,728 |
CONSOLIDATED_BALANCE_SHEETS_Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) | Dec. 31, 2014 | Dec. 31, 2013 |
In Millions, except Per Share data, unless otherwise specified | ||
Statement of Financial Position [Abstract] | ||
Common stock, par value (in dollars per share) | $2.50 | $2.50 |
Common stock, shares authorized | 500 | 500 |
Common stock, shares issued | 222.3 | 222.3 |
Treasury stock, shares | 40.1 | 35.6 |
Common stock held by employee benefits trust, at cost, shares | 1.1 | 1.3 |
CONSOLIDATED_STATEMENTS_OF_CAS
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) | 12 Months Ended | ||
In Millions, unless otherwise specified | Dec. 31, 2014 | Dec. 31, 2013 | Dec. 31, 2012 |
CASH FLOWS FROM OPERATING ACTIVITIES | |||
Consolidated net income | $1,736 | $1,588 | $1,738 |
Adjustments to reconcile consolidated net income to net cash provided by operating activities | |||
Depreciation and amortization | 455 | 407 | 361 |
Gain on fair value adjustment for consolidated investees (Note 2) | 73 | 12 | 7 |
Deferred income taxes (Note 4) | 31 | 100 | 116 |
Equity in income of investees, net of dividends | -100 | -62 | -15 |
Pension contributions in excess of expense (Note 11) | -148 | -82 | -68 |
Other post-retirement benefits payments in excess of expense (Note 11) | -28 | -25 | -21 |
Stock-based compensation expense | 36 | 37 | 36 |
Translation and hedging activities | -13 | 17 | 0 |
Accounts and notes receivable | -89 | -148 | 87 |
Inventories | -256 | -46 | -32 |
Other current assets | 1 | 212 | -60 |
Accounts Payable | 244 | 163 | -256 |
Accrued Expenses | 168 | -246 | -514 |
Changes in other liabilities and deferred revenue | 282 | 211 | 214 |
Other, net | 20 | -25 | -47 |
Net cash provided by operating activities | 2,266 | 2,089 | 1,532 |
CASH FLOWS FROM INVESTING ACTIVITIES | |||
Capital expenditures | -743 | -676 | -690 |
Investments in internal use software | -55 | -64 | -87 |
Investments in and advances to equity investees | -60 | -42 | -70 |
Acquisitions of businesses, net of cash acquired (Note 2) | -436 | -147 | -215 |
Investments in marketable securities—acquisitions (Note 5) | -275 | -418 | -561 |
Investments in marketable securities—liquidations (Note 5) | 336 | 525 | 585 |
Purchases of other investments | 0 | -40 | 0 |
Cash flows from derivatives not designated as hedges | -14 | 1 | 12 |
Other, net | 13 | 15 | 44 |
Net cash used in investing activities | -1,234 | -846 | -982 |
CASH FLOWS FROM FINANCING ACTIVITIES | |||
Proceeds from borrowings (Note 9) | 55 | 1,004 | 64 |
Payments on borrowings and capital lease obligations | -94 | -90 | -145 |
Distributions to noncontrolling interests | -83 | -75 | -62 |
Dividend payments on common stock (Note 14) | -512 | -420 | -340 |
Repurchases of common stock (Note 15) | -670 | -381 | -256 |
Other, net | -39 | 14 | 45 |
Net cash (used in) provided by financing activities | -1,343 | 52 | -694 |
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS | -87 | 35 | 29 |
Net (decrease) increase in cash and cash equivalents | -398 | 1,330 | -115 |
Cash and cash equivalents at beginning of year | 2,699 | 1,369 | 1,484 |
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $2,301 | $2,699 | $1,369 |
CONSOLIDATED_STATEMENTS_OF_CHA
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (USD $) | Total | Total Cummins Inc. Shareholders' Equity | Common Stock | Additional paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Treasury Stock | Common Stock Held in Trust | Noncontrolling interests |
In Millions, unless otherwise specified | |||||||||
BALANCE at Dec. 31, 2011 | $5,831 | $5,492 | $555 | $1,446 | $6,038 | ($938) | ($1,587) | ($22) | $339 |
Increase (Decrease) in Shareholders' Equity | |||||||||
Net income | 1,738 | 1,645 | 1,645 | 93 | |||||
Other comprehensive income (loss) | -19 | -12 | -12 | -7 | |||||
Issuance of shares | 7 | 7 | 1 | 6 | |||||
Employee benefits trust activity | 31 | 31 | 27 | 4 | |||||
Acquisition of shares | -256 | -256 | -256 | ||||||
Cash dividends on common stock | -340 | -340 | -340 | ||||||
Distribution to noncontrolling interests | -76 | -76 | |||||||
Stock based awards | 13 | 13 | 13 | ||||||
Other shareholder transactions | 45 | 23 | 23 | 22 | |||||
BALANCE at Dec. 31, 2012 | 6,974 | 6,603 | 556 | 1,502 | 7,343 | -950 | -1,830 | -18 | 371 |
Increase (Decrease) in Shareholders' Equity | |||||||||
Net income | 1,588 | 1,483 | 1,483 | 105 | |||||
Other comprehensive income (loss) | 137 | 166 | 166 | -29 | |||||
Issuance of shares | 8 | 8 | 8 | ||||||
Employee benefits trust activity | 26 | 26 | 24 | 2 | |||||
Acquisition of shares | -381 | -381 | -381 | ||||||
Cash dividends on common stock | -420 | -420 | -420 | ||||||
Distribution to noncontrolling interests | -75 | -75 | |||||||
Stock based awards | 17 | 17 | 1 | 16 | |||||
Other shareholder transactions | -4 | 8 | 8 | -12 | |||||
BALANCE at Dec. 31, 2013 | 7,870 | 7,510 | 556 | 1,543 | 8,406 | -784 | -2,195 | -16 | 360 |
Increase (Decrease) in Shareholders' Equity | |||||||||
Net income | 1,736 | 1,651 | 1,651 | 85 | |||||
Other comprehensive income (loss) | -305 | -294 | -294 | -11 | |||||
Issuance of shares | 9 | 9 | 9 | ||||||
Employee benefits trust activity | 27 | 27 | 24 | 3 | |||||
Acquisition of shares | -670 | -670 | -670 | ||||||
Cash dividends on common stock | -512 | -512 | -512 | ||||||
Distribution to noncontrolling interests | -83 | -83 | |||||||
Stock based awards | 16 | 16 | -5 | 21 | |||||
Other shareholder transactions | 5 | 12 | 12 | -7 | |||||
BALANCE at Dec. 31, 2014 | $8,093 | $7,749 | $556 | $1,583 | $9,545 | ($1,078) | ($2,844) | ($13) | $344 |
SUMMARY_OF_SIGNIFICANT_ACCOUNT
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 12 Months Ended | ||||||||||||
Dec. 31, 2014 | |||||||||||||
Accounting Policies [Abstract] | |||||||||||||
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | ||||||||||||
Nature of Operations | |||||||||||||
Cummins Inc. was founded in 1919 as a corporation in Columbus, Indiana, as one of the first diesel engine manufacturers. We are a global power leader that designs, manufactures, distributes and services diesel and natural gas engines and engine-related component products, including filtration, aftertreatment, turbochargers, fuel systems, controls systems, air handling systems and electric power generation systems. We sell our products to original equipment manufacturers (OEMs), distributors and other customers worldwide. We serve our customers through a network of approximately 600 company-owned and independent distributor locations and approximately 7,200 dealer locations in more than 190 countries and territories. | |||||||||||||
Principles of Consolidation | |||||||||||||
Our Consolidated Financial Statements include the accounts of all wholly-owned and majority-owned domestic and foreign subsidiaries where our ownership is more than 50 percent of outstanding equity interests except for majority-owned subsidiaries that are considered variable interest entities (VIEs) where we are not deemed to have a controlling financial interest. In addition, we also consolidate, regardless of our ownership percentage, VIEs for which we are deemed to have a controlling financial interest. Intercompany balances and transactions are eliminated in consolidation. Where our ownership interest is less than 100 percent, the noncontrolling ownership interests are reported in our Consolidated Balance Sheets. The noncontrolling ownership interest in our income, net of tax, is classified as "Net income attributable to noncontrolling interests" in our Consolidated Statements of Income. | |||||||||||||
Certain amounts for 2013 and 2012 have been reclassified to conform to the current classifications. | |||||||||||||
We have variable interests in several businesses accounted for under the equity method of accounting that are deemed to be VIEs and are subject to the provisions of accounting principles generally accepted in the United States of America (GAAP) for variable interest entities. Most of these VIEs are unconsolidated. | |||||||||||||
Reclassification Adjustments | |||||||||||||
We revised the classification of certain amounts for "Cost of sales" and "Selling, general and administrative expenses" for 2013 and 2012. In connection with the integration of recently acquired North American distributors and anticipating the future acquisition and integration of the entire North American channel, our Distribution segment has developed a framework against which Distribution management intends to measure the performance of the distribution channel. The segment EBIT (defined as earnings before interest expense, taxes and noncontrolling interests) performance measure is unchanged, however, certain activities that were previously classified in "Selling, general and administrative expenses" are now classified as "Cost of sales" to align with the new framework and allow for consistent treatment across the channel. We revised the expense presentation of our Consolidated Statements of Income for the periods presented to follow the new cost framework. The reclassifications for the years ended December 31, 2013 and 2012, were $103 million and $92 million, respectively. The revision had no impact on reported net income, cash flows or the balance sheet. | |||||||||||||
Investments in Equity Investees | |||||||||||||
We use the equity method to account for our investments in joint ventures, affiliated companies and alliances in which we have the ability to exercise significant influence, generally represented by equity ownership or partnership equity of at least 20 percent but not more than 50 percent. Generally, under the equity method, original investments in these entities are recorded at cost and subsequently adjusted by our share of equity in income or losses after the date of acquisition. Investment amounts in excess of our share of an investee's net assets are amortized over the life of the related asset creating the excess. If the excess is goodwill, then it is not amortized. Equity in income or losses of each investee is recorded according to our level of ownership; if losses accumulate, we record our share of losses until our investment has been fully depleted. If our investment has been fully depleted, we recognize additional losses only when we are the primary funding source. We eliminate (to the extent of our ownership percentage) in our Consolidated Financial Statements the profit in inventory held by our equity method investees that has not yet been sold to a third-party. Our investments are classified as "Investments and advances related to equity method investees" in our Consolidated Balance Sheets. Our share of the results from joint ventures, affiliated companies and alliances is reported in our Consolidated Statements of Income as "Equity, royalty and interest income from investees," and is reported net of all applicable income taxes. | |||||||||||||
Our foreign equity investees are presented net of applicable foreign income taxes in our Consolidated Statements of Income. Our remaining United States (U.S.) equity investees are partnerships (non-taxable), thus there is no difference between gross or net of tax presentation as the investees are not taxed. See NOTE 3, "INVESTMENTS IN EQUITY INVESTEES," for additional information. | |||||||||||||
Use of Estimates in the Preparation of the Financial Statements | |||||||||||||
Preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts presented and disclosed in our Consolidated Financial Statements. Significant estimates and assumptions in these Consolidated Financial Statements require the exercise of judgment and are used for, but not limited to, allowance for doubtful accounts, estimates of future cash flows and other assumptions associated with goodwill and long-lived asset impairment tests, useful lives for depreciation and amortization, warranty programs, determination of discount and other assumptions for pension and other postretirement benefit costs, restructuring costs, income taxes and deferred tax valuation allowances, lease classification and contingencies. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be different from these estimates. | |||||||||||||
Revenue Recognition | |||||||||||||
We recognize revenue, net of estimated costs of returns, allowances and sales incentives, when it is realized or realizable, which generally occurs when: | |||||||||||||
• | Persuasive evidence of an arrangement exists; | ||||||||||||
• | The product has been shipped and legal title and all risks of ownership have been transferred; | ||||||||||||
• | The sales price is fixed or determinable; and | ||||||||||||
• | Payment is reasonably assured. | ||||||||||||
Products are generally sold on open account under credit terms customary to the geographic region of distribution. We perform ongoing credit evaluations of our customers and generally do not require collateral to secure our accounts receivable. For engines, service parts, service tools and other items sold to independent distributors and to partially-owned distributors accounted for under the equity method, revenues are recorded when title and risk of ownership transfers. This transfer is based on the agreement in effect with the respective distributor, which in the U.S. and most international locations, generally occurs when the products are shipped. To the extent of our ownership percentage, margins on sales to distributors accounted for under the equity method are deferred until the distributor sells the product to unrelated parties. | |||||||||||||
We provide various sales incentives to both our distribution network and our OEM customers. These programs are designed to promote the sale of our product in the channel or encourage the usage of our products by OEM customers. Sales incentives primarily fall into three categories: | |||||||||||||
• | Volume rebates; | ||||||||||||
• | Market share rebates; and | ||||||||||||
• | Aftermarket rebates. | ||||||||||||
For volume rebates, we provide certain customers with rebate opportunities for attaining specified volumes during a particular quarter or year. We accrue for the expected amount of these rebates at the time of the original sale and update our accruals quarterly based on our best estimate of the volume levels the customer will reach during the measurement period. For market share rebates, we provide certain customers with rebate opportunities based on the percentage of their production that utilizes our product. These rebates are typically measured either quarterly or annually and are accrued at the time of the original sale based on the current market shares, with adjustments made as the level changes. For aftermarket rebates we provide incentives to promote sales to certain dealers and end-markets. These rebates are typically paid on a quarterly, or more frequent, basis and estimates are made at the end of each quarter as to the amount yet to be paid. These estimates are based on historical experience with the particular program. The incentives are classified as a reduction in sales in our Consolidated Statements of Income. | |||||||||||||
Rights of return do not exist for the majority of our sales, other than for quality issues. We do offer certain return rights in our aftermarket business, where some aftermarket customers are permitted to return small amounts of parts and filters each year and in our power generation business, which sells portable generators to retail customers. An estimate of future returns is accrued at the time of sale based on historical return rates. | |||||||||||||
Foreign Currency Transactions and Translation | |||||||||||||
We translate assets and liabilities of foreign entities to U.S. dollars, where the local currency is the functional currency, at year-end exchange rates. We translate income and expenses to U.S. dollars using weighted-average exchange rates for the year. We record adjustments resulting from translation in a separate component of accumulated other comprehensive income (loss) and include the adjustments in net income only upon sale, loss of controlling financial interest or liquidation of the underlying foreign investment. | |||||||||||||
Foreign currency transaction gains and losses are included in current net income. For foreign entities where the U.S. dollar is the functional currency, including those operating in highly inflationary economies when applicable, we remeasure non-monetary balances and the related income statement using historical exchange rates. We include in income the resulting gains and losses, including the effect of derivatives in our Consolidated Statements of Income, which combined with transaction gains and losses amounted to a net loss of $6 million in 2014, net loss of $27 million in 2013 and net loss of $14 million in 2012. | |||||||||||||
Derivative Instruments | |||||||||||||
We make use of derivative instruments in foreign exchange, commodity price and interest rate hedging programs. Derivatives currently in use are foreign currency forward contracts, commodity zero-cost collars and interest rate swaps. These contracts are used strictly for hedging and not for speculative purposes. | |||||||||||||
We are exposed to market risk from fluctuations in interest rates. We manage our exposure to interest rate fluctuations through the use of interest rate swaps. The objective of the swaps is to more effectively balance our borrowing costs and interest rate risk. The gain or loss on these derivative instruments as well as the offsetting gain or loss on the hedged item attributable to the hedged risk are recognized in current income as “Interest expense." For more detail on our interest rate swaps see NOTE 9, "DEBT." | |||||||||||||
Due to our international business presence, we are exposed to foreign currency exchange risk. We transact in foreign currencies and have assets and liabilities denominated in foreign currencies. Consequently, our income experiences some volatility related to movements in foreign currency exchange rates. In order to benefit from global diversification and after considering naturally offsetting currency positions, we enter into foreign currency forward contracts to minimize our existing exposures (recognized assets and liabilities) and hedge forecasted transactions. Foreign currency forward contracts are designated and qualify as foreign currency cash flow hedges under GAAP. The effective portion of the unrealized gain or loss on the forward contract is deferred and reported as a component of “Accumulated other comprehensive loss” (AOCL). When the hedged forecasted transaction (sale or purchase) occurs, the unrealized gain or loss is reclassified into income in the same line item associated with the hedged transaction in the same period or periods during which the hedged transaction affects income. Foreign currency contracts have been deemed immaterial for additional disclosure. | |||||||||||||
We are exposed to fluctuations in commodity prices due to contractual agreements with component suppliers. In order to protect ourselves against future price volatility and, consequently, fluctuations in gross margins, we periodically enter into commodity zero-cost collar contracts with designated banks to fix the cost of certain raw material purchases with the objective of minimizing changes in inventory cost due to market price fluctuations. We have commodity zero-cost collar contracts that represent an economic hedge, but are not designated for hedge accounting and are marked to market through earnings. Commodity swap contracts have been deemed immaterial for additional disclosure. | |||||||||||||
Income Tax Accounting | |||||||||||||
We determine our income tax expense using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax effects of temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future tax benefits of tax loss and credit carryforwards are also recognized as deferred tax assets. We evaluate the recoverability of our deferred tax assets each quarter by assessing the likelihood of future profitability and available tax planning strategies that could be implemented to realize our net deferred tax assets. A valuation allowance is recorded to reduce the tax assets to the net value management believes is more likely than not to be realized. In the event our operating performance deteriorates, future assessments could conclude that a larger valuation allowance will be needed to further reduce the deferred tax assets. In addition, we operate within multiple taxing jurisdictions and are subject to tax audits in these jurisdictions. These audits can involve complex issues, which may require an extended period of time to resolve. We accrue for the estimated additional tax and interest that may result from tax authorities disputing uncertain tax positions we have taken and we believe we have made adequate provision for income taxes for all years that are subject to audit based upon the latest information available. A more complete description of our income taxes and the future benefits of our tax loss and credit carryforwards is disclosed in NOTE 4, "INCOME TAXES." | |||||||||||||
Cash and Cash Equivalents | |||||||||||||
Cash equivalents are defined as short-term, highly liquid investments with an original maturity of 90 days or less at the time of purchase. The carrying amounts reflected in our Consolidated Balance Sheets for cash and cash equivalents approximate fair value due to the short-term maturity of these investments. | |||||||||||||
Years ended December 31, | |||||||||||||
In millions | 2014 | 2013 | 2012 | ||||||||||
Cash payments for income taxes, net of refunds | $ | 659 | $ | 380 | $ | 691 | |||||||
Cash payments for interest, net of capitalized interest | 65 | 30 | 32 | ||||||||||
Marketable Securities | |||||||||||||
We account for marketable securities in accordance with GAAP for investments in debt and equity securities. We determine the appropriate classification of all marketable securities as "held-to-maturity, "available-for-sale" or "trading" at the time of purchase, and re-evaluate such classifications at each balance sheet date. At December 31, 2014 and 2013, all of our investments were classified as available-for-sale. | |||||||||||||
Available-for-sale (AFS) securities are carried at fair value with the unrealized gain or loss, net of tax, reported in other comprehensive income. Unrealized losses considered to be "other-than-temporary" are recognized currently in income. The cost of securities sold is based on the specific identification method. The fair value of most investment securities is determined by currently available market prices. Where quoted market prices are not available, we use the market price of similar types of securities that are traded in the market to estimate fair value. See NOTE 5, "MARKETABLE SECURITIES," for a detailed description of our investments in marketable securities. | |||||||||||||
Accounts Receivable and Allowance for Doubtful Accounts | |||||||||||||
Trade accounts receivable are recorded at the invoiced amount, which approximates net realizable value, and generally do not bear interest. The allowance for doubtful accounts is our best estimate of the amount of probable credit losses in our existing accounts receivable. We determine the allowance based on our historical collection experience and by performing an analysis of our accounts receivable in light of the current economic environment. We review our allowance for doubtful accounts on a regular basis. In addition, when necessary, we provide an allowance for the full amount of specific accounts deemed to be uncollectible. Account balances are charged off against the allowance in the period in which we determine that it is probable the receivable will not be recovered. The allowance for doubtful accounts balances for the years ended December 31, 2014 and 2013 were $12 million and $14 million, respectively. | |||||||||||||
Inventories | |||||||||||||
Our inventories are stated at the lower of cost or market. For the years ended December 31, 2014 and 2013, approximately 14 percent and 14 percent, respectively, of our consolidated inventories (primarily heavy-duty and high-horsepower engines and parts) were valued using the last-in, first-out (LIFO) cost method. The cost of other inventories is generally valued using the first-in, first-out (FIFO) cost method. Our inventories at interim and year-end reporting dates include estimates for adjustments related to annual physical inventory results and for inventory cost changes under the LIFO cost method. Due to significant movements of partially-manufactured components and parts between manufacturing plants, we do not internally measure, nor do our accounting systems provide, a meaningful segregation between raw materials and work-in-process. See NOTE 6, "INVENTORIES," for additional information. | |||||||||||||
Property, Plant and Equipment | |||||||||||||
We record property, plant and equipment, inclusive of assets under capital leases, at cost. We depreciate the cost of the majority of our equipment using the straight-line method with depreciable lives ranging from 20 to 40 years for buildings and 3 to 20 years for machinery, equipment and fixtures. Capital lease amortization is recorded in depreciation expense. We expense normal maintenance and repair costs as incurred. Depreciation expense totaled $351 million, $318 million and $287 million for the years ended December 31, 2014, 2013 and 2012, respectively. See NOTE 7, "PROPERTY, PLANT AND EQUIPMENT," for additional information. | |||||||||||||
Long-Lived Assets | |||||||||||||
We review our long-lived assets for possible impairment whenever events or circumstances indicate that the carrying value of an asset or asset group may not be recoverable. We assess the recoverability of the carrying value of the long-lived assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. An impairment of a long-lived asset or asset group exists when the expected future pre-tax cash flows (undiscounted and without interest charges) estimated to be generated by the asset or asset group is less than its carrying value. If these cash flows are less than the carrying value of such asset or asset group, an impairment loss is measured based on the difference between the estimated fair value and carrying value of the asset or asset group. Assumptions and estimates used to estimate cash flows in the evaluation of impairment and the fair values used to determine the impairment are subject to a degree of judgment and complexity. Any changes to the assumptions and estimates resulting from changes in actual results or market conditions from those anticipated may affect the carrying value of long-lived assets and could result in a future impairment charge. | |||||||||||||
Goodwill | |||||||||||||
Under GAAP for goodwill, we have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value as a basis for determining whether it is necessary to perform an annual two-step goodwill impairment test. We have elected this option on certain reporting units.The two-step impairment test is now only required if an entity determines through this qualitative analysis that it is more likely than not that the fair value of the reporting unit is less than its carrying value. In addition, the carrying value of goodwill must be tested for impairment on an interim basis in certain circumstances where impairment may be indicated. When we are required or opt to perform the two-step impairment test, the fair value of each reporting unit is estimated by discounting the after tax future cash flows less requirements for working capital and fixed asset additions. Our reporting units are generally defined as one level below an operating segment. However, there are two situations where we have aggregated two or more components which share similar economic characteristics and thus are aggregated into a single reporting unit for testing purposes. These two situations are described further below. This analysis has resulted in the following reporting units for our goodwill testing: | |||||||||||||
• | Within our Components segment, our emission solutions and filtration businesses have been aggregated into a single reporting unit. | ||||||||||||
• | Also within our Components segment, our turbo technologies business is considered a separate reporting unit. | ||||||||||||
• | Within our Power Generation segment, our alternators business is considered a separate reporting unit. | ||||||||||||
• | Within our Engine segment, our new and recon parts business is considered a separate reporting unit. This reporting unit is in the business of selling new parts and remanufacturing and reconditioning engines and certain engine components. | ||||||||||||
• | Our Distribution segment is considered a single reporting unit as it is managed geographically and all regions share similar economic characteristics and provide similar products and services. | ||||||||||||
No other reporting units have goodwill. Our valuation method requires us to make projections of revenue, operating expenses, working capital investment and fixed asset additions for the reporting units over a multi-year period. Additionally, management must estimate a weighted-average cost of capital, which reflects a market rate, for each reporting unit for use as a discount rate. The discounted cash flows are compared to the carrying value of the reporting unit and, if less than the carrying value, a separate valuation of the goodwill is required to determine if an impairment loss has occurred. In addition, we also perform a sensitivity analysis to determine how much our forecasts can fluctuate before the fair value of a reporting unit would be lower than its carrying amount. We performed the required procedures as of the end of our fiscal third quarter and determined that our goodwill was not impaired. At December 31, 2014, our recorded goodwill was $479 million, approximately 82 percent of which resided in the emission solutions plus filtration reporting unit. For this reporting unit, the fair value exceeded its carrying value by a substantial margin when we performed step one of the two-step impairment test in the current year. Changes in our projections or estimates, a deterioration of our operating results and the related cash flow effect or a significant increase in the discount rate could decrease the estimated fair value of our reporting units and result in a future impairment of goodwill. See NOTE 8, "GOODWILL AND OTHER INTANGIBLE ASSETS,"for additional information. | |||||||||||||
Software | |||||||||||||
We capitalize certain costs for software that are developed or obtained for internal use. Software costs are amortized on a straight-line basis over their estimated useful lives generally ranging from 3 to 12 years. Software assets are reviewed for impairment when events or circumstances indicate that the carrying value may not be recoverable over the remaining lives of the assets. Upgrades and enhancements are capitalized if they result in significant modifications that enable the software to perform tasks it was previously incapable of performing. Software maintenance, training, data conversion and business process reengineering costs are expensed in the period in which they are incurred. See NOTE 8, "GOODWILL AND OTHER INTANGIBLE ASSETS," for additional information. | |||||||||||||
Warranty | |||||||||||||
We charge the estimated costs of warranty programs, other than product recalls, to cost of sales at the time products are sold and revenue is recognized. We use historical experience to develop the estimated liability for our various warranty programs. As a result of the uncertainty surrounding the nature and frequency of product recall programs, the liability for such programs is recorded when we commit to a recall action or when a recall becomes probable and estimable, which generally occurs when it is announced. The liability for these programs is reflected in the provision for warranties issued. We review and assess the liability for these programs on a quarterly basis. We also assess our ability to recover certain costs from our suppliers and record a receivable when we believe a recovery is probable. In addition to costs incurred on warranty and recall programs, from time to time we also incur costs related to customer satisfaction programs for items not covered by warranty. We accrue for these costs when agreement is reached with a specific customer. These costs are not included in the provision for warranties but are included in cost of sales. | |||||||||||||
In addition, we sell extended warranty coverage on most of our engines. The revenue collected is initially deferred and is recognized as revenue in proportion to the costs expected to be incurred in performing services over the contract period. We compare the remaining deferred revenue balance quarterly to the estimated amount of future claims under extended warranty programs and provide an additional accrual when the deferred revenue balance is less than expected future costs. See NOTE 10, "PRODUCT WARRANTY LIABILITY," for additional information. | |||||||||||||
Research and Development | |||||||||||||
Our research and development program is focused on product improvements, innovations and cost reductions for our customers. Research and development expenditures include salaries, contractor fees, building costs, utilities, administrative expenses and allocation of corporate costs and are expensed, net of contract reimbursements, when incurred. From time to time, we enter into agreements with customers to fund a portion of the research and development costs of a particular project. We generally account for these reimbursements as an offset to the related research and development expenditure. Research and development expenses, net of contract reimbursements, were $737 million in 2014, $700 million in 2013 and $721 million in 2012. Contract reimbursements were $121 million in 2014, $76 million in 2013 and $86 million in 2012. | |||||||||||||
Related Party Transactions | |||||||||||||
In accordance with the provisions of various joint venture agreements, we may purchase products and components from our joint ventures, sell products and components to our joint ventures and our joint ventures may sell products and components to unrelated parties. Joint venture transfer prices may differ from normal selling prices. Certain joint venture agreements transfer product at cost, some transfer product on a cost-plus basis, and others transfer product at market value. Our related party sales are presented on the face of our Consolidated Statements of Income. Our related party purchases were not material to our financial position or results of operations. | |||||||||||||
RECENTLY ADOPTED AND RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS | |||||||||||||
Accounting Pronouncements Recently Adopted | |||||||||||||
In February 2013, the Financial Accounting Standards Board (FASB) amended its standards on comprehensive income by requiring disclosure in the footnotes of information about amounts reclassified out of accumulated other comprehensive income by component. Specifically, the amendment requires disclosure of the line items on net income in which the item was reclassified only if it is reclassified to net income in its entirety in the same reporting period. The new rules became effective for us beginning January 1, 2013 and were adopted prospectively in accordance with the standard. The standard resulted in new disclosures in NOTE 15, "ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)." | |||||||||||||
Accounting Pronouncements Issued But Not Yet Effective | |||||||||||||
In May 2014, the FASB amended its standards related to revenue recognition. This amendment replaces all existing revenue recognition guidance and provides a single, comprehensive revenue recognition model for all contracts with customers. The standard contains principles that we will apply to determine the measurement of revenue and timing of when it is recognized. The underlying principle is that we will recognize revenue in a manner that depicts the transfer of goods or services to customers at an amount that we expect to be entitled to in exchange for those goods or services. The standard allows either full or modified retrospective adoption. Early adoption is not permitted. The guidance provides a five-step analysis of transactions to determine when and how revenue is recognized. Other major provisions include capitalization of certain contract costs, consideration of time value of money in the transaction price and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. The amendment also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to fulfill a contract. The new rules will become effective for annual and interim periods beginning January 1, 2017. We are in the process of evaluating the impact the amendment will have on our Consolidated Financial Statements, and we are further considering the impact of each method of adoption. |
ACQUISITIONS
ACQUISITIONS | 12 Months Ended | ||||||||||||||||||||||||||||||||||
Dec. 31, 2014 | |||||||||||||||||||||||||||||||||||
Business Combinations [Abstract] | |||||||||||||||||||||||||||||||||||
ACQUISITIONS | NOTE 2. ACQUISITIONS | ||||||||||||||||||||||||||||||||||
In September 2013, we announced our intention to acquire the equity that we do not already own in most of our partially-owned United States and Canadian distributors over the next three to five years. | |||||||||||||||||||||||||||||||||||
The Distribution segment joint venture acquisitions for the years ended December 31, 2014, 2013 and 2012 were as follows: | |||||||||||||||||||||||||||||||||||
Entity Acquired (Dollars in millions) | Date of Acquisition | Additional Percent Interest Acquired | Payments to Former Owners | Acquisition Related Debt Retirements | Total Purchase Consideration | Type of Acquisition(1) | Gain Recognized(1) | Goodwill Acquired | Intangibles Recognized(2) | Net Sales Previous Fiscal Year Ended(3) | |||||||||||||||||||||||||
2014 | |||||||||||||||||||||||||||||||||||
Cummins Bridgeway LLC (Bridgeway)(4) | 11/3/14 | 54% | $ | 22 | $ | 45 | $ | 77 | (5) | COMB | $ | 13 | $ | 4 | $ | 15 | $ | 331 | |||||||||||||||||
Cummins Npower LLC (Npower) | 9/29/14 | 50% | 33 | 34 | 73 | (5) | COMB | 15 | 7 | 8 | 374 | ||||||||||||||||||||||||
Cummins Power South LLC (Power South) | 9/29/14 | 50% | 17 | 16 | 35 | (5) | COMB | 7 | 8 | 1 | 239 | ||||||||||||||||||||||||
Cummins Eastern Canada LP (Eastern Canada) | 8/4/14 | 50% | 29 | 32 | 62 | (5) | COMB | 18 | 5 | 4 | 228 | ||||||||||||||||||||||||
Cummins Power Systems LLC (Power Systems) | 5/5/14 | 30% | 14 | — | 14 | EQUITY | — | — | — | — | |||||||||||||||||||||||||
Cummins Southern Plains LLC (Southern Plains) | 3/31/14 | 50% | 43 | 48 | 92 | (5) | COMB | 13 | 1 | 11 | 433 | ||||||||||||||||||||||||
Cummins Mid-South LLC (Mid-South) | 2/14/14 | 62.20% | 55 | 61 | 118 | (5) | COMB | 7 | 4 | 8 | 368 | ||||||||||||||||||||||||
2013 | |||||||||||||||||||||||||||||||||||
Cummins Western Canada LP (Western Canada) | 12/31/13 | 35% | $ | 32 | $ | — | $ | 32 | EQUITY | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||
Cummins Rocky Mountain LLC (Rocky Mountain) | 5/6/13 | 67% | 62 | 74 | 136 | COMB | 5 | 10 | 8 | 384 | |||||||||||||||||||||||||
Cummins Northwest LLC (Northwest) | 7/1/13 | 20.01% | 4 | — | 4 | EQUITY | — | — | — | — | |||||||||||||||||||||||||
Cummins Northwest LLC (Northwest)(6) | 1/31/13 | 50% | 18 | — | 18 | COMB | 7 | 3 | 2 | 137 | |||||||||||||||||||||||||
2012 | |||||||||||||||||||||||||||||||||||
Cummins Central Power LLC (Central Power)(7) | 7/2/12 | 45% | $ | 26 | $ | — | $ | 26 | COMB | $ | 7 | $ | — | $ | 4 | $ | 209 | ||||||||||||||||||
____________________________________________________ | |||||||||||||||||||||||||||||||||||
(1) | All results from acquired entities were included in Distribution segment results subsequent to the acquisition date. Previously consolidated entities were accounted for as equity transactions (EQUITY). Newly consolidated entities were accounted for as business combinations (COMB) with gains recognized based on the requirement to remeasure our pre-existing ownership to fair value in accordance with GAAP and are included in the Consolidated Statements of Income as "Other income (expense), net." | ||||||||||||||||||||||||||||||||||
(2) | Intangible assets acquired in business combinations were mostly customer related, the majority of which will be amortized over a period of up to five years from the date of the acquisition. | ||||||||||||||||||||||||||||||||||
-3 | Sales amounts are not fully incremental to our consolidated sales as the amount would be reduced by the elimination of sales to the previously unconsolidated entity. | ||||||||||||||||||||||||||||||||||
(4) Purchase accounting for this acquisition is preliminary awaiting customary adjustment to purchase price in accordance with the purchase agreements. | |||||||||||||||||||||||||||||||||||
(5) | The "Total Purchase Consideration" represents the total amount that will or is estimated to be paid to complete the acquisition. In some instances a portion of the acquisition payment has not yet been made and will be paid in future periods in accordance with the purchase contract. The total outstanding consideration at December 31, 2014, was $22 million. | ||||||||||||||||||||||||||||||||||
-6 | Prior to our decision to acquire the remaining interest in our North American and Canadian distributors, we acquired the remaining ownership interest in Northwest and immediately formed a new partnership with a new distributor principal and sold 20.01 percent to the new distributor principal. We retained a new ownership in Northwest of 79.99 percent. We subsequently repurchased the remaining outstanding interest under the new contract in July 2013. | ||||||||||||||||||||||||||||||||||
(7) | After the acquisition, Cummins owned a 79.99 percent interest in Central Power. | ||||||||||||||||||||||||||||||||||
The final purchase allocations for the largest acquisitions for 2014 and 2013 were as follows: | |||||||||||||||||||||||||||||||||||
In millions | Southern Plains | Mid-South | Rocky Mountain | ||||||||||||||||||||||||||||||||
Accounts receivable | $ | 63 | $ | 71 | $ | 48 | |||||||||||||||||||||||||||||
Inventory | 59 | 70 | 100 | ||||||||||||||||||||||||||||||||
Fixed assets | 47 | 37 | 34 | ||||||||||||||||||||||||||||||||
Intangible assets | 11 | 8 | 8 | ||||||||||||||||||||||||||||||||
Goodwill | 1 | 4 | 10 | ||||||||||||||||||||||||||||||||
Other current assets | 8 | 10 | 8 | ||||||||||||||||||||||||||||||||
Current liabilities | (53 | ) | (43 | ) | (41 | ) | |||||||||||||||||||||||||||||
Other long-term liability | — | (4 | ) | — | |||||||||||||||||||||||||||||||
Total business valuation | 136 | 153 | 167 | ||||||||||||||||||||||||||||||||
Fair value of pre-existing interest | (44 | ) | (35 | ) | (31 | ) | |||||||||||||||||||||||||||||
Total purchase consideration | $ | 92 | $ | 118 | $ | 136 | |||||||||||||||||||||||||||||
North American distributor acquisitions excluded from the table were deemed immaterial individually and in the aggregate for additional disclosure. | |||||||||||||||||||||||||||||||||||
Hilite Germany GmbH | |||||||||||||||||||||||||||||||||||
In July 2012, we purchased the doser technology and business assets from Hilite Germany GmbH (Hilite) in a cash transaction. Dosers are products that enable compliance with emission standards in certain aftertreatment systems and complement our current product offerings. The purchase price was $176 million and is summarized below. There was no contingent consideration associated with this transaction. During 2012, we expensed approximately $4 million of acquisition related costs. | |||||||||||||||||||||||||||||||||||
The acquisition of Hilite was accounted for as a business combination with the results of the acquired entity and the goodwill included in the Components operating segment beginning in the third quarter of 2012. The majority of the purchase price was allocated to technology and customer related intangible assets and goodwill. | |||||||||||||||||||||||||||||||||||
Intangible assets by asset class, including weighted average amortization life, were as follows: | |||||||||||||||||||||||||||||||||||
Dollars in millions | Purchase price | Weighted average | |||||||||||||||||||||||||||||||||
allocation | amortization life | ||||||||||||||||||||||||||||||||||
in years | |||||||||||||||||||||||||||||||||||
Technology | $ | 52 | 10.6 | ||||||||||||||||||||||||||||||||
Customer | 23 | 4.5 | |||||||||||||||||||||||||||||||||
License arrangements | 8 | 6 | |||||||||||||||||||||||||||||||||
Total intangible assets | $ | 83 | 8.5 | ||||||||||||||||||||||||||||||||
The purchase allocation was as follows: | |||||||||||||||||||||||||||||||||||
In millions | |||||||||||||||||||||||||||||||||||
Inventory | $ | 5 | |||||||||||||||||||||||||||||||||
Fixed assets | 5 | ||||||||||||||||||||||||||||||||||
Intangible assets | 83 | ||||||||||||||||||||||||||||||||||
Goodwill | 91 | ||||||||||||||||||||||||||||||||||
Liabilities | (8 | ) | |||||||||||||||||||||||||||||||||
Total purchase consideration | $ | 176 | |||||||||||||||||||||||||||||||||
Net sales for Hilite were $104 million for 2012, of which $46 million was included in our Consolidated Statements of Income. |
INVESTMENTS_IN_EQUITY_INVESTEE
INVESTMENTS IN EQUITY INVESTEES | 12 Months Ended | ||||||||||||
Dec. 31, 2014 | |||||||||||||
Equity Method Investments and Joint Ventures [Abstract] | |||||||||||||
INVESTMENTS IN EQUITY INVESTEES | NOTE 3. INVESTMENTS IN EQUITY INVESTEES | ||||||||||||
Investments in and advances to equity investees and our ownership percentage was as follows: | |||||||||||||
December 31, | |||||||||||||
In millions | Ownership % | 2014 | 2013 | ||||||||||
Komatsu alliances | 20-50% | $ | 160 | $ | 132 | ||||||||
Dongfeng Cummins Engine Company, Ltd. | 50% | 136 | 135 | ||||||||||
Beijing Foton Cummins Engine Co., Ltd. (1) | 50% | 117 | 103 | ||||||||||
Chongqing Cummins Engine Company, Ltd. | 50% | 92 | 67 | ||||||||||
Cummins-Scania XPI Manufacturing, LLC | 50% | 85 | 71 | ||||||||||
Tata Cummins, Ltd. | 50% | 57 | 50 | ||||||||||
North American distributors (2) | 49-50% | 41 | 114 | ||||||||||
Other | Various | 293 | 259 | ||||||||||
Total | $ | 981 | $ | 931 | |||||||||
_______________________________________________________________ | |||||||||||||
(1) Includes both the light-duty and the heavy-duty businesses. | |||||||||||||
(2) Current ownership percentage of North American distributor investments as of December 31, 2014. | |||||||||||||
Equity, royalty and interest income from investees, net of applicable taxes, was as follows: | |||||||||||||
Years ended December 31, | |||||||||||||
In millions | 2014 | 2013 | 2012 | ||||||||||
Distribution Entities | |||||||||||||
North American distributors | $ | 107 | $ | 129 | $ | 147 | |||||||
Komatsu Cummins Chile, Ltda. | 29 | 25 | 26 | ||||||||||
All other distributors | 4 | 1 | 4 | ||||||||||
Manufacturing Entities | |||||||||||||
Dongfeng Cummins Engine Company, Ltd. | 67 | 63 | 52 | ||||||||||
Chongqing Cummins Engine Company, Ltd. | 51 | 58 | 61 | ||||||||||
Beijing Foton Cummins Engine Co., Ltd. (Light-duty) | 28 | 17 | 5 | ||||||||||
Beijing Foton Cummins Engine Co., Ltd. (Heavy-duty) | (30 | ) | (21 | ) | (13 | ) | |||||||
All other manufacturers | 74 | 53 | 65 | ||||||||||
Cummins share of net income | 330 | 325 | 347 | ||||||||||
Royalty and interest income | 40 | 36 | 37 | ||||||||||
Equity, royalty and interest income from investees | $ | 370 | $ | 361 | $ | 384 | |||||||
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. | |||||||||||||
• | North American Distributors - As of December 31, 2014, our distribution channel in North America included three unconsolidated partially-owned distributors. Our equity interests in these nonconsolidated entities ranged from 49 percent to 50 percent. We also had more than a 50 percent ownership interest in two 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. | ||||||||||||
• | 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. | ||||||||||||
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 consideration 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. | |||||||||||||
• | 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. | ||||||||||||
• | 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. | ||||||||||||
• | 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 started 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 are used in heavy-duty commercial trucks in China and will be used in world wide markets. Certain types of construction equipment and industrial applications will also be served by these engine families in the future. | ||||||||||||
Equity Investee Financial Summary | |||||||||||||
We have approximately $489 million in our investment account at December 31, 2014, that represents cumulative undistributed income in our equity investees. Dividends received from our unconsolidated equity investees were $227 million, $271 million and $329 million in 2014, 2013 and 2012, respectively. Summary financial information for our equity investees was as follows: | |||||||||||||
As of and for the years ended December 31, | |||||||||||||
In millions | 2014 | 2013 | 2012 | ||||||||||
Net sales | $ | 7,426 | $ | 7,799 | $ | 8,296 | |||||||
Gross margin | 1,539 | 1,719 | 1,870 | ||||||||||
Net income | 630 | 690 | 747 | ||||||||||
Cummins share of net income | $ | 330 | $ | 325 | $ | 347 | |||||||
Royalty and interest income | 40 | 36 | 37 | ||||||||||
Total equity, royalty and interest from investees | $ | 370 | $ | 361 | $ | 384 | |||||||
Current assets | $ | 2,476 | $ | 2,742 | |||||||||
Non-current assets | 1,667 | 1,794 | |||||||||||
Current liabilities | (1,875 | ) | (2,090 | ) | |||||||||
Non-current liabilities | (420 | ) | (541 | ) | |||||||||
Net assets | $ | 1,848 | $ | 1,905 | |||||||||
Cummins share of net assets | $ | 956 | $ | 967 | |||||||||
INCOME_TAXES
INCOME TAXES | 12 Months Ended | ||||||||||||
Dec. 31, 2014 | |||||||||||||
Income Tax Disclosure [Abstract] | |||||||||||||
INCOME TAXES | NOTE 4. INCOME TAXES | ||||||||||||
Years ended December 31, | |||||||||||||
In millions | 2014 | 2013 | 2012 | ||||||||||
Income before income taxes | |||||||||||||
U.S. income | $ | 1,407 | $ | 1,058 | $ | 998 | |||||||
Foreign income | 1,027 | 1,061 | 1,273 | ||||||||||
Total | $ | 2,434 | $ | 2,119 | $ | 2,271 | |||||||
Income tax expense consists of the following: | |||||||||||||
Years ended December 31, | |||||||||||||
In millions | 2014 | 2013 | 2012 | ||||||||||
Current | |||||||||||||
U.S. federal and state | $ | 470 | $ | 239 | $ | 118 | |||||||
Foreign | 197 | 192 | 299 | ||||||||||
Total current | 667 | 431 | 417 | ||||||||||
Deferred | |||||||||||||
U.S. federal and state | 39 | 67 | 108 | ||||||||||
Foreign | (8 | ) | 33 | 8 | |||||||||
Total deferred | 31 | 100 | 116 | ||||||||||
Income tax expense | $ | 698 | $ | 531 | $ | 533 | |||||||
A reconciliation of the statutory U.S. federal income tax rate to the effective tax rate was as follows: | |||||||||||||
Years ended December 31, | |||||||||||||
2014 | 2013 | 2012 | |||||||||||
Statutory U.S. federal income tax rate | 35 | % | 35 | % | 35 | % | |||||||
State income tax, net of federal effect | 1.1 | 0.2 | 1 | ||||||||||
Differences in rates and taxability of foreign subsidiaries and joint ventures | (5.7 | ) | (6.0 | ) | (12.1 | ) | |||||||
Research tax credits | (1.5 | ) | (3.7 | ) | (0.4 | ) | |||||||
Other, net | (0.2 | ) | (0.4 | ) | — | ||||||||
Effective tax rate | 28.7 | % | 25.1 | % | 23.5 | % | |||||||
Our income tax rates are generally less than the 35 percent U.S. statutory income tax rate primarily because of lower taxes on foreign earnings and research tax credits. Our effective tax rate for 2014 was 28.7 percent compared to 25.1 percent for 2013. The 3.6 percent increase in the effective tax rate from 2013 to 2014 is partially due to a 1.2 percent net tax benefit for one-time items in 2013 that did not repeat in 2014. These 2013 one-time items consisted primarily of the 2012 federal research tax credit that was reinstated during 2013. The additional 2.4 percent increase in tax rate from 2013 to 2014 is attributable primarily to the following unfavorable items that occurred in 2014: a tax law change in the United Kingdom (U.K.) resulting in a higher limitation on the deductibility of interest; unfavorable changes in the jurisdictional mix of pretax income; and increases in state valuation allowances. | |||||||||||||
Retained earnings of our U.K. domiciled subsidiaries and certain Singapore, German, Indian and Mexican subsidiaries are considered to be permanently reinvested. During 2013, we released $12 million of U.S. deferred tax liabilities related to prior years unremitted income of certain Indian and Mexican subsidiaries considered to be permanently reinvested starting in 2013. In addition, earnings of our China operations generated after December 31, 2011, are considered to be permanently reinvested. U.S. deferred tax is not provided on these permanently reinvested earnings. Our permanently reinvested foreign earnings are expected to be used for items such as capital expenditures and to fund joint ventures outside of the U.S. The total permanently reinvested retained earnings and related cumulative translation adjustment balances for these entities were $3.8 billion, $3.1 billion and $2.3 billion for the years ended December 31, 2014, 2013, and 2012, respectively. These amounts were determined primarily based on book retained earnings balances for these subsidiaries translated at historical rates. The determination of the deferred tax liability related to these retained earnings and cumulative translation adjustment balances which are considered to be permanently reinvested outside the U.S. is not practicable. | |||||||||||||
For our remaining subsidiary companies and joint ventures outside the U.S., we provide for the additional taxes that would be due upon the dividend distribution of the income of those foreign subsidiaries and joint ventures assuming the full utilization of foreign tax credits. Deferred tax liabilities on unremitted earnings of foreign subsidiaries and joint ventures, including those in China generated in years prior to 2012, were $204 million and $201 million at December 31, 2014 and 2013, respectively. We have $661 million of retained earnings and related cumulative translation adjustments in our China operations generated prior to December 31, 2011, for which we have provided a U.S. deferred tax liability of $155 million. We anticipate that these earnings will be distributed to the U.S. within the next five years. | |||||||||||||
Income before income taxes included equity income of foreign joint ventures of $212 million, $203 million and $192 million for the years ended December 31, 2014, 2013 and 2012, respectively. This equity income is recorded net of foreign taxes. Additional U.S. income taxes of $14 million, $13 million and $9 million for the years ended December 31, 2014, 2013 and 2012, respectively, were provided for the additional U.S. taxes that will ultimately be due upon the distribution of the foreign joint venture equity income. | |||||||||||||
Carryforward tax benefits and the tax effect of temporary differences between financial and tax reporting that give rise to net deferred tax assets were as follows: | |||||||||||||
December 31, | |||||||||||||
In millions | 2014 | 2013 | |||||||||||
Deferred tax assets | |||||||||||||
U.S. state carryforward benefits | $ | 124 | $ | 124 | |||||||||
Foreign carryforward benefits | 66 | 63 | |||||||||||
Employee benefit plans | 367 | 328 | |||||||||||
Warranty expenses | 354 | 332 | |||||||||||
Accrued expenses | 89 | 70 | |||||||||||
Other | 45 | 51 | |||||||||||
Gross deferred tax assets | 1,045 | 968 | |||||||||||
Valuation allowance | (144 | ) | (101 | ) | |||||||||
Total deferred tax assets | 901 | 867 | |||||||||||
Deferred tax liabilities | |||||||||||||
Property, plant and equipment | (329 | ) | (304 | ) | |||||||||
Unremitted income of foreign subsidiaries and joint ventures | (204 | ) | (201 | ) | |||||||||
Employee benefit plans | (161 | ) | (158 | ) | |||||||||
Other | (23 | ) | (27 | ) | |||||||||
Total deferred tax liabilities | (717 | ) | (690 | ) | |||||||||
Net deferred tax assets | $ | 184 | $ | 177 | |||||||||
Our 2014 U.S. carryforward benefits include $124 million of state credit and net operating loss carryforward benefits that begin to expire in 2015. Our foreign carryforward benefits include $66 million of net operating loss carryforwards that begin to expire in 2015. A valuation allowance is recorded to reduce the gross deferred tax assets to an amount we believe is more likely than not to be realized. The valuation allowance increased in 2014 by a net $43 million and increased in 2013 by a net $6 million. The valuation allowance is primarily attributable to the uncertainty regarding the realization of a portion of the U.S. state and foreign net operating loss and tax credit carryforward benefits. Prepaid and other current assets include deferred tax assets of $274 million and $232 million for the years ended December 31, 2014 and 2013, respectively. In addition, prepaid and other current assets include refundable income taxes of $170 million and $152 million for the years ended December 31, 2014 and 2013, respectively. Other assets include deferred tax assets of $40 million and $61 million for the years ended December 31, 2014 and 2013, respectively. In addition, other assets include $24 million and $59 million of long-term refundable income taxes for the years ended December 31, 2014 and 2013, respectively. Other liabilities and deferred revenue included deferred tax liabilities of $130 million and $116 million for the years ended December 31, 2014 and 2013, respectively. | |||||||||||||
A reconciliation of unrecognized tax benefits for the years ended December 31, 2014, 2013 and 2012 was as follows: | |||||||||||||
In millions | |||||||||||||
Balance at December 31, 2011 | $ | 86 | |||||||||||
Additions based on tax positions related to the current year | 4 | ||||||||||||
Additions based on tax positions related to the prior years | 57 | ||||||||||||
Reductions for tax positions related to prior years | (2 | ) | |||||||||||
Balance at December 31, 2012 | 145 | ||||||||||||
Additions based on tax positions related to the current year | 10 | ||||||||||||
Additions based on tax positions related to the prior years | 21 | ||||||||||||
Reductions for tax positions related to prior years | (6 | ) | |||||||||||
Reductions for tax positions relating to lapse of statute of limitations | (1 | ) | |||||||||||
Balance at December 31, 2013 | 169 | ||||||||||||
Additions based on tax positions related to the current year | 8 | ||||||||||||
Additions based on tax positions related to the prior years | 5 | ||||||||||||
Reductions for tax positions related to prior years | (2 | ) | |||||||||||
Reductions for tax positions relating to settlements with taxing authorities | (5 | ) | |||||||||||
Reductions for tax positions relating to lapse of statute of limitations | (1 | ) | |||||||||||
Balance at December 31, 2014 | $ | 174 | |||||||||||
Included in the December 31, 2014 and 2013, balances are $114 million and $107 million related to tax positions that, if recognized, would favorably impact the effective tax rate in future periods. Also, we had accrued interest expense related to the unrecognized tax benefits of $7 million, $3 million and $2 million as of December 31, 2014, 2013 and 2012, respectively. We recognize potential accrued interest and penalties related to unrecognized tax benefits in income tax expense. For the years ended December 31, 2014, 2013 and 2012, we recognized $4 million, $1 million and $(3) million in net interest expense, respectively. | |||||||||||||
Audit outcomes and the timing of audit settlements are subject to significant uncertainty. Although we believe that adequate provision has been made for such issues, there is the possibility that the ultimate resolution of such issues could have an adverse effect on our earnings. Conversely, if these issues are resolved favorably in the future, the related provision would be reduced, thus having a positive impact on earnings. | |||||||||||||
In January 2015, we resolved tax matters related primarily to certain tax credits that were under examination. We estimate that unrecognized tax benefits will decrease in an amount ranging from $60 million to $70 million in the first quarter of 2015 due to the resolution of these issues. We expect this resolution to result in a tax benefit ranging from $10 million to $20 million in the first quarter of 2015. We do not expect any other significant changes in our unrecognized tax benefits in the next 12 months. | |||||||||||||
As a result of our global operations, we file income tax returns in various jurisdictions including U.S. federal, state and foreign jurisdictions. We are routinely subject to examination by taxing authorities throughout the world, including Australia, Belgium, Brazil, Canada, China, France, India, Mexico, the U.K. and the U.S. With few exceptions, our U.S. federal, major state and foreign jurisdictions are no longer subject to income tax assessments for years before 2011. The U.S. examinations related to tax years 2011-2012 commenced during 2014. |
MARKETABLE_SECURITIES
MARKETABLE SECURITIES | 12 Months Ended | ||||||||||||||||||||||||
Dec. 31, 2014 | |||||||||||||||||||||||||
Marketable Securities [Abstract] | |||||||||||||||||||||||||
MARKETABLE SECURITIES | NOTE 5. MARKETABLE SECURITIES | ||||||||||||||||||||||||
A summary of marketable securities, all of which are classified as current, was as follows: | |||||||||||||||||||||||||
December 31, | |||||||||||||||||||||||||
2014 | 2013 | ||||||||||||||||||||||||
In millions | Cost | Gross unrealized | Estimated | Cost | Gross unrealized | Estimated | |||||||||||||||||||
gains/(losses) | fair value | gains/(losses) | fair value | ||||||||||||||||||||||
Available-for-sale | |||||||||||||||||||||||||
Level 1(1) (2) | |||||||||||||||||||||||||
Equity securities(3) | $ | — | $ | — | $ | — | $ | 10 | $ | 13 | $ | 23 | |||||||||||||
Total Level 1 | — | — | — | 10 | 13 | 23 | |||||||||||||||||||
Level 2(2) (4) | |||||||||||||||||||||||||
Debt mutual funds | 75 | 1 | 76 | 99 | 2 | 101 | |||||||||||||||||||
Equity mutual funds | 9 | — | 9 | — | — | — | |||||||||||||||||||
Bank debentures | 6 | — | 6 | 2 | — | 2 | |||||||||||||||||||
Certificates of deposit | — | — | — | 22 | — | 22 | |||||||||||||||||||
Government debt securities | 2 | — | 2 | 3 | (1 | ) | 2 | ||||||||||||||||||
Total Level 2 | 92 | 1 | 93 | 126 | 1 | 127 | |||||||||||||||||||
Total marketable securities | $ | 92 | $ | 1 | $ | 93 | $ | 136 | $ | 14 | $ | 150 | |||||||||||||
______________________________________________________ | |||||||||||||||||||||||||
(1) The fair value of Level 1 securities is estimated primarily by referencing quoted prices in active markets for identical assets. | |||||||||||||||||||||||||
(2) We revised 2013 balances to classify $72 million as Level 2 assets instead of Level 1. | |||||||||||||||||||||||||
(3) In the first quarter of 2013, we realized a $9 million gain on the sale of equity securities. | |||||||||||||||||||||||||
(4) The fair value of Level 2 securities is estimated primarily using actively quoted prices for similar instruments from brokers and observable inputs, including market transactions and third-party pricing services. We do not currently have any Level 3 securities, and there were no transfers between Level 2 or 3 during 2014 and 2013. | |||||||||||||||||||||||||
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). We utilize market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. We primarily apply the market approach for recurring fair value measurements and utilize the best available information. Accordingly, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. We are able to classify fair value balances based on the observability of those inputs. The fair value hierarchy prioritizes the inputs used to measure fair value giving the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). At December 31, 2014, we did not have any Level 1 or Level 3 financial assets or liabilities. | |||||||||||||||||||||||||
A description of the valuation techniques and inputs used for our Level 2 fair value measures was as follows: | |||||||||||||||||||||||||
• | Debt mutual funds— Assets in Level 2 consist of exchange traded mutual funds that lack sufficient trading volume to be classified at Level 1. The fair value measure for these investments is the daily net asset value published on a regulated governmental website. Daily quoted prices are available from the issuing brokerage and are used on a test basis to corroborate this Level 2 input. | ||||||||||||||||||||||||
• | Bank debentures and Certificates of deposit— These investments provide us with a fixed rate of return and generally range in maturity from six months to five years. The counter-parties to these investments are reputable financial institutions with investment grade credit ratings. Since these instruments are not tradable and must be settled directly by us with the respective financial institution, our fair value measure is the financial institutions’ month-end statement. | ||||||||||||||||||||||||
• | Government debt securities-non-U.S. and Corporate debt securities— The fair value measure for these securities are broker quotes received from reputable firms. These securities are infrequently traded on a national stock exchange and these values are used on a test basis to corroborate our Level 2 input measure. | ||||||||||||||||||||||||
The proceeds from sales and maturities of marketable securities and gross realized gains from the sale of AFS securities were as follows: | |||||||||||||||||||||||||
Years ended December 31, | |||||||||||||||||||||||||
In millions | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Proceeds from sales and maturities of marketable securities | $ | 336 | $ | 525 | $ | 585 | |||||||||||||||||||
Gross realized gains from the sale of available-for-sale securities(1) | 14 | 14 | 3 | ||||||||||||||||||||||
____________________________________________________ | |||||||||||||||||||||||||
(1) Gross realized losses from the sale of available-for-sale securities were immaterial. | |||||||||||||||||||||||||
At December 31, 2014, the fair value of available-for-sale investments in debt securities that utilize a Level 2 fair value measure is shown by contractual maturity below: | |||||||||||||||||||||||||
Maturity date | (in millions) | ||||||||||||||||||||||||
1 year or less | $ | 77 | |||||||||||||||||||||||
1 - 5 years | 6 | ||||||||||||||||||||||||
5 - 10 years | 1 | ||||||||||||||||||||||||
Total | $ | 84 | |||||||||||||||||||||||
INVENTORIES
INVENTORIES | 12 Months Ended | |||||||
Dec. 31, 2014 | ||||||||
Inventory Disclosure [Abstract] | ||||||||
INVENTORIES | NOTE 6. INVENTORIES | |||||||
Inventories are stated at the lower of cost or market. Inventories included the following: | ||||||||
December 31, | ||||||||
In millions | 2014 | 2013 | ||||||
Finished products | $ | 1,859 | $ | 1,487 | ||||
Work-in-process and raw materials | 1,129 | 1,005 | ||||||
Inventories at FIFO cost | 2,988 | 2,492 | ||||||
Excess of FIFO over LIFO | (122 | ) | (111 | ) | ||||
Total inventories | $ | 2,866 | $ | 2,381 | ||||
PROPERTY_PLANT_AND_EQUIPMENT
PROPERTY, PLANT AND EQUIPMENT | 12 Months Ended | |||||||
Dec. 31, 2014 | ||||||||
Property, Plant and Equipment [Abstract] | ||||||||
PROPERTY, PLANT AND EQUIPMENT | NOTE 7. PROPERTY, PLANT AND EQUIPMENT | |||||||
Details of our property, plant and equipment balance were as follows: | ||||||||
December 31, | ||||||||
In millions | 2014 | 2013 | ||||||
Land and buildings | $ | 1,822 | $ | 1,427 | ||||
Machinery, equipment and fixtures | 4,722 | 4,174 | ||||||
Construction in process (1) | 579 | 809 | ||||||
Property, plant and equipment, gross | 7,123 | 6,410 | ||||||
Less: Accumulated depreciation | (3,437 | ) | (3,254 | ) | ||||
Property, plant and equipment, net | $ | 3,686 | $ | 3,156 | ||||
_______________________________________________ | ||||||||
(1) | Construction in process included $14 million in 2014 and $188 million in 2013 related to our light-duty diesel engine platform. |
GOODWILL_AND_OTHER_INTANGIBLE_
GOODWILL AND OTHER INTANGIBLE ASSETS | 12 Months Ended | |||||||||||||||||||
Dec. 31, 2014 | ||||||||||||||||||||
Goodwill and Intangible Assets Disclosure [Abstract] | ||||||||||||||||||||
GOODWILL AND OTHER INTANGIBLE ASSETS | NOTE 8. GOODWILL AND OTHER INTANGIBLE ASSETS | |||||||||||||||||||
The following table summarizes the changes in the carrying amount of goodwill for the years ended December 31, 2014 and 2013: | ||||||||||||||||||||
In millions | Components | Distribution | Power Generation | Engine | Total | |||||||||||||||
Balance at December 31, 2012 | $ | 408 | $ | 19 | $ | 12 | $ | 6 | $ | 445 | ||||||||||
Acquisitions | — | 13 | — | — | 13 | |||||||||||||||
Translation and other | 3 | (1 | ) | 1 | — | 3 | ||||||||||||||
Balance at December 31, 2013 | 411 | 31 | 13 | 6 | 461 | |||||||||||||||
Acquisitions | — | 31 | — | — | 31 | |||||||||||||||
Translation and other | (11 | ) | — | (2 | ) | — | (13 | ) | ||||||||||||
Balance at December 31, 2014 | $ | 400 | $ | 62 | $ | 11 | $ | 6 | $ | 479 | ||||||||||
Intangible assets that have finite useful lives are amortized over their estimated useful lives. The following table summarizes our other intangible assets with finite useful lives that are subject to amortization: | ||||||||||||||||||||
December 31, | ||||||||||||||||||||
In millions | 2014 | 2013 | ||||||||||||||||||
Software | $ | 472 | $ | 494 | ||||||||||||||||
Less: Accumulated amortization | (218 | ) | (218 | ) | ||||||||||||||||
Net software | 254 | 276 | ||||||||||||||||||
Trademarks, patents and other | 164 | 135 | ||||||||||||||||||
Less: Accumulated amortization | (75 | ) | (54 | ) | ||||||||||||||||
Net trademarks, patents and other | 89 | 81 | ||||||||||||||||||
Total | $ | 343 | $ | 357 | ||||||||||||||||
Amortization expense for software and other intangibles totaled $99 million, $86 million and $64 million for the years ended December 31, 2014, 2013 and 2012, respectively. Internal and external software costs (excluding those related to research, re-engineering and training), trademarks and patents are amortized generally over a 3 to 12 year period. The projected amortization expense of our intangible assets, assuming no further acquisitions or dispositions, is as follows: | ||||||||||||||||||||
In millions | 2015 | 2016 | 2017 | 2018 | 2019 | |||||||||||||||
Projected amortization expense | $ | 86 | $ | 75 | $ | 56 | $ | 36 | $ | 25 | ||||||||||
DEBT
DEBT | 12 Months Ended | ||||||||||||||||||||||||
Dec. 31, 2014 | |||||||||||||||||||||||||
Debt Disclosure [Abstract] | |||||||||||||||||||||||||
DEBT | NOTE 9. DEBT | ||||||||||||||||||||||||
Loans Payable | |||||||||||||||||||||||||
Loans payable at December 31, 2014 and 2013 were $86 million and $17 million, respectively, and consisted primarily of notes payable to financial institutions. The weighted-average interest rate for notes payable, bank overdrafts and current maturities of long-term debt at December 31, 2014, 2013 and 2012, was as follows: | |||||||||||||||||||||||||
2014 | 2013 | 2012 | |||||||||||||||||||||||
Weighted average interest rate | 3.7 | % | 2.59 | % | 3.21 | % | |||||||||||||||||||
Interest | |||||||||||||||||||||||||
For the years ended December 31, 2014, 2013 and 2012, total interest incurred was $71 million, $48 million and $39 million, respectively, and interest capitalized was $7 million, $7 million and $7 million, respectively. | |||||||||||||||||||||||||
Revolving Credit Facility | |||||||||||||||||||||||||
On November 9, 2012, we entered into a five-year revolving credit agreement with a syndicate of lenders. The credit agreement provides us with a $1.75 billion senior unsecured revolving credit facility, the proceeds of which are to be used for working capital or other general corporate purposes. In the fourth quarter of 2014, we exercised our option to extend the maturity date of our revolving credit agreement by one year from November 9, 2017, to November 9, 2018. | |||||||||||||||||||||||||
Amounts payable under our revolving credit facility will rank pro rata with all of our unsecured, unsubordinated indebtedness. Up to $200 million under our credit facility is available for swingline loans denominated in U.S. dollars. Advances under the facility bear interest at (i) a base rate or (ii) a rate equal to the LIBOR rate plus an applicable margin based on the credit ratings of our outstanding senior unsecured long-term debt. Based on our current long-term debt ratings, the applicable margin on LIBOR rate loans was 0.875 percent per annum as of December 31, 2014. Advances under the facility may be prepaid without premium or penalty, subject to customary breakage costs. | |||||||||||||||||||||||||
The credit agreement includes various covenants, including, among others, maintaining a leverage ratio of no more than 3.25 to 1.0. As of December 31, 2014, we were in compliance with the covenants. | |||||||||||||||||||||||||
There were no outstanding borrowings under this facility at December 31, 2014. A reconciliation of the maximum capacity of our revolver to the amount available under the facility was as follows: | |||||||||||||||||||||||||
In millions | 31-Dec-14 | ||||||||||||||||||||||||
Maximum credit capacity of the revolving credit facility | $ | 1,750 | |||||||||||||||||||||||
Less: Letters of credit against revolving credit facility | 24 | ||||||||||||||||||||||||
Amount available for borrowing under the revolving credit facility | $ | 1,726 | |||||||||||||||||||||||
As of December 31, 2014, we also had $261 million available for borrowings under our international and other domestic credit facilities. Borrowings against the other domestic and international short-term facilities were $86 million as of December 31, 2014 and $17 million at the end of 2013. | |||||||||||||||||||||||||
Long-term Debt | |||||||||||||||||||||||||
December 31, | |||||||||||||||||||||||||
In millions | 2014 | 2013 | |||||||||||||||||||||||
Long-term debt | |||||||||||||||||||||||||
Senior notes, 3.65%, due 2023 | $ | 500 | $ | 500 | |||||||||||||||||||||
Debentures, 6.75%, due 2027 | 58 | 58 | |||||||||||||||||||||||
Debentures, 7.125%, due 2028 | 250 | 250 | |||||||||||||||||||||||
Senior notes, 4.875%, due 2043 | 500 | 500 | |||||||||||||||||||||||
Debentures, 5.65%, due 2098 (effective interest rate 7.48%) | 165 | 165 | |||||||||||||||||||||||
Credit facilities related to consolidated joint ventures | 3 | 92 | |||||||||||||||||||||||
Other debt | 31 | 65 | |||||||||||||||||||||||
Unamortized discount | (47 | ) | (48 | ) | |||||||||||||||||||||
Fair value adjustments due to hedge on indebtedness | 65 | 49 | |||||||||||||||||||||||
Capital leases | 87 | 92 | |||||||||||||||||||||||
Total long-term debt | 1,612 | 1,723 | |||||||||||||||||||||||
Less: Current maturities of long-term debt | (23 | ) | (51 | ) | |||||||||||||||||||||
Long-term debt | $ | 1,589 | $ | 1,672 | |||||||||||||||||||||
Principal payments required on long-term debt during the next five years are as follows: | |||||||||||||||||||||||||
In millions | 2015 | 2016 | 2017 | 2018 | 2019 | ||||||||||||||||||||
Principal payments | $ | 23 | $ | 28 | $ | 12 | $ | 16 | $ | 11 | |||||||||||||||
As a well-known seasoned issuer, we filed an automatic shelf registration for an undetermined amount of debt and equity securities with the Securities and Exchange Commission on September 16, 2013. Under this shelf registration we may offer, from time to time, debt securities, common stock, preferred and preference stock, depositary shares, warrants, stock purchase contracts and stock purchase units. | |||||||||||||||||||||||||
In September 2013, we issued $1 billion aggregate principal amount of senior notes consisting of $500 million aggregate principal amount of 3.65% senior unsecured notes due in 2023 and $500 million aggregate principal amount of 4.875% senior unsecured notes due in 2043. We received net proceeds of $979 million. The senior notes pay interest semi-annually on April 1 and October 1, commencing on April 1, 2014. The indenture governing the senior notes contains covenants that, among other matters, limit (i) our ability to consolidate or merge into, or sell, assign, convey, lease, transfer or otherwise dispose of all or substantially all of our and our subsidiaries' assets to another person, (ii) our and certain of our subsidiaries' ability to create or assume liens and (iii) our and certain of our subsidiaries' ability to engage in sale and leaseback transactions. | |||||||||||||||||||||||||
Interest on the 6.75% debentures is payable on February 15 and August 15 each year. | |||||||||||||||||||||||||
Interest on the $250 million 7.125% debentures and $165 million 5.65% debentures is payable on March 1 and September 1 of each year. The debentures are unsecured and are not subject to any sinking fund requirements. We can redeem the 7.125% debentures and the 5.65% debentures at any time prior to maturity at the greater of par plus accrued interest or an amount designed to ensure that the debenture holders are not penalized by the early redemption. | |||||||||||||||||||||||||
Our debt agreements contain several restrictive covenants. The most restrictive of these covenants applies to our revolving credit facility which will upon default, among other things, limit our ability to incur additional debt or issue preferred stock, enter into sale-leaseback transactions, sell or create liens on our assets, make investments and merge or consolidate with any other person. In addition, we are subject to a maximum debt-to-EBITDA ratio financial covenant. As of December 31, 2014, we were in compliance with all of the covenants under our borrowing agreements. | |||||||||||||||||||||||||
Interest Rate Risk | |||||||||||||||||||||||||
We are exposed to market risk from fluctuations in interest rates. We manage our exposure to interest rate fluctuations through the use of interest rate swaps. The objective of the swaps is to more effectively balance our borrowing costs and interest rate risk. | |||||||||||||||||||||||||
In February 2014, we settled our November 2005 interest rate swap which previously converted our $250 million debt issue, due in 2028, from a fixed rate to a floating rate based on LIBOR spread. We are amortizing the $52 million gain realized upon settlement over the remaining 14-year term of related debt. | |||||||||||||||||||||||||
Also, in February 2014, we entered into a series of interest rate swaps to effectively convert our September 2013, $500 million debt issue, due in 2023, from a fixed rate of 3.65 percent to a floating rate equal to the one-month LIBOR plus a spread. The terms of the swaps mirror those of the debt, with interest paid semi-annually. The swaps were designated, and will be accounted for, as fair value hedges under GAAP. The gain or loss on these derivative instruments, as well as the offsetting gain or loss on the hedged item attributable to the hedged risk, are recognized in current income as “Interest expense.” The net swap settlements that accrue each period are also reported in interest expense. | |||||||||||||||||||||||||
The following table summarizes these gains and losses for the years presented below: | |||||||||||||||||||||||||
Years ended December 31, | |||||||||||||||||||||||||
In millions | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Income Statement Classification | Gain/(Loss) on | Gain/(Loss) on | Gain/(Loss) on | Gain/(Loss) on | Gain/(Loss) on | Gain/(Loss) on | |||||||||||||||||||
Swaps | Borrowings | Swaps | Borrowings | Swaps | Borrowings | ||||||||||||||||||||
Interest expense (1) | $ | 23 | $ | (19 | ) | $ | (39 | ) | $ | 39 | $ | 6 | $ | (6 | ) | ||||||||||
___________________________________________ | |||||||||||||||||||||||||
(1) The difference between the gain/(loss) on swaps and borrowings represents hedge ineffectiveness. | |||||||||||||||||||||||||
Fair Value of Debt | |||||||||||||||||||||||||
Based on borrowing rates currently available to us for bank loans with similar terms and average maturities, considering our risk premium, the fair value and carrying value of total debt, including current maturities, was as follows: | |||||||||||||||||||||||||
In millions | December 31, 2014 | December 31, 2013 | |||||||||||||||||||||||
Fair value of total debt(1) | $ | 1,993 | $ | 1,877 | |||||||||||||||||||||
Carrying value of total debt | 1,698 | 1,740 | |||||||||||||||||||||||
___________________________________________ | |||||||||||||||||||||||||
(1) The fair value of debt is derived from Level 2 inputs. |
PRODUCT_WARRANTY_LIABILITY
PRODUCT WARRANTY LIABILITY | 12 Months Ended | ||||||||||
Dec. 31, 2014 | |||||||||||
Product Warranties Disclosures [Abstract] | |||||||||||
PRODUCT WARRANTY LIABILITY | NOTE 10. PRODUCT WARRANTY LIABILITY | ||||||||||
A tabular reconciliation of the product warranty liability, including the deferred revenue related to our extended warranty coverage and accrued recall programs was as follows: | |||||||||||
December 31, | |||||||||||
In millions | 2014 | 2013 | |||||||||
Balance, beginning of year | $ | 1,129 | $ | 1,088 | |||||||
Provision for warranties issued | 411 | 431 | |||||||||
Deferred revenue on extended warranty contracts sold | 263 | 189 | |||||||||
Payments | (404 | ) | (427 | ) | |||||||
Amortization of deferred revenue on extended warranty contracts | (148 | ) | (115 | ) | |||||||
Changes in estimates for pre-existing warranties | 41 | (35 | ) | ||||||||
Foreign currency translation | (9 | ) | (2 | ) | |||||||
Balance, end of year | $ | 1,283 | $ | 1,129 | |||||||
Warranty related deferred revenue, supplier recovery receivables and the long-term portion of the warranty liability on our Consolidated Balance Sheets were as follows: | |||||||||||
December 31, | |||||||||||
In millions | 2014 | 2013 | Balance Sheet Location | ||||||||
Deferred revenue related to extended coverage programs | |||||||||||
Current portion | $ | 170 | $ | 145 | Deferred revenue | ||||||
Long-term portion | 438 | 349 | Other liabilities and deferred revenue | ||||||||
Total | $ | 608 | $ | 494 | |||||||
Receivables related to estimated supplier recoveries | |||||||||||
Current portion | $ | 12 | $ | 5 | Trade and other receivables | ||||||
Long-term portion | 4 | 5 | Other assets | ||||||||
Total | $ | 16 | $ | 10 | |||||||
Long-term portion of warranty liability | $ | 312 | $ | 275 | Other liabilities and deferred revenue | ||||||
PENSION_AND_OTHER_POSTRETIREME
PENSION AND OTHER POSTRETIREMENT BENEFITS | 12 Months Ended | ||||||||||||||||||||||||
Dec. 31, 2014 | |||||||||||||||||||||||||
Compensation and Retirement Disclosure [Abstract] | |||||||||||||||||||||||||
PENSION AND OTHER POSTRETIREMENT BENEFITS | NOTE 11. PENSION AND OTHER POSTRETIREMENT BENEFITS | ||||||||||||||||||||||||
Pension Plans | |||||||||||||||||||||||||
We sponsor several contributory and noncontributory pension plans covering substantially all employees. Generally, hourly employee pension benefits are earned based on years of service and compensation during active employment while future benefits for salaried employees are determined using a cash balance formula. However, the level of benefits and terms of vesting may vary among plans. Pension plan assets are administered by trustees and are principally invested in fixed income securities and equity securities. It is our policy to make contributions to our various qualified plans in accordance with statutory and contractual funding requirements and any additional contributions we determine are appropriate. | |||||||||||||||||||||||||
Obligations, Assets and Funded Status | |||||||||||||||||||||||||
Benefit obligation balances presented below reflect the projected benefit obligation (PBO) for our pension plans. The changes in the benefit obligations, the various plan assets, the funded status of the plans and the amounts recognized in our Consolidated Balance Sheets for our significant pension plans were as follows: | |||||||||||||||||||||||||
Qualified and Non-Qualified Pension Plans | |||||||||||||||||||||||||
U.S. Plans | U.K. Plans | ||||||||||||||||||||||||
In millions | 2014 | 2013 | 2014 | 2013 | |||||||||||||||||||||
Change in benefit obligation | |||||||||||||||||||||||||
Benefit obligation at the beginning of the year | $ | 2,261 | $ | 2,454 | $ | 1,429 | $ | 1,269 | |||||||||||||||||
Service cost | 66 | 70 | 24 | 21 | |||||||||||||||||||||
Interest cost | 105 | 93 | 63 | 57 | |||||||||||||||||||||
Actuarial loss (gain) | 301 | (193 | ) | 139 | 96 | ||||||||||||||||||||
Benefits paid from fund | (143 | ) | (150 | ) | (48 | ) | (50 | ) | |||||||||||||||||
Benefits paid directly by employer | (11 | ) | (13 | ) | — | — | |||||||||||||||||||
Exchange rate changes | — | — | (85 | ) | 37 | ||||||||||||||||||||
Other | — | — | — | (1 | ) | ||||||||||||||||||||
Benefit obligation at end of year | $ | 2,579 | $ | 2,261 | $ | 1,522 | $ | 1,429 | |||||||||||||||||
Change in plan assets | |||||||||||||||||||||||||
Fair value of plan assets at beginning of year | $ | 2,445 | $ | 2,327 | $ | 1,516 | $ | 1,324 | |||||||||||||||||
Actual return on plan assets | 311 | 168 | 254 | 142 | |||||||||||||||||||||
Employer contributions | 100 | 100 | 94 | 56 | |||||||||||||||||||||
Benefits paid | (143 | ) | (150 | ) | (48 | ) | (50 | ) | |||||||||||||||||
Exchange rate changes | — | — | (92 | ) | 44 | ||||||||||||||||||||
Fair value of plan assets at end of year | $ | 2,713 | $ | 2,445 | $ | 1,724 | $ | 1,516 | |||||||||||||||||
Funded status (including underfunded and nonfunded plans) at end of year | $ | 134 | $ | 184 | $ | 202 | $ | 87 | |||||||||||||||||
Amounts recognized in consolidated balance sheets | |||||||||||||||||||||||||
Prepaid pensions - long-term assets | $ | 435 | $ | 427 | $ | 202 | $ | 87 | |||||||||||||||||
Accrued compensation, benefits and retirement costs - current liabilities | (12 | ) | (11 | ) | — | — | |||||||||||||||||||
Pensions - long-term liabilities | (289 | ) | (232 | ) | — | — | |||||||||||||||||||
Net amount recognized | $ | 134 | $ | 184 | $ | 202 | $ | 87 | |||||||||||||||||
Amounts recognized in accumulated other comprehensive loss consist of: | |||||||||||||||||||||||||
Net actuarial loss | $ | 611 | $ | 478 | $ | 286 | $ | 361 | |||||||||||||||||
Prior service credit | (1 | ) | (1 | ) | — | — | |||||||||||||||||||
Net amount recognized | $ | 610 | $ | 477 | $ | 286 | $ | 361 | |||||||||||||||||
In addition to the pension plans in the above table, we also maintain less significant defined benefit pension plans primarily in 14 other countries outside of the U.S. and the U.K. that comprise approximately 3 percent and 5 percent of our pension plan assets and obligations, respectively. These plans are reflected in "Other liabilities and deferred revenue" on our Consolidated Balance Sheets. | |||||||||||||||||||||||||
The following table presents information regarding total accumulated benefit obligation, PBO's and underfunded pension plans that are included in the preceding table: | |||||||||||||||||||||||||
Qualified and Non-Qualified Pension Plans | |||||||||||||||||||||||||
U.S. Plans | U.K. Plans | ||||||||||||||||||||||||
In millions | 2014 | 2013 | 2014 | 2013 | |||||||||||||||||||||
Total accumulated benefit obligation | $ | 2,539 | $ | 2,231 | $ | 1,402 | $ | 1,309 | |||||||||||||||||
Plans with accumulated benefit obligation in excess of plan assets | |||||||||||||||||||||||||
Accumulated benefit obligation | 261 | 212 | — | — | |||||||||||||||||||||
Plans with projected benefit obligation in excess of plan assets | |||||||||||||||||||||||||
Projected benefit obligation | 301 | 243 | — | — | |||||||||||||||||||||
Components of Net Periodic Pension Cost | |||||||||||||||||||||||||
The following table presents the net periodic pension cost under our plans: | |||||||||||||||||||||||||
Qualified and Non-Qualified Pension Plans | |||||||||||||||||||||||||
U.S. Plans | U.K. Plans | ||||||||||||||||||||||||
In millions | 2014 | 2013 | 2012 | 2014 | 2013 | 2012 | |||||||||||||||||||
Service cost | $ | 66 | $ | 70 | $ | 58 | $ | 24 | $ | 21 | $ | 21 | |||||||||||||
Interest cost | 105 | 93 | 103 | 63 | 57 | 59 | |||||||||||||||||||
Expected return on plan assets | (173 | ) | (167 | ) | (157 | ) | (84 | ) | (72 | ) | (81 | ) | |||||||||||||
Amortization of prior service (credit) cost | (1 | ) | (1 | ) | (1 | ) | — | — | 1 | ||||||||||||||||
Recognized net actuarial loss | 31 | 62 | 47 | 26 | 24 | 14 | |||||||||||||||||||
Net periodic pension cost | $ | 28 | $ | 57 | $ | 50 | $ | 29 | $ | 30 | $ | 14 | |||||||||||||
Other changes in benefit obligations and plan assets recognized in other comprehensive income in 2014, 2013 and 2012 were as follows: | |||||||||||||||||||||||||
In millions | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Amortization of prior service (cost) credit | $ | 1 | $ | 1 | $ | (1 | ) | ||||||||||||||||||
Recognized actuarial loss | (57 | ) | (86 | ) | (61 | ) | |||||||||||||||||||
Incurred prior service cost | — | — | 1 | ||||||||||||||||||||||
Incurred actuarial (gain) loss | 133 | (168 | ) | 124 | |||||||||||||||||||||
Foreign exchange translation adjustments | (18 | ) | 10 | 16 | |||||||||||||||||||||
Total recognized in other comprehensive income | $ | 59 | $ | (243 | ) | $ | 79 | ||||||||||||||||||
Total recognized in net periodic pension cost and other comprehensive income | $ | 116 | $ | (156 | ) | $ | 143 | ||||||||||||||||||
The amount in accumulated other comprehensive loss expected to be recognized as a component of net periodic pension cost during the next fiscal year is a net actuarial loss of $71 million. | |||||||||||||||||||||||||
Assumptions | |||||||||||||||||||||||||
The table below presents various assumptions used in determining the pension benefit obligation for each year and reflects weighted-average percentages for the various plans as follows: | |||||||||||||||||||||||||
Qualified and Non-Qualified Pension Plans | |||||||||||||||||||||||||
U.S. Plans | U.K. Plans | ||||||||||||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||||||||||||
Discount rate | 4.07 | % | 4.83 | % | 3.8 | % | 4.6 | % | |||||||||||||||||
Compensation increase rate | 4.88 | % | 4.91 | % | 4.25 | % | 4.5 | % | |||||||||||||||||
The table below presents various assumptions used in determining the net periodic pension cost and reflects weighted-average percentages for the various plans as follows: | |||||||||||||||||||||||||
Qualified and Non-Qualified Pension Plans | |||||||||||||||||||||||||
U.S. Plans | U.K. Plans | ||||||||||||||||||||||||
2014 | 2013 | 2012 | 2014 | 2013 | 2012 | ||||||||||||||||||||
Discount rate | 4.83 | % | 3.97 | % | 4.82 | % | 4.6 | % | 4.7 | % | 5.2 | % | |||||||||||||
Expected return on plan assets | 7.5 | % | 8 | % | 8 | % | 5.8 | % | 5.8 | % | 6.5 | % | |||||||||||||
Compensation increase rate | 4.91 | % | 4.91 | % | 4 | % | 4.5 | % | 4 | % | 4.25 | % | |||||||||||||
Plan Assets | |||||||||||||||||||||||||
Our investment policies in the U.S. and U.K. provide for the rebalancing of assets to maintain our long-term strategic asset allocation. We are committed to its long-term strategy and do not attempt to time the market given empirical evidence that asset allocation is more critical than individual asset or investment manager selection. Rebalancing of the assets has and continues to occur. The rebalancing is critical to having the proper weighting of assets to achieve the expected total portfolio returns. We believe that our portfolio is highly diversified and does not have any significant exposure to concentration risk. The plan assets for our defined benefit pension plans do not include any of our common stock. | |||||||||||||||||||||||||
U.S. Plan Assets | |||||||||||||||||||||||||
For the U.S. qualified pension plans, our assumption for the expected return on assets was 7.5 percent in 2014. Projected returns are based primarily on broad, publicly traded equity and fixed income indices and forward-looking estimates of active portfolio and investment management. We expect additional positive returns from this active investment management. Based on the historical returns and forward-looking return expectations, we have elected to continue using our assumption of 7.5 percent in 2015. | |||||||||||||||||||||||||
The primary investment objective is to exceed, on a net-of-fee basis, the rate of return of a policy portfolio comprised of the following: | |||||||||||||||||||||||||
Asset Class | Target | Range | |||||||||||||||||||||||
U.S. equities | 9 | % | +/-5.0% | ||||||||||||||||||||||
Non-U.S. equities | 3 | % | +/-3.0% | ||||||||||||||||||||||
Global equities | 10 | % | +/-3.0% | ||||||||||||||||||||||
Total equities | 22 | % | |||||||||||||||||||||||
Real estate | 7 | % | -42.85714286 | ||||||||||||||||||||||
Private equity | 7 | % | -42.85714286 | ||||||||||||||||||||||
Fixed income | 64 | % | +/-5.0% | ||||||||||||||||||||||
Total | 100 | % | |||||||||||||||||||||||
The fixed income component is structured to represent a custom bond benchmark that will closely hedge the change in the value of our liabilities. This component is structured in such a way that its benchmark covers approximately 95 percent of the plan's exposure to changes in its discount rate (AA corporate bond yields). In order to achieve a hedge on more than the targeted 64 percent of plan assets invested in fixed income securities, our Benefits Policy Committee (BPC) permits the fixed income managers, other managers or the custodian/trustee to utilize derivative securities, as part of a liability driven investment strategy to further reduce the plan's risk of declining interest rates. However, all managers hired to manage assets for the trust are prohibited from using leverage unless specifically discussed with the BPC and approved in their guidelines. | |||||||||||||||||||||||||
U.K. Plan Assets | |||||||||||||||||||||||||
For the U.K. qualified pension plans, our assumption for the expected return on assets was 5.8 percent in 2014. The methodology used to determine the rate of return on pension plan assets in the U.K. was based on establishing an equity-risk premium over current long-term bond yields adjusted based on target asset allocations. Our strategy with respect to our investments in these assets is to be invested in a suitable mixture of return-seeking assets (equities and real estate) and liability matching assets (bonds) with a long-term outlook. Therefore, the risk and return balance of our U.K. asset portfolio should reflect a long-term horizon. To achieve these objectives we have established the following targets: | |||||||||||||||||||||||||
Asset Class | Target | ||||||||||||||||||||||||
Global equities | 25.5 | % | |||||||||||||||||||||||
Real estate | 7.5 | % | |||||||||||||||||||||||
Re-insurance | 5 | % | |||||||||||||||||||||||
Private equity | 7.5 | % | |||||||||||||||||||||||
Corporate credit instruments | 4.5 | % | |||||||||||||||||||||||
Fixed income | 50 | % | |||||||||||||||||||||||
Total | 100 | % | |||||||||||||||||||||||
As part of our strategy in the U.K. we have not prohibited the use of any financial instrument, including derivatives. Based on the above discussion, we have elected to continue using our assumption of 5.8 percent in 2015. | |||||||||||||||||||||||||
Fair Value of U.S. Plan Assets | |||||||||||||||||||||||||
The fair values of U.S. pension plan assets by asset category were as follows: | |||||||||||||||||||||||||
Fair Value Measurements as of December 31, 2014 | |||||||||||||||||||||||||
In millions | Quoted prices in active | Significant other | Significant | Total | |||||||||||||||||||||
markets for identical assets | observable inputs | unobservable inputs | |||||||||||||||||||||||
(Level 1) | (Level 2) | (Level 3) | |||||||||||||||||||||||
Equities | |||||||||||||||||||||||||
U.S. | $ | 103 | $ | 297 | $ | — | $ | 400 | |||||||||||||||||
Non-U.S. | 137 | 82 | — | 219 | |||||||||||||||||||||
Fixed Income | |||||||||||||||||||||||||
Government debt | — | 886 | — | 886 | |||||||||||||||||||||
Corporate debt | |||||||||||||||||||||||||
U.S. | — | 724 | — | 724 | |||||||||||||||||||||
Non-U.S. | — | 87 | — | 87 | |||||||||||||||||||||
Asset/mortgaged backed securities | — | 45 | — | 45 | |||||||||||||||||||||
Net cash equivalents(1) | 28 | 2 | — | 30 | |||||||||||||||||||||
Derivative instruments(2) | — | 2 | — | 2 | |||||||||||||||||||||
Private equity and real estate(3) | — | — | 306 | 306 | |||||||||||||||||||||
Total | $ | 268 | $ | 2,125 | $ | 306 | $ | 2,699 | |||||||||||||||||
Pending trade/purchases/sales | 5 | ||||||||||||||||||||||||
Accruals(4) | 9 | ||||||||||||||||||||||||
Total | $ | 2,713 | |||||||||||||||||||||||
Fair Value Measurements as of December 31, 2013 | |||||||||||||||||||||||||
In millions | Quoted prices in active | Significant other | Significant | Total | |||||||||||||||||||||
markets for identical assets | observable inputs | unobservable inputs | |||||||||||||||||||||||
(Level 1) (5) | (Level 2) (5) | (Level 3) | |||||||||||||||||||||||
Equities | |||||||||||||||||||||||||
U.S. | $ | 96 | $ | 387 | $ | — | $ | 483 | |||||||||||||||||
Non-U.S. | 143 | 126 | — | 269 | |||||||||||||||||||||
Fixed Income | |||||||||||||||||||||||||
Government debt | — | 780 | — | 780 | |||||||||||||||||||||
Corporate debt | |||||||||||||||||||||||||
U.S. | — | 523 | — | 523 | |||||||||||||||||||||
Non-U.S. | — | 64 | — | 64 | |||||||||||||||||||||
Asset/mortgaged backed securities | — | 12 | — | 12 | |||||||||||||||||||||
Net cash equivalents(1) | 33 | 3 | — | 36 | |||||||||||||||||||||
Derivative instruments (2) | — | 2 | — | 2 | |||||||||||||||||||||
Private equity and real estate (3) | — | — | 296 | 296 | |||||||||||||||||||||
Total | $ | 272 | $ | 1,897 | $ | 296 | $ | 2,465 | |||||||||||||||||
Pending trade/purchases/sales | (28 | ) | |||||||||||||||||||||||
Accruals(4) | 8 | ||||||||||||||||||||||||
Total | $ | 2,445 | |||||||||||||||||||||||
____________________________________________________ | |||||||||||||||||||||||||
-1 | Cash equivalents include commercial paper, short-term government/agency, mortgage and credit instruments. | ||||||||||||||||||||||||
-2 | Derivative instruments include interest rate swaps and credit default swaps. | ||||||||||||||||||||||||
-3 | The instruments in private equity and real estate funds, for which quoted market prices are not available, are valued at their estimated fair value as determined by applicable investment managers or by audited financial statement of the funds. | ||||||||||||||||||||||||
-4 | Interest or dividends that had not been settled as of the year ended December 31. | ||||||||||||||||||||||||
(5) | We revised 2013 balances to classify $683 million as Level 2 assets instead of Level 1. | ||||||||||||||||||||||||
The reconciliation of Level 3 assets was as follows: | |||||||||||||||||||||||||
Fair Value Measurements as of December 31, | |||||||||||||||||||||||||
Using Significant Unobservable Inputs (Level 3) | |||||||||||||||||||||||||
In millions | Private Equity | Real Estate | Total | ||||||||||||||||||||||
Balance at December 31, 2012 | $ | 156 | $ | 130 | $ | 286 | |||||||||||||||||||
Actual return on plan assets | |||||||||||||||||||||||||
Unrealized (losses) gains on assets still held at the reporting date | 20 | 10 | 30 | ||||||||||||||||||||||
Purchases, sales and settlements, net | (23 | ) | 3 | (20 | ) | ||||||||||||||||||||
Balance at December 31, 2013 | 153 | 143 | 296 | ||||||||||||||||||||||
Actual return on plan assets | |||||||||||||||||||||||||
Unrealized (losses) gains on assets still held at the reporting date | 22 | 11 | 33 | ||||||||||||||||||||||
Purchases, sales and settlements, net | (27 | ) | 4 | (23 | ) | ||||||||||||||||||||
Balance at December 31, 2014 | $ | 148 | $ | 158 | $ | 306 | |||||||||||||||||||
Fair Value of U.K. Plan Assets | |||||||||||||||||||||||||
In July 2012, the U.K. pension plan purchased an insurance contract that will guarantee payment of specified pension liabilities. The contract defers payment for 10 years. This is included in the table below in Level 3 for years ended December 31, 2014 and 2013 at a value of $462 million and $440 million, respectively. | |||||||||||||||||||||||||
The fair values of U.K. pension plan assets by asset category were as follows: | |||||||||||||||||||||||||
Fair Value Measurements as of December 31, 2014 | |||||||||||||||||||||||||
In millions | Quoted prices in active | Significant other | Significant | Total | |||||||||||||||||||||
markets for identical assets | observable inputs | unobservable inputs | |||||||||||||||||||||||
(Level 1) | (Level 2) | (Level 3) | |||||||||||||||||||||||
Equities | |||||||||||||||||||||||||
U.S. | $ | — | $ | 153 | $ | — | $ | 153 | |||||||||||||||||
Non-U.S. | — | 399 | — | 399 | |||||||||||||||||||||
Fixed Income | |||||||||||||||||||||||||
Corporate debt | |||||||||||||||||||||||||
U.S. | — | 321 | — | 321 | |||||||||||||||||||||
Non-U.S. | — | 158 | — | 158 | |||||||||||||||||||||
Net cash equivalents(1) | 24 | — | — | 24 | |||||||||||||||||||||
Re-insurance | — | 65 | — | 65 | |||||||||||||||||||||
Private equity, real estate & insurance(2) | — | — | 604 | 604 | |||||||||||||||||||||
Total | $ | 24 | $ | 1,096 | $ | 604 | $ | 1,724 | |||||||||||||||||
Fair Value Measurements as of December 31, 2013 | |||||||||||||||||||||||||
In millions | Quoted prices in active | Significant other | Significant | Total | |||||||||||||||||||||
markets for identical assets | observable inputs | unobservable inputs | |||||||||||||||||||||||
(Level 1) | (Level 2) | (Level 3) | |||||||||||||||||||||||
Equities | |||||||||||||||||||||||||
U.S. | $ | — | $ | 270 | $ | — | $ | 270 | |||||||||||||||||
Non-U.S. | — | 328 | — | 328 | |||||||||||||||||||||
Fixed Income | |||||||||||||||||||||||||
Government debt | — | 120 | — | 120 | |||||||||||||||||||||
Corporate debt non-U.S. | — | 138 | — | 138 | |||||||||||||||||||||
Net cash equivalents(1) | 13 | — | — | 13 | |||||||||||||||||||||
Derivative instruments(3) | — | 24 | — | 24 | |||||||||||||||||||||
Re-insurance | — | 66 | — | 66 | |||||||||||||||||||||
Private equity, real estate & insurance(2) | — | — | 557 | 557 | |||||||||||||||||||||
Total | $ | 13 | $ | 946 | $ | 557 | $ | 1,516 | |||||||||||||||||
_____________________________________________________ | |||||||||||||||||||||||||
(1) | Cash equivalents include commercial paper, short-term government/agency, mortgage and credit instruments. | ||||||||||||||||||||||||
(2) | The instruments in private equity and real estate funds, for which quoted market prices are not available, are valued at their estimated fair value as determined by applicable investment managers or by audited financial statement of the funds. | ||||||||||||||||||||||||
(3) | Derivative instruments consist of interest rate swaps. | ||||||||||||||||||||||||
The reconciliation of Level 3 assets was as follows: | |||||||||||||||||||||||||
Fair Value Measurements as of December 31, | |||||||||||||||||||||||||
Using Significant Unobservable Inputs (Level 3) | |||||||||||||||||||||||||
In millions | Insurance | Real Estate | Private Equity | Total | |||||||||||||||||||||
Balance at December 31, 2012 | $ | 424 | $ | 34 | $ | 28 | $ | 486 | |||||||||||||||||
Actual return on plan assets | |||||||||||||||||||||||||
Unrealized (losses) gains on assets still held at the reporting date | 29 | 2 | 5 | 36 | |||||||||||||||||||||
Purchases, sales and settlements, net | (13 | ) | 33 | 15 | 35 | ||||||||||||||||||||
Balance at December 31, 2013 | 440 | 69 | 48 | 557 | |||||||||||||||||||||
Actual return on plan assets | |||||||||||||||||||||||||
Unrealized (losses) gains on assets still held at the reporting date | 42 | (3 | ) | 11 | 50 | ||||||||||||||||||||
Purchases, sales and settlements, net | (20 | ) | (5 | ) | 22 | (3 | ) | ||||||||||||||||||
Balance at December 31, 2014 | $ | 462 | $ | 61 | $ | 81 | $ | 604 | |||||||||||||||||
Level 3 Assets | |||||||||||||||||||||||||
The investments in an insurance contract, private equity and real estate funds, for which quoted market prices are not available, are valued at their estimated fair value as determined by applicable investment managers or by quarterly financial statements of the funds. These financial statements are audited at least annually. In conjunction with our investment consultant, we monitor the fair value of the insurance contract as periodically reported by our insurer and their counterparty risk. The fair value of all real estate properties, held in the partnerships, are valued at least once per year by an independent professional real estate valuation firm. Fair value generally represents the fund's proportionate share of the net assets of the investment partnerships as reported by the general partners of the underlying partnerships. Some securities with no readily available market are initially valued at cost, utilizing independent professional valuation firms as well as market comparisons with subsequent adjustments to values which reflect either the basis of meaningful third-party transactions in the private market or the fair value deemed appropriate by the general partners of the underlying investment partnerships. In such instances, consideration is also given to the financial condition and operating results of the issuer, the amount that the investment partnerships can reasonably expect to realize upon the sale of the securities and any other factors deemed relevant. The estimated fair values are subject to uncertainty and therefore may differ from the values that would have been used had a ready market for such investments existed and such differences could be material. | |||||||||||||||||||||||||
Estimated Future Contributions and Benefit Payments | |||||||||||||||||||||||||
We plan to contribute approximately $175 million to our defined benefit pension plans in 2015. The table below presents expected future benefit payments under our pension plans: | |||||||||||||||||||||||||
Qualified and Non-Qualified Pension Plans | |||||||||||||||||||||||||
In millions | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 - 2024 | |||||||||||||||||||
Expected benefit payments | $ | 231 | $ | 232 | $ | 238 | $ | 243 | $ | 247 | $ | 1,283 | |||||||||||||
Other Pension Plans | |||||||||||||||||||||||||
We also sponsor defined contribution plans for certain hourly and salaried employees. Our contributions to these plans were $73 million, $66 million and $74 million for the years ended December 31, 2014, 2013 and 2012. | |||||||||||||||||||||||||
Other Postretirement Benefits | |||||||||||||||||||||||||
Our other postretirement benefit plans provide various health care and life insurance benefits to eligible employees, who retire and satisfy certain age and service requirements, and their dependents. The plans are contributory and contain cost-sharing features such as caps, deductibles, coinsurance and spousal contributions. Employer contributions are limited by formulas in each plan. Retiree contributions for health care benefits are adjusted annually and we reserve the right to change benefits covered under these plans. There were no plan assets for the postretirement benefit plans as our policy is to fund benefits and expenses for these plans as claims and premiums are incurred. | |||||||||||||||||||||||||
Obligations and Funded Status | |||||||||||||||||||||||||
Benefit obligation balances presented below reflect the accumulated postretirement benefit obligations (APBO) for our other postretirement benefit plans. The changes in the benefit obligations, the funded status of the plans and the amounts recognized in our Consolidated Balance Sheets for our significant other postretirement benefit plans were as follows: | |||||||||||||||||||||||||
In millions | 2014 | 2013 | |||||||||||||||||||||||
Change in benefit obligation | |||||||||||||||||||||||||
Benefit obligation at the beginning of the year | $ | 398 | $ | 478 | |||||||||||||||||||||
Interest cost | 17 | 17 | |||||||||||||||||||||||
Plan participants' contributions | 10 | 10 | |||||||||||||||||||||||
Actuarial loss (gain) | 38 | (49 | ) | ||||||||||||||||||||||
Benefits paid directly by employer | (55 | ) | (58 | ) | |||||||||||||||||||||
Benefit obligation at end of year | $ | 408 | $ | 398 | |||||||||||||||||||||
Funded status at end of year | $ | (408 | ) | $ | (398 | ) | |||||||||||||||||||
Amounts recognized in consolidated balance sheets | |||||||||||||||||||||||||
Accrued compensation, benefits and retirement costs - current liabilities | $ | (39 | ) | $ | (42 | ) | |||||||||||||||||||
Postretirement benefits other than pensions-long-term liabilities | (369 | ) | (356 | ) | |||||||||||||||||||||
Net amount recognized | $ | (408 | ) | $ | (398 | ) | |||||||||||||||||||
Amounts recognized in accumulated other comprehensive loss consist of: | |||||||||||||||||||||||||
Net actuarial loss | $ | 65 | $ | 27 | |||||||||||||||||||||
Prior service credit | (5 | ) | (5 | ) | |||||||||||||||||||||
Net amount recognized | $ | 60 | $ | 22 | |||||||||||||||||||||
In addition to the other postretirement plans in the above table, we also maintain less significant postretirement plans in four other countries outside the U.S. that comprise less than 7 percent of our postretirement obligations. These plans are reflected in "Other liabilities and deferred revenue" in our Consolidated Balance Sheets. | |||||||||||||||||||||||||
Components of Net Periodic Other Postretirement Benefits Cost | |||||||||||||||||||||||||
The following table presents the net periodic other postretirement benefits cost under our plans: | |||||||||||||||||||||||||
In millions | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Interest cost | $ | 17 | $ | 17 | $ | 21 | |||||||||||||||||||
Amortization of prior service credit | — | — | (5 | ) | |||||||||||||||||||||
Recognized net actuarial loss | — | 6 | 3 | ||||||||||||||||||||||
Other | — | — | 1 | ||||||||||||||||||||||
Net periodic other postretirement benefit cost | $ | 17 | $ | 23 | $ | 20 | |||||||||||||||||||
Other changes in benefit obligations recognized in other comprehensive income in 2014, 2013 and 2012 were as follows: | |||||||||||||||||||||||||
In millions | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Amortization of prior service credit | $ | — | $ | — | $ | 5 | |||||||||||||||||||
Recognized actuarial loss | — | (6 | ) | (3 | ) | ||||||||||||||||||||
Incurred actuarial (gain) loss | 38 | (49 | ) | 20 | |||||||||||||||||||||
Incurred prior service credit | — | — | (4 | ) | |||||||||||||||||||||
Other | — | — | (1 | ) | |||||||||||||||||||||
Total recognized in other comprehensive income | $ | 38 | $ | (55 | ) | $ | 17 | ||||||||||||||||||
Total recognized in net periodic other postretirement benefit cost and other comprehensive income | $ | 55 | $ | (32 | ) | $ | 37 | ||||||||||||||||||
The amount in accumulated other comprehensive loss expected to be recognized as a component of net periodic other postretirement benefit cost during the next fiscal year is $5 million. | |||||||||||||||||||||||||
Assumptions | |||||||||||||||||||||||||
The table below presents assumptions used in determining the other postretirement benefit obligation for each year and reflects weighted-average percentages for our other postretirement plans as follows: | |||||||||||||||||||||||||
2014 | 2013 | ||||||||||||||||||||||||
Discount rate | 3.9 | % | 4.55 | % | |||||||||||||||||||||
The table below presents assumptions used in determining the net periodic other postretirement benefits cost and reflects weighted-average percentages for the various plans as follows: | |||||||||||||||||||||||||
2014 | 2013 | 2012 | |||||||||||||||||||||||
Discount rate | 4.55 | % | 3.7 | % | 4.7 | % | |||||||||||||||||||
Our consolidated other postretirement benefit obligation is determined by application of the terms of health care and life insurance plans, together with relevant actuarial assumptions and health care cost trend rates. For measurement purposes, a 7.00 percent annual rate of increase in the per capita cost of covered health care benefits was assumed in 2014. The rate is assumed to decrease on a linear basis to 5.00 percent through 2019 and remain at that level thereafter. An increase in the health care cost trends of 1 percent would increase our APBO by $22 million as of December 31, 2014 and the net periodic other postretirement benefit cost for 2015 by $1 million. A decrease in the health care cost trends of 1 percent would decrease our APBO by $18 million as of December 31, 2014 and the net periodic other postretirement benefit cost for 2015 by $1 million. | |||||||||||||||||||||||||
Estimated Benefit Payments | |||||||||||||||||||||||||
The table below presents expected benefit payments under our other postretirement benefit plans: | |||||||||||||||||||||||||
In millions | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 - 2024 | |||||||||||||||||||
Expected benefit payments | $ | 40 | $ | 38 | $ | 36 | $ | 33 | $ | 31 | $ | 134 | |||||||||||||
OTHER_LIABILITIES_AND_DEFERRED
OTHER LIABILITIES AND DEFERRED REVENUE | 12 Months Ended | ||||||||
Dec. 31, 2014 | |||||||||
OTHER LIABILITIES AND DEFERRED REVENUE | |||||||||
OTHER LIABILITIES AND DEFERRED REVENUE | NOTE 12. OTHER LIABILITIES AND DEFERRED REVENUE | ||||||||
Other liabilities and deferred revenue included the following: | |||||||||
December 31, | |||||||||
In millions | 2014 | 2013 | |||||||
Deferred revenue | $ | 513 | $ | 414 | |||||
Accrued warranty | 312 | 275 | |||||||
Accrued compensation | 215 | 184 | |||||||
Other long-term liabilities | 375 | 357 | |||||||
Other liabilities and deferred revenue | $ | 1,415 | $ | 1,230 | |||||
COMMITMENTS_AND_CONTINGENCIES
COMMITMENTS AND CONTINGENCIES | 12 Months Ended | ||||||||||||
Dec. 31, 2014 | |||||||||||||
Commitments and Contingencies Disclosure [Abstract] | |||||||||||||
COMMITMENTS AND CONTINGENCIES | NOTE 13. COMMITMENTS AND CONTINGENCIES | ||||||||||||
We are subject to numerous lawsuits and claims arising out of the ordinary course of our business, including actions related to product liability; personal injury; the use and performance of our products; warranty matters; patent, trademark or other intellectual property infringement; contractual liability; the conduct of our business; tax reporting in foreign jurisdictions; distributor termination; workplace safety; and environmental matters. We also have been identified as a potentially responsible party at multiple waste disposal sites under U.S. federal and related state environmental statutes and regulations and may have joint and several liability for any investigation and remediation costs incurred with respect to such sites. We have denied liability with respect to many of these lawsuits, claims and proceedings and are vigorously defending such lawsuits, claims and proceedings. We carry various forms of commercial, property and casualty, product liability and other forms of insurance; however, such insurance may not be applicable or adequate to cover the costs associated with a judgment against us with respect to these lawsuits, claims and proceedings. We do not believe that these lawsuits are material individually or in the aggregate. While we believe we have also established adequate accruals for our expected future liability with respect to pending lawsuits, claims and proceedings, where the nature and extent of any such liability can be reasonably estimated based upon then presently available information, there can be no assurance that the final resolution of any existing or future lawsuits, claims or proceedings will not have a material adverse effect on our business, results of operations, financial condition or cash flows. | |||||||||||||
We conduct significant business operations in Brazil that are subject to the Brazilian federal, state and local labor, social security, tax and customs laws. While we believe we comply with such laws, they are complex, subject to varying interpretations and we are often engaged in litigation regarding the application of these laws to particular circumstances. | |||||||||||||
U.S. Distributor Commitments | |||||||||||||
Our distribution agreements with independent and partially-owned distributors generally have a renewable three-year term and are restricted to specified territories. Our distributors develop and maintain a network of dealers with which we have no direct relationship. Our distributors are permitted to sell other, noncompetitive products only with our consent. We license all of our distributors to use our name and logo in connection with the sale and service of our products, with no right to assign or sublicense the trademarks, except to authorized dealers, without our consent. Products are sold to the distributors at standard domestic or international distributor net prices, as applicable. Net prices are wholesale prices we establish to permit our distributors an adequate margin on their sales. Subject to local laws, we can generally refuse to renew these agreements upon expiration or terminate them upon written notice for inadequate sales, change in principal ownership and certain other reasons. Distributors also have the right to terminate the agreements upon 60-day notice without cause, or 30-day notice for cause. Upon termination or failure to renew, we are required to purchase the distributor’s current inventory, signage and special tools and may, at our option purchase other assets of the distributor, but are under no obligation to do so. | |||||||||||||
Other Guarantees and Commitments | |||||||||||||
In addition to the matters discussed above, from time to time we enter into other guarantee arrangements, including guarantees of non-U.S. distributor financings, residual value guarantees on equipment under operating leases and other miscellaneous guarantees of third-party obligations. As of December 31, 2014, the maximum potential loss related to these other guarantees was $5 million. | |||||||||||||
We have arrangements with certain suppliers that require us to purchase minimum volumes or be subject to monetary penalties. The penalty amounts are less than our purchase commitments and essentially allow the supplier to recover their tooling costs in most instances. As of December 31, 2014, if we were to stop purchasing from each of these suppliers, the aggregate amount of the penalty would be approximately $79 million, of which $41 million relates to a contract with an engine parts supplier that extends to 2016. These arrangements enable us to secure critical components. We do not currently anticipate paying any penalties under these contracts. | |||||||||||||
During the second quarter of 2014, we began entering into physical forward contracts with suppliers of platinum and palladium to purchase minimum volumes of the commodities at contractually stated prices for various periods, not to exceed two years. As of December 31, 2014, the total commitments under these contracts were $96 million. These arrangements enable us to fix the prices of these commodities, which otherwise are subject to market volatility. | |||||||||||||
We have guarantees with certain customers that require us to satisfactorily honor contractual or regulatory obligations, or compensate for monetary losses related to nonperformance. These performance bonds and other performance-related guarantees were $76 million and $66 million as of December 31, 2014 and 2013, respectively. | |||||||||||||
Indemnifications | |||||||||||||
Periodically, we enter into various contractual arrangements where we agree to indemnify a third-party against certain types of losses. Common types of indemnities include: | |||||||||||||
• | product liability and license, patent or trademark indemnifications; | ||||||||||||
• | asset sale agreements where we agree to indemnify the purchaser against future environmental exposures related to the asset sold; and | ||||||||||||
• | any contractual agreement where we agree to indemnify the counter-party for losses suffered as a result of a misrepresentation in the contract. | ||||||||||||
We regularly evaluate the probability of having to incur costs associated with these indemnities and accrue for expected losses that are probable. Because the indemnifications are not related to specified known liabilities and due to their uncertain nature, we are unable to estimate the maximum amount of the potential loss associated with these indemnifications. | |||||||||||||
Leases | |||||||||||||
We lease certain manufacturing equipment, facilities, warehouses, office space and equipment, aircraft and automobiles for varying periods under lease agreements. Most of the leases are non-cancelable operating leases with fixed rental payments, expire over the next 10 years and contain renewal provisions. Rent expense under these leases was as follows: | |||||||||||||
Years ended December 31, | |||||||||||||
In millions | 2014 | 2013 | 2012 | ||||||||||
Rent expense | $ | 195 | $ | 186 | $ | 176 | |||||||
The following is a summary of the leased property under capital leases by major classes: | |||||||||||||
December 31, | |||||||||||||
In millions | 2014 | 2013 | |||||||||||
Building | $ | 105 | $ | 103 | |||||||||
Equipment | 98 | 97 | |||||||||||
Other | 15 | 16 | |||||||||||
Less: Accumulated depreciation | (105 | ) | (96 | ) | |||||||||
Total | $ | 113 | $ | 120 | |||||||||
Following is a summary of the future minimum lease payments due under capital and operating leases, including leases in our rental business, with terms of more than one year at December 31, 2014, together with the net present value of the minimum payments due under capital leases: | |||||||||||||
In millions | Capital Leases | Operating Leases | |||||||||||
2015 | $ | 23 | $ | 152 | |||||||||
2016 | 22 | 119 | |||||||||||
2017 | 13 | 104 | |||||||||||
2018 | 11 | 81 | |||||||||||
2019 | 8 | 71 | |||||||||||
After 2019 | 41 | 105 | |||||||||||
Total minimum lease payments | $ | 118 | $ | 632 | |||||||||
Interest | (31 | ) | |||||||||||
Present value of net minimum lease payments | $ | 87 | |||||||||||
In addition, we have subleased certain facilities under operating leases to third parties. The future minimum lease payments due from lessees under those arrangements are less than $2 million per year for the years 2015 through 2018. |
SHAREHOLDERS_EQUITY
SHAREHOLDERS' EQUITY | 12 Months Ended | |||||||||||||||
Dec. 31, 2014 | ||||||||||||||||
Equity [Abstract] | ||||||||||||||||
SHAREHOLDERS' EQUITY | NOTE 14. SHAREHOLDERS' EQUITY | |||||||||||||||
Preferred and Preference Stock | ||||||||||||||||
We are authorized to issue one million shares each of zero par value preferred and preference stock with preferred shares being senior to preference shares. We can determine the number of shares of each series, and the rights, preferences and limitations of each series. At December 31, 2014, there was no preferred or preference stock outstanding. | ||||||||||||||||
Common Stock | ||||||||||||||||
Changes in shares of common stock, treasury stock and common stock held in trust for employee benefit plans are as follows: | ||||||||||||||||
In millions | Common | Treasury | Common Stock | |||||||||||||
Stock | Stock | Held in Trust | ||||||||||||||
Balance at December 31, 2011 | 222.2 | 30.2 | 1.8 | |||||||||||||
Shares acquired | — | 2.6 | — | |||||||||||||
Shares issued | 0.4 | (0.2 | ) | (0.3 | ) | |||||||||||
Other shareholder transactions | (0.2 | ) | — | — | ||||||||||||
Balance at December 31, 2012 | 222.4 | 32.6 | 1.5 | |||||||||||||
Shares acquired | — | 3.3 | — | |||||||||||||
Shares issued | 0.1 | (0.3 | ) | (0.2 | ) | |||||||||||
Other shareholder transactions | (0.2 | ) | — | — | ||||||||||||
Balance at December 31, 2013 | 222.3 | 35.6 | 1.3 | |||||||||||||
Shares acquired | — | 4.8 | — | |||||||||||||
Shares issued | 0.1 | (0.3 | ) | (0.2 | ) | |||||||||||
Other shareholder transactions | (0.1 | ) | — | — | ||||||||||||
Balance at December 31, 2014 | 222.3 | 40.1 | 1.1 | |||||||||||||
Treasury Stock | ||||||||||||||||
Shares of common stock repurchased by us are recorded at cost as treasury stock and result in a reduction of shareholders' equity in our Consolidated Balance Sheets. Treasury shares may be reissued as part of our stock-based compensation programs. When shares are reissued, we use the weighted-average cost method for determining cost. The gains between the cost of the shares and the issuance price are added to additional paid-in-capital. The losses are deducted from additional paid-in capital to the extent of the gains. Thereafter, the losses are deducted from retained earnings. Treasury stock activity for the three-year period ended December 31, 2014, consisting of shares issued and repurchased is presented in our Consolidated Statements of Changes in Equity. | ||||||||||||||||
In December 2012, the Board of Directors authorized the acquisition of up to $1 billion of our common stock upon completion of the 2011 repurchase program. In 2014, quarterly purchases under the repurchase program were as follows: | ||||||||||||||||
In millions (except per share amounts) | 2014 Shares Purchased | Average Cost | Total Cost of | Remaining | ||||||||||||
For each quarter ended | Per Share | Repurchases | Authorized | |||||||||||||
Capacity (1) | ||||||||||||||||
December 2012, $1 billion repurchase program | ||||||||||||||||
30-Mar | 3 | $ | 139.7 | $ | 419 | $ | 425 | |||||||||
29-Jun | 0.1 | 148.11 | 11 | 415 | ||||||||||||
28-Sep | 1.2 | 139.76 | 175 | 240 | ||||||||||||
31-Dec | 0.5 | 132.66 | 65 | 174 | ||||||||||||
Total | 4.8 | 139.12 | $ | 670 | 174 | |||||||||||
___________________________________________ | ||||||||||||||||
(1) The remaining authorized capacity is calculated based on the cost to purchase the shares, but excludes commission expenses according to the Board of Directors authorization. | ||||||||||||||||
In July 2014, our Board of Directors authorized the acquisition of up to $1 billion of additional common stock upon the completion of the 2012 repurchase plan. | ||||||||||||||||
Quarterly Dividends | ||||||||||||||||
Total dividends paid to common shareholders in 2014, 2013 and 2012 were $512 million, $420 million and $340 million, respectively. Declaration and payment of dividends in the future depends upon our income and liquidity position, among other factors, and is subject to declaration by our Board of Directors, who meet quarterly to consider our dividend payment. We expect to fund dividend payments with cash from operations. | ||||||||||||||||
In July 2014, the Board of Directors authorized a dividend increase of 25 percent from $0.625 per share to $0.78 per share on a quarterly basis effective in the third quarter. In July 2013, the Board of Directors authorized a 25 percent increase to our quarterly cash dividend on our common stock from $0.50 per share to $0.625 per share. In July 2012, the Board of Directors approved a 25 percent increase to our quarterly cash dividend on our common stock from $0.40 per share to $0.50 per share. Cash dividends per share paid to common shareholders for the last three years were as follows: | ||||||||||||||||
Quarterly Dividends | ||||||||||||||||
2014 | 2013 | 2012 | ||||||||||||||
First quarter | $ | 0.625 | $ | 0.5 | $ | 0.4 | ||||||||||
Second quarter | 0.625 | 0.5 | 0.4 | |||||||||||||
Third quarter | 0.78 | 0.625 | 0.5 | |||||||||||||
Fourth quarter | 0.78 | 0.625 | 0.5 | |||||||||||||
Total | $ | 2.81 | $ | 2.25 | $ | 1.8 | ||||||||||
Employee Benefits Trust | ||||||||||||||||
In 1997, we established the Employee Benefits Trust (EBT) funded with common stock for use in meeting our future obligations under employee benefit and compensation plans. The primary sources of cash for the EBT are dividends received on unallocated shares of our common stock held by the EBT. The EBT may be used to fund matching contributions to employee accounts in the 401(k) Retirement Savings Plan (RSP) made in proportion to employee contributions under the terms of the RSP. In addition, we may direct the trustee to sell shares of the EBT on the open market to fund other non-qualified employee benefit plans. Matching contributions charged to income for the years ended December 31, 2014, 2013 and 2012 were $24 million, $24 million and $27 million, respectively. |
OTHER_COMPREHENSIVE_INCOME_LOS
OTHER COMPREHENSIVE INCOME (LOSS) | 12 Months Ended | ||||||||||||||||||||||||||||
Dec. 31, 2014 | |||||||||||||||||||||||||||||
Equity [Abstract] | |||||||||||||||||||||||||||||
OTHER COMPREHENSIVE INCOME (LOSS) | NOTE 15. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) | ||||||||||||||||||||||||||||
Following are the changes in accumulated other comprehensive income (loss) by component: | |||||||||||||||||||||||||||||
In millions | Change in | Foreign | Unrealized gain | Unrealized gain | Total | Noncontrolling | Total | ||||||||||||||||||||||
pensions and | currency | (loss) on | (loss) on | attributable to | interests | ||||||||||||||||||||||||
other | translation | marketable | derivatives | Cummins Inc. | |||||||||||||||||||||||||
postretirement | adjustment | securities | |||||||||||||||||||||||||||
defined benefit | |||||||||||||||||||||||||||||
plans | |||||||||||||||||||||||||||||
Balance at December 31, 2011 | $ | (724 | ) | $ | (198 | ) | $ | 4 | $ | (20 | ) | $ | (938 | ) | |||||||||||||||
Other comprehensive income before reclassifications | |||||||||||||||||||||||||||||
Before tax amount | (164 | ) | 51 | 6 | 16 | (91 | ) | $ | (8 | ) | $ | (99 | ) | ||||||||||||||||
Tax (expense) benefit | 54 | (14 | ) | (2 | ) | (4 | ) | 34 | — | 34 | |||||||||||||||||||
After tax amount | (110 | ) | 37 | 4 | 12 | (57 | ) | (8 | ) | (65 | ) | ||||||||||||||||||
Amounts reclassified from accumulated other comprehensive income(1) | 40 | — | (3 | ) | 8 | 45 | 1 | 46 | |||||||||||||||||||||
Net current period other comprehensive income (loss) | (70 | ) | 37 | 1 | 20 | (12 | ) | $ | (7 | ) | $ | (19 | ) | ||||||||||||||||
Balance at December 31, 2012 | $ | (794 | ) | $ | (161 | ) | $ | 5 | $ | — | $ | (950 | ) | ||||||||||||||||
Other comprehensive income before reclassifications | |||||||||||||||||||||||||||||
Before tax amount | 206 | (31 | ) | 16 | (6 | ) | 185 | $ | (28 | ) | $ | 157 | |||||||||||||||||
Tax (expense) benefit | (87 | ) | 13 | (9 | ) | 3 | (80 | ) | — | (80 | ) | ||||||||||||||||||
After tax amount | 119 | (18 | ) | 7 | (3 | ) | 105 | (28 | ) | 77 | |||||||||||||||||||
Amounts reclassified from accumulated other comprehensive income(1)(2) | 64 | — | (5 | ) | 2 | 61 | (1 | ) | 60 | ||||||||||||||||||||
Net current period other comprehensive income (loss) | 183 | (18 | ) | 2 | (1 | ) | 166 | $ | (29 | ) | $ | 137 | |||||||||||||||||
Balance at December 31, 2013 | $ | (611 | ) | $ | (179 | ) | $ | 7 | $ | (1 | ) | $ | (784 | ) | |||||||||||||||
Other comprehensive income before reclassifications | |||||||||||||||||||||||||||||
Before tax amount | (196 | ) | (241 | ) | 2 | 2 | (433 | ) | $ | (7 | ) | $ | (440 | ) | |||||||||||||||
Tax (expense) benefit | 92 | 14 | (1 | ) | (1 | ) | 104 | — | 104 | ||||||||||||||||||||
After tax amount | (104 | ) | (227 | ) | 1 | 1 | (329 | ) | (7 | ) | (336 | ) | |||||||||||||||||
Amounts reclassified from accumulated other comprehensive income(1)(2) | 46 | — | (9 | ) | (2 | ) | 35 | (4 | ) | 31 | |||||||||||||||||||
Net current period other comprehensive income (loss) | (58 | ) | (227 | ) | (8 | ) | (1 | ) | (294 | ) | $ | (11 | ) | $ | (305 | ) | |||||||||||||
Balance at December 31, 2014 | $ | (669 | ) | $ | (406 | ) | $ | (1 | ) | $ | (2 | ) | $ | (1,078 | ) | ||||||||||||||
_______________________________________________________________________ | |||||||||||||||||||||||||||||
(1) Amounts are net of tax. | |||||||||||||||||||||||||||||
(2) See reclassifications out of accumulated other comprehensive income (loss) disclosure below for further details. | |||||||||||||||||||||||||||||
Following are the items reclassified out of accumulated other comprehensive income (loss) and the related tax effects: | |||||||||||||||||||||||||||||
In millions | Years ended December 31, | ||||||||||||||||||||||||||||
(Gain)/Loss Components | 2014 | 2013 | Statement of Income Location | ||||||||||||||||||||||||||
Realized (gain) loss on marketable securities | $ | (14 | ) | $ | (13 | ) | Other income (expense), net | ||||||||||||||||||||||
Income tax expense | 1 | 7 | Income tax expense | ||||||||||||||||||||||||||
Net realized (gain) loss on marketable securities | $ | (13 | ) | $ | (6 | ) | |||||||||||||||||||||||
Realized (gain) loss on derivatives | |||||||||||||||||||||||||||||
Foreign currency forward contracts | $ | (5 | ) | $ | 2 | Net sales | |||||||||||||||||||||||
Commodity swap contracts | 2 | 1 | Cost of sales | ||||||||||||||||||||||||||
Total before taxes | (3 | ) | 3 | ||||||||||||||||||||||||||
Income tax expense (benefit) | 1 | (1 | ) | Income tax expense | |||||||||||||||||||||||||
Net realized (gain) loss on derivatives | $ | (2 | ) | $ | 2 | ||||||||||||||||||||||||
Change in pension and other postretirement defined benefit plans | |||||||||||||||||||||||||||||
Recognized actuarial loss | $ | 63 | $ | 95 | (1) | ||||||||||||||||||||||||
Total before taxes | 63 | 95 | |||||||||||||||||||||||||||
Income tax expense (benefit) | (17 | ) | (31 | ) | Income tax expense | ||||||||||||||||||||||||
Net change in pensions and other postretirement defined benefit plans | $ | 46 | $ | 64 | |||||||||||||||||||||||||
Total reclassifications for the period | $ | 31 | $ | 60 | |||||||||||||||||||||||||
_______________________________________________________________________ | |||||||||||||||||||||||||||||
(1) These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 11, ''PENSION AND OTHER POSTRETIREMENT BENEFITS''). |
STOCK_INCENTIVE_AND_STOCK_OPTI
STOCK INCENTIVE AND STOCK OPTION PLANS | 12 Months Ended | ||||||||||||||
Dec. 31, 2014 | |||||||||||||||
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||||||||||||||
STOCK INCENTIVE AND STOCK OPTION PLANS | NOTE 16. STOCK INCENTIVE AND STOCK OPTION PLANS | ||||||||||||||
In May 2012, our shareholders approved the 2012 Omnibus Plan (the Plan), which replaced and succeeded the 2003 Stock Incentive Plan. The Plan allows for the granting of equity awards covering up to 3.5 million shares to executives, employees and non-employee directors. Awards available for grant under the Plan include, but are not limited to, stock options, stock appreciation rights, performance shares and other stock awards. Shares issued under the Plan may be newly issued shares or reissued treasury shares. | |||||||||||||||
Stock options are generally granted with a strike price equal to the fair market value of the stock on the date of grant and a life of 10 years. Stock options granted in 2014 have a three-year vesting period whereas stock options granted prior to 2014 had a two-year vesting period. The strike price may be higher than the fair value of the stock on the date of the grant, but cannot be lower. Compensation expense is recorded on a straight-line basis over the vesting period beginning on the grant date. The compensation expense is based on the fair value of each option grant using the Black-Scholes option pricing model. Options granted to employees eligible for retirement under our retirement plan are fully expensed as of the grant date. | |||||||||||||||
Stock options are also awarded through the Key Employee Stock Investment Plan (KESIP) which allows certain employees, other than officers, to purchase shares of common stock on an installment basis up to an established credit limit. For every even block of 100 KESIP shares purchased by the employee 50 stock options are granted. The options granted through the KESIP program are considered awards under the Plan and are vested immediately. Compensation expense for stock options granted through the KESIP program is recorded based on the fair value of each option grant using the Black-Scholes option pricing model. | |||||||||||||||
Performance shares are granted as target awards and are earned based on our return on equity (ROE) performance. A payout factor has been established ranging from 0 to 200 percent of the target award based on our actual ROE performance. Shares have a three-year performance period. Employees leaving the company prior to the end of the three-year performance period forfeit shares granted to them. The fair value of the award is equal to the average market price, adjusted for the present value of dividends over the vesting period, of our stock on the grant date. Compensation expense is recorded ratably over the period beginning on the grant date until the shares become unrestricted and is based on the amount of the award that is expected to be earned under the plan formula, adjusted each reporting period based on current information. | |||||||||||||||
Restricted common stock is awarded from time to time at no cost to certain employees. Participants are entitled to cash dividends and voting rights. Restrictions limit the sale or transfer of the shares during a defined period. Generally, one-third of the shares become vested and free from restrictions after two years and one-third of the shares issued become vested and free from restrictions each year thereafter on the anniversary of the grant date, provided the participant remains an employee. The fair value of the award is equal to the average market price of our stock on the grant date. Compensation expense is determined at the grant date and is recognized over the four-year restriction period on a straight-line basis. | |||||||||||||||
Employee compensation expense (net of estimated forfeitures) related to our share-based plans for the year ended December 31, 2014, 2013 and 2012, was approximately $35 million, $34 million and $35 million, respectively. The excess tax benefit associated with our share-based plans for the years ended December 31, 2014, 2013 and 2012, was $5 million, $13 million and $14 million, respectively. The total unrecognized compensation expense (net of estimated forfeitures) related to nonvested awards was approximately $32 million at December 31, 2014, and is expected to be recognized over a weighted-average period of less than two years. | |||||||||||||||
The tables below summarize the activity in the Plan: | |||||||||||||||
Options | Weighted-average | Weighted-average | Aggregate | ||||||||||||
Exercise Price | Remaining | Intrinsic Value | |||||||||||||
Contractual Life | (in millions) | ||||||||||||||
(in years) | |||||||||||||||
Balance at December 31, 2011 | 1,243,037 | $ | 59.02 | ||||||||||||
Granted | 321,945 | 119.34 | |||||||||||||
Exercised | (241,815 | ) | 31.73 | ||||||||||||
Forfeited | (13,999 | ) | 67.86 | ||||||||||||
Balance at December 31, 2012 | 1,309,168 | 78.8 | |||||||||||||
Granted | 432,370 | 112.07 | |||||||||||||
Exercised | (265,528 | ) | 40.48 | ||||||||||||
Forfeited | (13,674 | ) | 105.19 | ||||||||||||
Balance at December 31, 2013 | 1,462,336 | 95.35 | |||||||||||||
Granted | 350,630 | 148.98 | |||||||||||||
Exercised | (175,526 | ) | 82.06 | ||||||||||||
Forfeited | (10,716 | ) | 102.56 | ||||||||||||
Balance at December 31, 2014 | 1,626,724 | $ | 108.3 | 7.22 | $ | 62 | |||||||||
Exercisable, December 31, 2012 | 785,869 | $ | 51.4 | 6.26 | $ | 44 | |||||||||
Exercisable, December 31, 2013 | 758,936 | $ | 76.85 | 5.94 | $ | 48 | |||||||||
Exercisable, December 31, 2014 | 903,059 | $ | 92.18 | 6.05 | $ | 48 | |||||||||
The weighted-average grant date fair value of options granted during the years ended December 31, 2014, 2013 and 2012, was $49.16, $48.00 and $54.25, respectively. The total intrinsic value of options exercised during the years ended December 31, 2014, 2013 and 2012, was approximately $12 million, $22 million and $19 million, respectively. | |||||||||||||||
The weighted-average grant date fair value of performance and restricted shares was as follows: | |||||||||||||||
Performance Shares | Restricted Shares | ||||||||||||||
Nonvested | Shares | Weighted-average | Shares | Weighted-average | |||||||||||
Fair Value | Fair Value | ||||||||||||||
Balance at December 31, 2011 | 525,391 | $ | 62.05 | 81,845 | $ | 61.49 | |||||||||
Granted | 325,590 | 89.92 | 3,150 | 91.68 | |||||||||||
Vested | (194,484 | ) | 25.46 | (22,766 | ) | 52.16 | |||||||||
Forfeited | (26,413 | ) | 91.94 | — | — | ||||||||||
Balance at December 31, 2012 | 630,084 | 86.49 | 62,229 | 66.43 | |||||||||||
Granted | 176,649 | 106.4 | 7,506 | 114.56 | |||||||||||
Vested | (303,882 | ) | 61.48 | (26,901 | ) | 62.03 | |||||||||
Forfeited | (26,938 | ) | 85.07 | (10,293 | ) | 65.41 | |||||||||
Balance at December 31, 2013 | 475,913 | 109.93 | 32,541 | 81.49 | |||||||||||
Granted | 206,031 | 130.38 | — | — | |||||||||||
Vested | (207,093 | ) | 107.64 | (21,266 | ) | 65.88 | |||||||||
Forfeited | (8,158 | ) | 121.18 | — | — | ||||||||||
Balance at December 31, 2014 | 466,693 | $ | 119.78 | 11,275 | $ | 110.94 | |||||||||
The total vesting date fair value of performance shares vested during the years ended December 31, 2014, 2013 and 2012 was $30 million, $35 million and $24 million, respectively. The total fair value of restricted shares vested was $3 million, $3 million and $3 million for the years ended December 31, 2014, 2013 and 2012, respectively. | |||||||||||||||
The fair value of each option grant was estimated on the grant date using the Black-Scholes option pricing model with the following assumptions: | |||||||||||||||
2014 | 2013 | 2012 | |||||||||||||
Expected life (years) | 5 | 5 | 5 | ||||||||||||
Risk-free interest rate | 1.8 | % | 0.79 | % | 1.05 | % | |||||||||
Expected volatility | 41.17 | % | 56.59 | % | 58.98 | % | |||||||||
Dividend yield | 1.61 | % | 1.55 | % | 1.3 | % | |||||||||
Expected life—The expected life of employee stock options represents the weighted-average period the stock options are expected to remain outstanding based upon our historical data. | |||||||||||||||
Risk-free interest rate—The risk-free interest rate assumption is based upon the observed U.S. treasury security rate appropriate for the expected life of our employee stock options. | |||||||||||||||
Expected volatility—The expected volatility assumption is based upon the weighted-average historical daily price changes of our common stock over the most recent period equal to the expected option life of the grant, adjusted for activity which is not expected to occur in the future. | |||||||||||||||
Dividend yield—The dividend yield assumption is based on our history and expectation of dividend payouts. |
NONCONTROLLING_INTERESTS
NONCONTROLLING INTERESTS | 12 Months Ended | ||||||||
Dec. 31, 2014 | |||||||||
Noncontrolling Interest [Abstract] | |||||||||
NONCONTROLLING INTERESTS | NOTE 17. NONCONTROLLING INTERESTS | ||||||||
Noncontrolling interests in the equity of consolidated subsidiaries were as follows: | |||||||||
December 31, | |||||||||
In millions | 2014 | 2013 | |||||||
Cummins India Ltd. | $ | 252 | $ | 252 | |||||
Wuxi Cummins Turbo Technologies Co. Ltd. | 67 | 81 | |||||||
Other | 25 | 27 | |||||||
Total | $ | 344 | $ | 360 | |||||
EARNINGS_PER_SHARE
EARNINGS PER SHARE | 12 Months Ended | ||||||||||||
Dec. 31, 2014 | |||||||||||||
Earnings Per Share [Abstract] | |||||||||||||
EARNINGS PER SHARE | NOTE 18. EARNINGS PER SHARE | ||||||||||||
We calculate basic earnings per share (EPS) of common stock by dividing net income attributable to Cummins Inc. by the weighted-average number of common shares outstanding for the period. The calculation of diluted EPS assumes the issuance of common stock for all potentially dilutive share equivalents outstanding. We exclude shares of common stock held in the EBT (see Note 14, "SHAREHOLDERS' EQUITY") from the calculation of the weighted-average common shares outstanding until those shares are distributed from the EBT to the RSP. Following are the computations for basic and diluted earnings per share: | |||||||||||||
Years ended December 31, | |||||||||||||
Dollars in millions, except per share amounts | 2014 | 2013 | 2012 | ||||||||||
Net income attributable to Cummins Inc. | $ | 1,651 | $ | 1,483 | $ | 1,645 | |||||||
Weighted-average common shares outstanding | |||||||||||||
Basic | 182,637,568 | 186,994,382 | 189,286,821 | ||||||||||
Dilutive effect of stock compensation awards | 441,727 | 423,459 | 381,883 | ||||||||||
Diluted | 183,079,295 | 187,417,841 | 189,668,704 | ||||||||||
Earnings per common share attributable to Cummins Inc. | |||||||||||||
Basic | $ | 9.04 | $ | 7.93 | $ | 8.69 | |||||||
Diluted | 9.02 | 7.91 | 8.67 | ||||||||||
The weighted-average diluted common shares outstanding for 2014, 2013 and 2012 excludes the effect of 165,840, 359,641 and 453,893 weighted-average shares, respectively, of common stock options, since such options had an exercise price in excess of the monthly average market value of our common stock during that year. |
OPERATING_SEGMENTS
OPERATING SEGMENTS | 12 Months Ended | ||||||||||||||||||||||||
Dec. 31, 2014 | |||||||||||||||||||||||||
Segment Reporting [Abstract] | |||||||||||||||||||||||||
OPERATING SEGMENTS | NOTE 19. 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, 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 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 | Distribution | Components | Power Generation | Non-segment | Total | |||||||||||||||||||
Items(1) | |||||||||||||||||||||||||
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 | (3) | 684 | 168 | (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(3) | 1,041 | 388 | (3) | 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 | |||||||||||||||||||
2012 | |||||||||||||||||||||||||
External sales | $ | 9,101 | $ | 3,261 | $ | 2,809 | $ | 2,163 | $ | — | $ | 17,334 | |||||||||||||
Intersegment sales | 1,632 | 16 | 1,203 | 1,105 | (3,956 | ) | — | ||||||||||||||||||
Total sales | 10,733 | 3,277 | 4,012 | 3,268 | (3,956 | ) | 17,334 | ||||||||||||||||||
Depreciation and amortization(2) | 192 | 34 | 82 | 47 | — | 355 | |||||||||||||||||||
Research, development and engineering expenses | 433 | 6 | 213 | 76 | — | 728 | |||||||||||||||||||
Equity, royalty and interest income from investees | 127 | 188 | 29 | 40 | — | 384 | |||||||||||||||||||
Interest income | 11 | 2 | 3 | 9 | — | 25 | |||||||||||||||||||
Segment EBIT | 1,248 | 369 | (3) | 426 | 285 | (25 | ) | 2,303 | |||||||||||||||||
Net assets | 3,373 | 1,392 | 1,830 | 1,582 | — | 8,177 | |||||||||||||||||||
Investments and advances to equity investees | 401 | 281 | 127 | 88 | — | 897 | |||||||||||||||||||
Capital expenditures | 399 | 62 | 134 | 95 | — | 690 | |||||||||||||||||||
____________________________________________________ | |||||||||||||||||||||||||
(1) | Includes intersegment sales and profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the years ended December 31, 2014 and 2013. The year ended December 31, 2012, included a $20 million charge ($12 million after-tax) related to legal matters. The charge was excluded from segment results as it was not considered in our evaluation of operating results for the year ended December 31, 2012. | ||||||||||||||||||||||||
(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, $2 million and $6 million for the years ended December 31, 2014, 2013 and 2012, respectively. | ||||||||||||||||||||||||
(3) | Distribution segment EBIT included gains on the fair value adjustment resulting from the acquisition of controlling interests in North American distributors of $73 million, $12 million and $7 million for the periods ended December 31, 2014, 2013, and 2012, respectively. See Note 2, "ACQUISITIONS," for additional information. | ||||||||||||||||||||||||
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 | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Total EBIT | $ | 2,498 | $ | 2,160 | $ | 2,303 | |||||||||||||||||||
Less: Interest expense | 64 | 41 | 32 | ||||||||||||||||||||||
Income before income taxes | $ | 2,434 | $ | 2,119 | $ | 2,271 | |||||||||||||||||||
December 31, | |||||||||||||||||||||||||
In millions | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Net assets for operating segments | $ | 9,737 | $ | 9,646 | $ | 8,177 | |||||||||||||||||||
Liabilities deducted in arriving at net assets | 6,009 | 5,103 | 4,913 | ||||||||||||||||||||||
Pension and other postretirement benefit adjustments excluded from net assets | (319 | ) | (346 | ) | (977 | ) | |||||||||||||||||||
Deferred tax assets not allocated to segments | 314 | 292 | 410 | ||||||||||||||||||||||
Debt-related costs not allocated to segments | 35 | 33 | 25 | ||||||||||||||||||||||
Total assets | $ | 15,776 | $ | 14,728 | $ | 12,548 | |||||||||||||||||||
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 | 2014 | 2013 | 2012 | ||||||||||||||||||||||
United States | $ | 10,058 | $ | 8,382 | $ | 8,107 | |||||||||||||||||||
China | 1,446 | 1,194 | 1,056 | ||||||||||||||||||||||
Canada | 771 | 655 | 642 | ||||||||||||||||||||||
Brazil | 730 | 882 | 798 | ||||||||||||||||||||||
India | 546 | 630 | 757 | ||||||||||||||||||||||
Mexico | 561 | 556 | 692 | ||||||||||||||||||||||
United Kingdom | 479 | 453 | 660 | ||||||||||||||||||||||
Other foreign countries | 4,630 | 4,549 | 4,622 | ||||||||||||||||||||||
Total net sales | $ | 19,221 | $ | 17,301 | $ | 17,334 | |||||||||||||||||||
In millions | December 31, | ||||||||||||||||||||||||
Long-lived assets | 2014 | 2013 | 2012 | ||||||||||||||||||||||
United States | $ | 2,949 | $ | 2,606 | $ | 2,440 | |||||||||||||||||||
China | 692 | 646 | 589 | ||||||||||||||||||||||
India | 391 | 330 | 243 | ||||||||||||||||||||||
United Kingdom | 339 | 319 | 339 | ||||||||||||||||||||||
Brazil | 161 | 172 | 170 | ||||||||||||||||||||||
Netherlands | 156 | 138 | 130 | ||||||||||||||||||||||
Canada | 126 | 68 | 69 | ||||||||||||||||||||||
Mexico | 96 | 87 | 77 | ||||||||||||||||||||||
Germany | 79 | 69 | 49 | ||||||||||||||||||||||
Korea | 34 | 37 | 37 | ||||||||||||||||||||||
Romania | 31 | 27 | 15 | ||||||||||||||||||||||
Turkey | 30 | 28 | 29 | ||||||||||||||||||||||
Australia | 17 | 18 | 25 | ||||||||||||||||||||||
United Arab Emirates | 16 | 15 | 16 | ||||||||||||||||||||||
Singapore | 13 | 17 | 16 | ||||||||||||||||||||||
France | 12 | 13 | 13 | ||||||||||||||||||||||
Other foreign countries | 42 | 34 | 33 | ||||||||||||||||||||||
Total long-lived assets | $ | 5,184 | $ | 4,624 | $ | 4,290 | |||||||||||||||||||
Our largest customer is PACCAR Inc. Worldwide sales to this customer were $2,706 million in 2014, $2,085 million in 2013 and $2,232 million in 2012, representing 14 percent, 12 percent and 13 percent, respectively, of our consolidated net sales. No other customer accounted for more than 10 percent of consolidated net sales. |
SUMMARY_OF_SIGNIFICANT_ACCOUNT1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 12 Months Ended | ||||||||||||
Dec. 31, 2014 | |||||||||||||
Accounting Policies [Abstract] | |||||||||||||
Principles of Consolidation | Principles of Consolidation | ||||||||||||
Our Consolidated Financial Statements include the accounts of all wholly-owned and majority-owned domestic and foreign subsidiaries where our ownership is more than 50 percent of outstanding equity interests except for majority-owned subsidiaries that are considered variable interest entities (VIEs) where we are not deemed to have a controlling financial interest. In addition, we also consolidate, regardless of our ownership percentage, VIEs for which we are deemed to have a controlling financial interest. Intercompany balances and transactions are eliminated in consolidation. Where our ownership interest is less than 100 percent, the noncontrolling ownership interests are reported in our Consolidated Balance Sheets. The noncontrolling ownership interest in our income, net of tax, is classified as "Net income attributable to noncontrolling interests" in our Consolidated Statements of Income. | |||||||||||||
Certain amounts for 2013 and 2012 have been reclassified to conform to the current classifications. | |||||||||||||
We have variable interests in several businesses accounted for under the equity method of accounting that are deemed to be VIEs and are subject to the provisions of accounting principles generally accepted in the United States of America (GAAP) for variable interest entities. Most of these VIEs are unconsolidated | |||||||||||||
Reclassification, Policy | Reclassification Adjustments | ||||||||||||
We revised the classification of certain amounts for "Cost of sales" and "Selling, general and administrative expenses" for 2013 and 2012. In connection with the integration of recently acquired North American distributors and anticipating the future acquisition and integration of the entire North American channel, our Distribution segment has developed a framework against which Distribution management intends to measure the performance of the distribution channel. The segment EBIT (defined as earnings before interest expense, taxes and noncontrolling interests) performance measure is unchanged, however, certain activities that were previously classified in "Selling, general and administrative expenses" are now classified as "Cost of sales" to align with the new framework and allow for consistent treatment across the channel. We revised the expense presentation of our Consolidated Statements of Income for the periods presented to follow the new cost framework. The reclassifications for the years ended December 31, 2013 and 2012, were $103 million and $92 million, respectively. The revision had no impact on reported net income, cash flows or the balance sheet. | |||||||||||||
Investments in Equity Investees | Investments in Equity Investees | ||||||||||||
We use the equity method to account for our investments in joint ventures, affiliated companies and alliances in which we have the ability to exercise significant influence, generally represented by equity ownership or partnership equity of at least 20 percent but not more than 50 percent. Generally, under the equity method, original investments in these entities are recorded at cost and subsequently adjusted by our share of equity in income or losses after the date of acquisition. Investment amounts in excess of our share of an investee's net assets are amortized over the life of the related asset creating the excess. If the excess is goodwill, then it is not amortized. Equity in income or losses of each investee is recorded according to our level of ownership; if losses accumulate, we record our share of losses until our investment has been fully depleted. If our investment has been fully depleted, we recognize additional losses only when we are the primary funding source. We eliminate (to the extent of our ownership percentage) in our Consolidated Financial Statements the profit in inventory held by our equity method investees that has not yet been sold to a third-party. Our investments are classified as "Investments and advances related to equity method investees" in our Consolidated Balance Sheets. Our share of the results from joint ventures, affiliated companies and alliances is reported in our Consolidated Statements of Income as "Equity, royalty and interest income from investees," and is reported net of all applicable income taxes. | |||||||||||||
Our foreign equity investees are presented net of applicable foreign income taxes in our Consolidated Statements of Income. Our remaining United States (U.S.) equity investees are partnerships (non-taxable), thus there is no difference between gross or net of tax presentation as the investees are not taxed. See NOTE 3, "INVESTMENTS IN EQUITY INVESTEES," for additional information. | |||||||||||||
Use of Estimates in the Preparation of the Financial Statements | Use of Estimates in the Preparation of the Financial Statements | ||||||||||||
Preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts presented and disclosed in our Consolidated Financial Statements. Significant estimates and assumptions in these Consolidated Financial Statements require the exercise of judgment and are used for, but not limited to, allowance for doubtful accounts, estimates of future cash flows and other assumptions associated with goodwill and long-lived asset impairment tests, useful lives for depreciation and amortization, warranty programs, determination of discount and other assumptions for pension and other postretirement benefit costs, restructuring costs, income taxes and deferred tax valuation allowances, lease classification and contingencies. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be different from these estimates. | |||||||||||||
Revenue Recognition | Revenue Recognition | ||||||||||||
We recognize revenue, net of estimated costs of returns, allowances and sales incentives, when it is realized or realizable, which generally occurs when: | |||||||||||||
• | Persuasive evidence of an arrangement exists; | ||||||||||||
• | The product has been shipped and legal title and all risks of ownership have been transferred; | ||||||||||||
• | The sales price is fixed or determinable; and | ||||||||||||
• | Payment is reasonably assured. | ||||||||||||
Products are generally sold on open account under credit terms customary to the geographic region of distribution. We perform ongoing credit evaluations of our customers and generally do not require collateral to secure our accounts receivable. For engines, service parts, service tools and other items sold to independent distributors and to partially-owned distributors accounted for under the equity method, revenues are recorded when title and risk of ownership transfers. This transfer is based on the agreement in effect with the respective distributor, which in the U.S. and most international locations, generally occurs when the products are shipped. To the extent of our ownership percentage, margins on sales to distributors accounted for under the equity method are deferred until the distributor sells the product to unrelated parties. | |||||||||||||
We provide various sales incentives to both our distribution network and our OEM customers. These programs are designed to promote the sale of our product in the channel or encourage the usage of our products by OEM customers. Sales incentives primarily fall into three categories: | |||||||||||||
• | Volume rebates; | ||||||||||||
• | Market share rebates; and | ||||||||||||
• | Aftermarket rebates. | ||||||||||||
For volume rebates, we provide certain customers with rebate opportunities for attaining specified volumes during a particular quarter or year. We accrue for the expected amount of these rebates at the time of the original sale and update our accruals quarterly based on our best estimate of the volume levels the customer will reach during the measurement period. For market share rebates, we provide certain customers with rebate opportunities based on the percentage of their production that utilizes our product. These rebates are typically measured either quarterly or annually and are accrued at the time of the original sale based on the current market shares, with adjustments made as the level changes. For aftermarket rebates we provide incentives to promote sales to certain dealers and end-markets. These rebates are typically paid on a quarterly, or more frequent, basis and estimates are made at the end of each quarter as to the amount yet to be paid. These estimates are based on historical experience with the particular program. The incentives are classified as a reduction in sales in our Consolidated Statements of Income. | |||||||||||||
Rights of return do not exist for the majority of our sales, other than for quality issues. We do offer certain return rights in our aftermarket business, where some aftermarket customers are permitted to return small amounts of parts and filters each year and in our power generation business, which sells portable generators to retail customers. An estimate of future returns is accrued at the time of sale based on historical return rates. | |||||||||||||
Foreign Currency Transactions and Translation | Foreign Currency Transactions and Translation | ||||||||||||
We translate assets and liabilities of foreign entities to U.S. dollars, where the local currency is the functional currency, at year-end exchange rates. We translate income and expenses to U.S. dollars using weighted-average exchange rates for the year. We record adjustments resulting from translation in a separate component of accumulated other comprehensive income (loss) and include the adjustments in net income only upon sale, loss of controlling financial interest or liquidation of the underlying foreign investment. | |||||||||||||
Foreign currency transaction gains and losses are included in current net income. For foreign entities where the U.S. dollar is the functional currency, including those operating in highly inflationary economies when applicable, we remeasure non-monetary balances and the related income statement using historical exchange rates. We include in income the resulting gains and losses, including the effect of derivatives in our Consolidated Statements of Income, which combined with transaction gains and losses amounted to a net loss of $6 million in 2014, net loss of $27 million in 2013 and net loss of $14 million in 2012. | |||||||||||||
Derivative Instruments | Derivative Instruments | ||||||||||||
We make use of derivative instruments in foreign exchange, commodity price and interest rate hedging programs. Derivatives currently in use are foreign currency forward contracts, commodity zero-cost collars and interest rate swaps. These contracts are used strictly for hedging and not for speculative purposes. | |||||||||||||
We are exposed to market risk from fluctuations in interest rates. We manage our exposure to interest rate fluctuations through the use of interest rate swaps. The objective of the swaps is to more effectively balance our borrowing costs and interest rate risk. The gain or loss on these derivative instruments as well as the offsetting gain or loss on the hedged item attributable to the hedged risk are recognized in current income as “Interest expense." For more detail on our interest rate swaps see NOTE 9, "DEBT." | |||||||||||||
Due to our international business presence, we are exposed to foreign currency exchange risk. We transact in foreign currencies and have assets and liabilities denominated in foreign currencies. Consequently, our income experiences some volatility related to movements in foreign currency exchange rates. In order to benefit from global diversification and after considering naturally offsetting currency positions, we enter into foreign currency forward contracts to minimize our existing exposures (recognized assets and liabilities) and hedge forecasted transactions. Foreign currency forward contracts are designated and qualify as foreign currency cash flow hedges under GAAP. The effective portion of the unrealized gain or loss on the forward contract is deferred and reported as a component of “Accumulated other comprehensive loss” (AOCL). When the hedged forecasted transaction (sale or purchase) occurs, the unrealized gain or loss is reclassified into income in the same line item associated with the hedged transaction in the same period or periods during which the hedged transaction affects income. Foreign currency contracts have been deemed immaterial for additional disclosure. | |||||||||||||
We are exposed to fluctuations in commodity prices due to contractual agreements with component suppliers. In order to protect ourselves against future price volatility and, consequently, fluctuations in gross margins, we periodically enter into commodity zero-cost collar contracts with designated banks to fix the cost of certain raw material purchases with the objective of minimizing changes in inventory cost due to market price fluctuations. We have commodity zero-cost collar contracts that represent an economic hedge, but are not designated for hedge accounting and are marked to market through earnings. Commodity swap contracts have been deemed immaterial for additional disclosure. | |||||||||||||
Income Tax Accounting | Income Tax Accounting | ||||||||||||
We determine our income tax expense using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax effects of temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future tax benefits of tax loss and credit carryforwards are also recognized as deferred tax assets. We evaluate the recoverability of our deferred tax assets each quarter by assessing the likelihood of future profitability and available tax planning strategies that could be implemented to realize our net deferred tax assets. A valuation allowance is recorded to reduce the tax assets to the net value management believes is more likely than not to be realized. In the event our operating performance deteriorates, future assessments could conclude that a larger valuation allowance will be needed to further reduce the deferred tax assets. In addition, we operate within multiple taxing jurisdictions and are subject to tax audits in these jurisdictions. These audits can involve complex issues, which may require an extended period of time to resolve. We accrue for the estimated additional tax and interest that may result from tax authorities disputing uncertain tax positions we have taken and we believe we have made adequate provision for income taxes for all years that are subject to audit based upon the latest information available. A more complete description of our income taxes and the future benefits of our tax loss and credit carryforwards is disclosed in NOTE 4, "INCOME TAXES." | |||||||||||||
Cash and Cash Equivalents | Cash and Cash Equivalents | ||||||||||||
Cash equivalents are defined as short-term, highly liquid investments with an original maturity of 90 days or less at the time of purchase. The carrying amounts reflected in our Consolidated Balance Sheets for cash and cash equivalents approximate fair value due to the short-term maturity of these investments. | |||||||||||||
Years ended December 31, | |||||||||||||
In millions | 2014 | 2013 | 2012 | ||||||||||
Cash payments for income taxes, net of refunds | $ | 659 | $ | 380 | $ | 691 | |||||||
Cash payments for interest, net of capitalized interest | 65 | 30 | 32 | ||||||||||
Marketable Securities | Marketable Securities | ||||||||||||
We account for marketable securities in accordance with GAAP for investments in debt and equity securities. We determine the appropriate classification of all marketable securities as "held-to-maturity, "available-for-sale" or "trading" at the time of purchase, and re-evaluate such classifications at each balance sheet date. At December 31, 2014 and 2013, all of our investments were classified as available-for-sale. | |||||||||||||
Available-for-sale (AFS) securities are carried at fair value with the unrealized gain or loss, net of tax, reported in other comprehensive income. Unrealized losses considered to be "other-than-temporary" are recognized currently in income. The cost of securities sold is based on the specific identification method. The fair value of most investment securities is determined by currently available market prices. Where quoted market prices are not available, we use the market price of similar types of securities that are traded in the market to estimate fair value. See NOTE 5, "MARKETABLE SECURITIES," for a detailed description of our investments in marketable securities. | |||||||||||||
Accounts Receivable and Allowance for Doubtful Accounts | Accounts Receivable and Allowance for Doubtful Accounts | ||||||||||||
Trade accounts receivable are recorded at the invoiced amount, which approximates net realizable value, and generally do not bear interest. The allowance for doubtful accounts is our best estimate of the amount of probable credit losses in our existing accounts receivable. We determine the allowance based on our historical collection experience and by performing an analysis of our accounts receivable in light of the current economic environment. We review our allowance for doubtful accounts on a regular basis. In addition, when necessary, we provide an allowance for the full amount of specific accounts deemed to be uncollectible. Account balances are charged off against the allowance in the period in which we determine that it is probable the receivable will not be recovered. The allowance for doubtful accounts balances for the years ended December 31, 2014 and 2013 were $12 million and $14 million, respectively. | |||||||||||||
Inventories | Inventories | ||||||||||||
Our inventories are stated at the lower of cost or market. For the years ended December 31, 2014 and 2013, approximately 14 percent and 14 percent, respectively, of our consolidated inventories (primarily heavy-duty and high-horsepower engines and parts) were valued using the last-in, first-out (LIFO) cost method. The cost of other inventories is generally valued using the first-in, first-out (FIFO) cost method. Our inventories at interim and year-end reporting dates include estimates for adjustments related to annual physical inventory results and for inventory cost changes under the LIFO cost method. Due to significant movements of partially-manufactured components and parts between manufacturing plants, we do not internally measure, nor do our accounting systems provide, a meaningful segregation between raw materials and work-in-process. See NOTE 6, "INVENTORIES," for additional information. | |||||||||||||
Property, Plant and Equipment | Property, Plant and Equipment | ||||||||||||
We record property, plant and equipment, inclusive of assets under capital leases, at cost. We depreciate the cost of the majority of our equipment using the straight-line method with depreciable lives ranging from 20 to 40 years for buildings and 3 to 20 years for machinery, equipment and fixtures. Capital lease amortization is recorded in depreciation expense. We expense normal maintenance and repair costs as incurred. Depreciation expense totaled $351 million, $318 million and $287 million for the years ended December 31, 2014, 2013 and 2012, respectively. See NOTE 7, "PROPERTY, PLANT AND EQUIPMENT," for additional information. | |||||||||||||
Long-Lived Assets | Long-Lived Assets | ||||||||||||
We review our long-lived assets for possible impairment whenever events or circumstances indicate that the carrying value of an asset or asset group may not be recoverable. We assess the recoverability of the carrying value of the long-lived assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. An impairment of a long-lived asset or asset group exists when the expected future pre-tax cash flows (undiscounted and without interest charges) estimated to be generated by the asset or asset group is less than its carrying value. If these cash flows are less than the carrying value of such asset or asset group, an impairment loss is measured based on the difference between the estimated fair value and carrying value of the asset or asset group. Assumptions and estimates used to estimate cash flows in the evaluation of impairment and the fair values used to determine the impairment are subject to a degree of judgment and complexity. Any changes to the assumptions and estimates resulting from changes in actual results or market conditions from those anticipated may affect the carrying value of long-lived assets and could result in a future impairment charge. | |||||||||||||
Goodwill | Goodwill | ||||||||||||
Under GAAP for goodwill, we have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value as a basis for determining whether it is necessary to perform an annual two-step goodwill impairment test. We have elected this option on certain reporting units.The two-step impairment test is now only required if an entity determines through this qualitative analysis that it is more likely than not that the fair value of the reporting unit is less than its carrying value. In addition, the carrying value of goodwill must be tested for impairment on an interim basis in certain circumstances where impairment may be indicated. When we are required or opt to perform the two-step impairment test, the fair value of each reporting unit is estimated by discounting the after tax future cash flows less requirements for working capital and fixed asset additions. Our reporting units are generally defined as one level below an operating segment. However, there are two situations where we have aggregated two or more components which share similar economic characteristics and thus are aggregated into a single reporting unit for testing purposes. These two situations are described further below. This analysis has resulted in the following reporting units for our goodwill testing: | |||||||||||||
• | Within our Components segment, our emission solutions and filtration businesses have been aggregated into a single reporting unit. | ||||||||||||
• | Also within our Components segment, our turbo technologies business is considered a separate reporting unit. | ||||||||||||
• | Within our Power Generation segment, our alternators business is considered a separate reporting unit. | ||||||||||||
• | Within our Engine segment, our new and recon parts business is considered a separate reporting unit. This reporting unit is in the business of selling new parts and remanufacturing and reconditioning engines and certain engine components. | ||||||||||||
• | Our Distribution segment is considered a single reporting unit as it is managed geographically and all regions share similar economic characteristics and provide similar products and services. | ||||||||||||
No other reporting units have goodwill. Our valuation method requires us to make projections of revenue, operating expenses, working capital investment and fixed asset additions for the reporting units over a multi-year period. Additionally, management must estimate a weighted-average cost of capital, which reflects a market rate, for each reporting unit for use as a discount rate. The discounted cash flows are compared to the carrying value of the reporting unit and, if less than the carrying value, a separate valuation of the goodwill is required to determine if an impairment loss has occurred. In addition, we also perform a sensitivity analysis to determine how much our forecasts can fluctuate before the fair value of a reporting unit would be lower than its carrying amount. We performed the required procedures as of the end of our fiscal third quarter and determined that our goodwill was not impaired. At December 31, 2014, our recorded goodwill was $479 million, approximately 82 percent of which resided in the emission solutions plus filtration reporting unit. For this reporting unit, the fair value exceeded its carrying value by a substantial margin when we performed step one of the two-step impairment test in the current year. Changes in our projections or estimates, a deterioration of our operating results and the related cash flow effect or a significant increase in the discount rate could decrease the estimated fair value of our reporting units and result in a future impairment of goodwill. See NOTE 8, "GOODWILL AND OTHER INTANGIBLE ASSETS,"for additional information. | |||||||||||||
Software | Software | ||||||||||||
We capitalize certain costs for software that are developed or obtained for internal use. Software costs are amortized on a straight-line basis over their estimated useful lives generally ranging from 3 to 12 years. Software assets are reviewed for impairment when events or circumstances indicate that the carrying value may not be recoverable over the remaining lives of the assets. Upgrades and enhancements are capitalized if they result in significant modifications that enable the software to perform tasks it was previously incapable of performing. Software maintenance, training, data conversion and business process reengineering costs are expensed in the period in which they are incurred. See NOTE 8, "GOODWILL AND OTHER INTANGIBLE ASSETS," for additional information. | |||||||||||||
Warranty | Warranty | ||||||||||||
We charge the estimated costs of warranty programs, other than product recalls, to cost of sales at the time products are sold and revenue is recognized. We use historical experience to develop the estimated liability for our various warranty programs. As a result of the uncertainty surrounding the nature and frequency of product recall programs, the liability for such programs is recorded when we commit to a recall action or when a recall becomes probable and estimable, which generally occurs when it is announced. The liability for these programs is reflected in the provision for warranties issued. We review and assess the liability for these programs on a quarterly basis. We also assess our ability to recover certain costs from our suppliers and record a receivable when we believe a recovery is probable. In addition to costs incurred on warranty and recall programs, from time to time we also incur costs related to customer satisfaction programs for items not covered by warranty. We accrue for these costs when agreement is reached with a specific customer. These costs are not included in the provision for warranties but are included in cost of sales. | |||||||||||||
In addition, we sell extended warranty coverage on most of our engines. The revenue collected is initially deferred and is recognized as revenue in proportion to the costs expected to be incurred in performing services over the contract period. We compare the remaining deferred revenue balance quarterly to the estimated amount of future claims under extended warranty programs and provide an additional accrual when the deferred revenue balance is less than expected future costs. See NOTE 10, "PRODUCT WARRANTY LIABILITY," for additional information. | |||||||||||||
Research and Development | Research and Development | ||||||||||||
Our research and development program is focused on product improvements, innovations and cost reductions for our customers. Research and development expenditures include salaries, contractor fees, building costs, utilities, administrative expenses and allocation of corporate costs and are expensed, net of contract reimbursements, when incurred. From time to time, we enter into agreements with customers to fund a portion of the research and development costs of a particular project. We generally account for these reimbursements as an offset to the related research and development expenditure. Research and development expenses, net of contract reimbursements, were $737 million in 2014, $700 million in 2013 and $721 million in 2012. Contract reimbursements were $121 million in 2014, $76 million in 2013 and $86 million in 2012. | |||||||||||||
Related Party Transactions | Related Party Transactions | ||||||||||||
In accordance with the provisions of various joint venture agreements, we may purchase products and components from our joint ventures, sell products and components to our joint ventures and our joint ventures may sell products and components to unrelated parties. Joint venture transfer prices may differ from normal selling prices. Certain joint venture agreements transfer product at cost, some transfer product on a cost-plus basis, and others transfer product at market value. Our related party sales are presented on the face of our Consolidated Statements of Income. Our related party purchases were not material to our financial position or results of operations. |
SUMMARY_OF_SIGNIFICANT_ACCOUNT2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) | 12 Months Ended | ||||||||||||
Dec. 31, 2014 | |||||||||||||
Accounting Policies [Abstract] | |||||||||||||
Statements of Cash Flows-Supplemental Disclosures | |||||||||||||
Years ended December 31, | |||||||||||||
In millions | 2014 | 2013 | 2012 | ||||||||||
Cash payments for income taxes, net of refunds | $ | 659 | $ | 380 | $ | 691 | |||||||
Cash payments for interest, net of capitalized interest | 65 | 30 | 32 | ||||||||||
ACQUISITIONS_Tables
ACQUISITIONS (Tables) | 12 Months Ended | ||||||||||||||||||||||||||||||||||
Dec. 31, 2014 | |||||||||||||||||||||||||||||||||||
Business Combinations [Abstract] | |||||||||||||||||||||||||||||||||||
Schedule of Business Acquisitions, by Acquisition | The Distribution segment joint venture acquisitions for the years ended December 31, 2014, 2013 and 2012 were as follows: | ||||||||||||||||||||||||||||||||||
Entity Acquired (Dollars in millions) | Date of Acquisition | Additional Percent Interest Acquired | Payments to Former Owners | Acquisition Related Debt Retirements | Total Purchase Consideration | Type of Acquisition(1) | Gain Recognized(1) | Goodwill Acquired | Intangibles Recognized(2) | Net Sales Previous Fiscal Year Ended(3) | |||||||||||||||||||||||||
2014 | |||||||||||||||||||||||||||||||||||
Cummins Bridgeway LLC (Bridgeway)(4) | 11/3/14 | 54% | $ | 22 | $ | 45 | $ | 77 | (5) | COMB | $ | 13 | $ | 4 | $ | 15 | $ | 331 | |||||||||||||||||
Cummins Npower LLC (Npower) | 9/29/14 | 50% | 33 | 34 | 73 | (5) | COMB | 15 | 7 | 8 | 374 | ||||||||||||||||||||||||
Cummins Power South LLC (Power South) | 9/29/14 | 50% | 17 | 16 | 35 | (5) | COMB | 7 | 8 | 1 | 239 | ||||||||||||||||||||||||
Cummins Eastern Canada LP (Eastern Canada) | 8/4/14 | 50% | 29 | 32 | 62 | (5) | COMB | 18 | 5 | 4 | 228 | ||||||||||||||||||||||||
Cummins Power Systems LLC (Power Systems) | 5/5/14 | 30% | 14 | — | 14 | EQUITY | — | — | — | — | |||||||||||||||||||||||||
Cummins Southern Plains LLC (Southern Plains) | 3/31/14 | 50% | 43 | 48 | 92 | (5) | COMB | 13 | 1 | 11 | 433 | ||||||||||||||||||||||||
Cummins Mid-South LLC (Mid-South) | 2/14/14 | 62.20% | 55 | 61 | 118 | (5) | COMB | 7 | 4 | 8 | 368 | ||||||||||||||||||||||||
2013 | |||||||||||||||||||||||||||||||||||
Cummins Western Canada LP (Western Canada) | 12/31/13 | 35% | $ | 32 | $ | — | $ | 32 | EQUITY | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||
Cummins Rocky Mountain LLC (Rocky Mountain) | 5/6/13 | 67% | 62 | 74 | 136 | COMB | 5 | 10 | 8 | 384 | |||||||||||||||||||||||||
Cummins Northwest LLC (Northwest) | 7/1/13 | 20.01% | 4 | — | 4 | EQUITY | — | — | — | — | |||||||||||||||||||||||||
Cummins Northwest LLC (Northwest)(6) | 1/31/13 | 50% | 18 | — | 18 | COMB | 7 | 3 | 2 | 137 | |||||||||||||||||||||||||
2012 | |||||||||||||||||||||||||||||||||||
Cummins Central Power LLC (Central Power)(7) | 7/2/12 | 45% | $ | 26 | $ | — | $ | 26 | COMB | $ | 7 | $ | — | $ | 4 | $ | 209 | ||||||||||||||||||
____________________________________________________ | |||||||||||||||||||||||||||||||||||
(1) | All results from acquired entities were included in Distribution segment results subsequent to the acquisition date. Previously consolidated entities were accounted for as equity transactions (EQUITY). Newly consolidated entities were accounted for as business combinations (COMB) with gains recognized based on the requirement to remeasure our pre-existing ownership to fair value in accordance with GAAP and are included in the Consolidated Statements of Income as "Other income (expense), net." | ||||||||||||||||||||||||||||||||||
(2) | Intangible assets acquired in business combinations were mostly customer related, the majority of which will be amortized over a period of up to five years from the date of the acquisition. | ||||||||||||||||||||||||||||||||||
-3 | Sales amounts are not fully incremental to our consolidated sales as the amount would be reduced by the elimination of sales to the previously unconsolidated entity. | ||||||||||||||||||||||||||||||||||
(4) Purchase accounting for this acquisition is preliminary awaiting customary adjustment to purchase price in accordance with the purchase agreements. | |||||||||||||||||||||||||||||||||||
(5) | The "Total Purchase Consideration" represents the total amount that will or is estimated to be paid to complete the acquisition. In some instances a portion of the acquisition payment has not yet been made and will be paid in future periods in accordance with the purchase contract. The total outstanding consideration at December 31, 2014, was $22 million. | ||||||||||||||||||||||||||||||||||
-6 | Prior to our decision to acquire the remaining interest in our North American and Canadian distributors, we acquired the remaining ownership interest in Northwest and immediately formed a new partnership with a new distributor principal and sold 20.01 percent to the new distributor principal. We retained a new ownership in Northwest of 79.99 percent. We subsequently repurchased the remaining outstanding interest under the new contract in July 2013. | ||||||||||||||||||||||||||||||||||
(7) | After the acquisition, Cummins owned a 79.99 percent interest in Central Power. | ||||||||||||||||||||||||||||||||||
Schedule of intangible assets by asset class, including weighted average amortization life | Intangible assets by asset class, including weighted average amortization life, were as follows: | ||||||||||||||||||||||||||||||||||
Dollars in millions | Purchase price | Weighted average | |||||||||||||||||||||||||||||||||
allocation | amortization life | ||||||||||||||||||||||||||||||||||
in years | |||||||||||||||||||||||||||||||||||
Technology | $ | 52 | 10.6 | ||||||||||||||||||||||||||||||||
Customer | 23 | 4.5 | |||||||||||||||||||||||||||||||||
License arrangements | 8 | 6 | |||||||||||||||||||||||||||||||||
Total intangible assets | $ | 83 | 8.5 | ||||||||||||||||||||||||||||||||
Purchase price allocation | The final purchase allocations for the largest acquisitions for 2014 and 2013 were as follows: | ||||||||||||||||||||||||||||||||||
In millions | Southern Plains | Mid-South | Rocky Mountain | ||||||||||||||||||||||||||||||||
Accounts receivable | $ | 63 | $ | 71 | $ | 48 | |||||||||||||||||||||||||||||
Inventory | 59 | 70 | 100 | ||||||||||||||||||||||||||||||||
Fixed assets | 47 | 37 | 34 | ||||||||||||||||||||||||||||||||
Intangible assets | 11 | 8 | 8 | ||||||||||||||||||||||||||||||||
Goodwill | 1 | 4 | 10 | ||||||||||||||||||||||||||||||||
Other current assets | 8 | 10 | 8 | ||||||||||||||||||||||||||||||||
Current liabilities | (53 | ) | (43 | ) | (41 | ) | |||||||||||||||||||||||||||||
Other long-term liability | — | (4 | ) | — | |||||||||||||||||||||||||||||||
Total business valuation | 136 | 153 | 167 | ||||||||||||||||||||||||||||||||
Fair value of pre-existing interest | (44 | ) | (35 | ) | (31 | ) | |||||||||||||||||||||||||||||
Total purchase consideration | $ | 92 | $ | 118 | $ | 136 | |||||||||||||||||||||||||||||
The purchase allocation was as follows: | |||||||||||||||||||||||||||||||||||
In millions | |||||||||||||||||||||||||||||||||||
Inventory | $ | 5 | |||||||||||||||||||||||||||||||||
Fixed assets | 5 | ||||||||||||||||||||||||||||||||||
Intangible assets | 83 | ||||||||||||||||||||||||||||||||||
Goodwill | 91 | ||||||||||||||||||||||||||||||||||
Liabilities | (8 | ) | |||||||||||||||||||||||||||||||||
Total purchase consideration | $ | 176 | |||||||||||||||||||||||||||||||||
INVESTMENTS_IN_EQUITY_INVESTEE1
INVESTMENTS IN EQUITY INVESTEES (Tables) | 12 Months Ended | ||||||||||||
Dec. 31, 2014 | |||||||||||||
Equity Method Investments and Joint Ventures [Abstract] | |||||||||||||
Summary of investments in and advances to equity investees and our ownership percentage | Investments in and advances to equity investees and our ownership percentage was as follows: | ||||||||||||
December 31, | |||||||||||||
In millions | Ownership % | 2014 | 2013 | ||||||||||
Komatsu alliances | 20-50% | $ | 160 | $ | 132 | ||||||||
Dongfeng Cummins Engine Company, Ltd. | 50% | 136 | 135 | ||||||||||
Beijing Foton Cummins Engine Co., Ltd. (1) | 50% | 117 | 103 | ||||||||||
Chongqing Cummins Engine Company, Ltd. | 50% | 92 | 67 | ||||||||||
Cummins-Scania XPI Manufacturing, LLC | 50% | 85 | 71 | ||||||||||
Tata Cummins, Ltd. | 50% | 57 | 50 | ||||||||||
North American distributors (2) | 49-50% | 41 | 114 | ||||||||||
Other | Various | 293 | 259 | ||||||||||
Total | $ | 981 | $ | 931 | |||||||||
_______________________________________________________________ | |||||||||||||
(1) Includes both the light-duty and the heavy-duty businesses. | |||||||||||||
(2) Current ownership percentage of North American distributor investments as of December 31, 2014. | |||||||||||||
Equity, royalty and interest income from investees | Equity, royalty and interest income from investees, net of applicable taxes, was as follows: | ||||||||||||
Years ended December 31, | |||||||||||||
In millions | 2014 | 2013 | 2012 | ||||||||||
Distribution Entities | |||||||||||||
North American distributors | $ | 107 | $ | 129 | $ | 147 | |||||||
Komatsu Cummins Chile, Ltda. | 29 | 25 | 26 | ||||||||||
All other distributors | 4 | 1 | 4 | ||||||||||
Manufacturing Entities | |||||||||||||
Dongfeng Cummins Engine Company, Ltd. | 67 | 63 | 52 | ||||||||||
Chongqing Cummins Engine Company, Ltd. | 51 | 58 | 61 | ||||||||||
Beijing Foton Cummins Engine Co., Ltd. (Light-duty) | 28 | 17 | 5 | ||||||||||
Beijing Foton Cummins Engine Co., Ltd. (Heavy-duty) | (30 | ) | (21 | ) | (13 | ) | |||||||
All other manufacturers | 74 | 53 | 65 | ||||||||||
Cummins share of net income | 330 | 325 | 347 | ||||||||||
Royalty and interest income | 40 | 36 | 37 | ||||||||||
Equity, royalty and interest income from investees | $ | 370 | $ | 361 | $ | 384 | |||||||
Summary of financial information for equity investees | Summary financial information for our equity investees was as follows: | ||||||||||||
As of and for the years ended December 31, | |||||||||||||
In millions | 2014 | 2013 | 2012 | ||||||||||
Net sales | $ | 7,426 | $ | 7,799 | $ | 8,296 | |||||||
Gross margin | 1,539 | 1,719 | 1,870 | ||||||||||
Net income | 630 | 690 | 747 | ||||||||||
Cummins share of net income | $ | 330 | $ | 325 | $ | 347 | |||||||
Royalty and interest income | 40 | 36 | 37 | ||||||||||
Total equity, royalty and interest from investees | $ | 370 | $ | 361 | $ | 384 | |||||||
Current assets | $ | 2,476 | $ | 2,742 | |||||||||
Non-current assets | 1,667 | 1,794 | |||||||||||
Current liabilities | (1,875 | ) | (2,090 | ) | |||||||||
Non-current liabilities | (420 | ) | (541 | ) | |||||||||
Net assets | $ | 1,848 | $ | 1,905 | |||||||||
Cummins share of net assets | $ | 956 | $ | 967 | |||||||||
INCOME_TAXES_Tables
INCOME TAXES (Tables) | 12 Months Ended | ||||||||||||
Dec. 31, 2014 | |||||||||||||
Income Tax Disclosure [Abstract] | |||||||||||||
Income before income taxes | |||||||||||||
Years ended December 31, | |||||||||||||
In millions | 2014 | 2013 | 2012 | ||||||||||
Income before income taxes | |||||||||||||
U.S. income | $ | 1,407 | $ | 1,058 | $ | 998 | |||||||
Foreign income | 1,027 | 1,061 | 1,273 | ||||||||||
Total | $ | 2,434 | $ | 2,119 | $ | 2,271 | |||||||
Income tax expense | Income tax expense consists of the following: | ||||||||||||
Years ended December 31, | |||||||||||||
In millions | 2014 | 2013 | 2012 | ||||||||||
Current | |||||||||||||
U.S. federal and state | $ | 470 | $ | 239 | $ | 118 | |||||||
Foreign | 197 | 192 | 299 | ||||||||||
Total current | 667 | 431 | 417 | ||||||||||
Deferred | |||||||||||||
U.S. federal and state | 39 | 67 | 108 | ||||||||||
Foreign | (8 | ) | 33 | 8 | |||||||||
Total deferred | 31 | 100 | 116 | ||||||||||
Income tax expense | $ | 698 | $ | 531 | $ | 533 | |||||||
Reconciliation of the U.S. federal income tax rate to the actual effective tax rate | A reconciliation of the statutory U.S. federal income tax rate to the effective tax rate was as follows: | ||||||||||||
Years ended December 31, | |||||||||||||
2014 | 2013 | 2012 | |||||||||||
Statutory U.S. federal income tax rate | 35 | % | 35 | % | 35 | % | |||||||
State income tax, net of federal effect | 1.1 | 0.2 | 1 | ||||||||||
Differences in rates and taxability of foreign subsidiaries and joint ventures | (5.7 | ) | (6.0 | ) | (12.1 | ) | |||||||
Research tax credits | (1.5 | ) | (3.7 | ) | (0.4 | ) | |||||||
Other, net | (0.2 | ) | (0.4 | ) | — | ||||||||
Effective tax rate | 28.7 | % | 25.1 | % | 23.5 | % | |||||||
Net deferred tax assets | Carryforward tax benefits and the tax effect of temporary differences between financial and tax reporting that give rise to net deferred tax assets were as follows: | ||||||||||||
December 31, | |||||||||||||
In millions | 2014 | 2013 | |||||||||||
Deferred tax assets | |||||||||||||
U.S. state carryforward benefits | $ | 124 | $ | 124 | |||||||||
Foreign carryforward benefits | 66 | 63 | |||||||||||
Employee benefit plans | 367 | 328 | |||||||||||
Warranty expenses | 354 | 332 | |||||||||||
Accrued expenses | 89 | 70 | |||||||||||
Other | 45 | 51 | |||||||||||
Gross deferred tax assets | 1,045 | 968 | |||||||||||
Valuation allowance | (144 | ) | (101 | ) | |||||||||
Total deferred tax assets | 901 | 867 | |||||||||||
Deferred tax liabilities | |||||||||||||
Property, plant and equipment | (329 | ) | (304 | ) | |||||||||
Unremitted income of foreign subsidiaries and joint ventures | (204 | ) | (201 | ) | |||||||||
Employee benefit plans | (161 | ) | (158 | ) | |||||||||
Other | (23 | ) | (27 | ) | |||||||||
Total deferred tax liabilities | (717 | ) | (690 | ) | |||||||||
Net deferred tax assets | $ | 184 | $ | 177 | |||||||||
Reconciliation of the beginning and ending amount of unrecognized tax benefits | A reconciliation of unrecognized tax benefits for the years ended December 31, 2014, 2013 and 2012 was as follows: | ||||||||||||
In millions | |||||||||||||
Balance at December 31, 2011 | $ | 86 | |||||||||||
Additions based on tax positions related to the current year | 4 | ||||||||||||
Additions based on tax positions related to the prior years | 57 | ||||||||||||
Reductions for tax positions related to prior years | (2 | ) | |||||||||||
Balance at December 31, 2012 | 145 | ||||||||||||
Additions based on tax positions related to the current year | 10 | ||||||||||||
Additions based on tax positions related to the prior years | 21 | ||||||||||||
Reductions for tax positions related to prior years | (6 | ) | |||||||||||
Reductions for tax positions relating to lapse of statute of limitations | (1 | ) | |||||||||||
Balance at December 31, 2013 | 169 | ||||||||||||
Additions based on tax positions related to the current year | 8 | ||||||||||||
Additions based on tax positions related to the prior years | 5 | ||||||||||||
Reductions for tax positions related to prior years | (2 | ) | |||||||||||
Reductions for tax positions relating to settlements with taxing authorities | (5 | ) | |||||||||||
Reductions for tax positions relating to lapse of statute of limitations | (1 | ) | |||||||||||
Balance at December 31, 2014 | $ | 174 | |||||||||||
MARKETABLE_SECURITIES_Tables
MARKETABLE SECURITIES (Tables) | 12 Months Ended | ||||||||||||||||||||||||
Dec. 31, 2014 | |||||||||||||||||||||||||
Marketable Securities [Abstract] | |||||||||||||||||||||||||
Summary of marketable securities | A summary of marketable securities, all of which are classified as current, was as follows: | ||||||||||||||||||||||||
December 31, | |||||||||||||||||||||||||
2014 | 2013 | ||||||||||||||||||||||||
In millions | Cost | Gross unrealized | Estimated | Cost | Gross unrealized | Estimated | |||||||||||||||||||
gains/(losses) | fair value | gains/(losses) | fair value | ||||||||||||||||||||||
Available-for-sale | |||||||||||||||||||||||||
Level 1(1) (2) | |||||||||||||||||||||||||
Equity securities(3) | $ | — | $ | — | $ | — | $ | 10 | $ | 13 | $ | 23 | |||||||||||||
Total Level 1 | — | — | — | 10 | 13 | 23 | |||||||||||||||||||
Level 2(2) (4) | |||||||||||||||||||||||||
Debt mutual funds | 75 | 1 | 76 | 99 | 2 | 101 | |||||||||||||||||||
Equity mutual funds | 9 | — | 9 | — | — | — | |||||||||||||||||||
Bank debentures | 6 | — | 6 | 2 | — | 2 | |||||||||||||||||||
Certificates of deposit | — | — | — | 22 | — | 22 | |||||||||||||||||||
Government debt securities | 2 | — | 2 | 3 | (1 | ) | 2 | ||||||||||||||||||
Total Level 2 | 92 | 1 | 93 | 126 | 1 | 127 | |||||||||||||||||||
Total marketable securities | $ | 92 | $ | 1 | $ | 93 | $ | 136 | $ | 14 | $ | 150 | |||||||||||||
______________________________________________________ | |||||||||||||||||||||||||
(1) The fair value of Level 1 securities is estimated primarily by referencing quoted prices in active markets for identical assets. | |||||||||||||||||||||||||
(2) We revised 2013 balances to classify $72 million as Level 2 assets instead of Level 1. | |||||||||||||||||||||||||
(3) In the first quarter of 2013, we realized a $9 million gain on the sale of equity securities. | |||||||||||||||||||||||||
(4) The fair value of Level 2 securities is estimated primarily using actively quoted prices for similar instruments from brokers and observable inputs, including market transactions and third-party pricing services. We do not currently have any Level 3 securities, and there were no transfers between Level 2 or 3 during 2014 and 2013. | |||||||||||||||||||||||||
Schedule of proceeds from sales and maturities and gross realized gains and losses | The proceeds from sales and maturities of marketable securities and gross realized gains from the sale of AFS securities were as follows: | ||||||||||||||||||||||||
Years ended December 31, | |||||||||||||||||||||||||
In millions | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Proceeds from sales and maturities of marketable securities | $ | 336 | $ | 525 | $ | 585 | |||||||||||||||||||
Gross realized gains from the sale of available-for-sale securities(1) | 14 | 14 | 3 | ||||||||||||||||||||||
____________________________________________________ | |||||||||||||||||||||||||
(1) Gross realized losses from the sale of available-for-sale securities were immaterial. | |||||||||||||||||||||||||
Summary of fair value of AFS investments in debt securities by contractual maturity | At December 31, 2014, the fair value of available-for-sale investments in debt securities that utilize a Level 2 fair value measure is shown by contractual maturity below: | ||||||||||||||||||||||||
Maturity date | (in millions) | ||||||||||||||||||||||||
1 year or less | $ | 77 | |||||||||||||||||||||||
1 - 5 years | 6 | ||||||||||||||||||||||||
5 - 10 years | 1 | ||||||||||||||||||||||||
Total | $ | 84 | |||||||||||||||||||||||
INVENTORIES_Tables
INVENTORIES (Tables) | 12 Months Ended | |||||||
Dec. 31, 2014 | ||||||||
Inventory Disclosure [Abstract] | ||||||||
Inventories | Inventories included the following: | |||||||
December 31, | ||||||||
In millions | 2014 | 2013 | ||||||
Finished products | $ | 1,859 | $ | 1,487 | ||||
Work-in-process and raw materials | 1,129 | 1,005 | ||||||
Inventories at FIFO cost | 2,988 | 2,492 | ||||||
Excess of FIFO over LIFO | (122 | ) | (111 | ) | ||||
Total inventories | $ | 2,866 | $ | 2,381 | ||||
PROPERTY_PLANT_AND_EQUIPMENT_T
PROPERTY, PLANT AND EQUIPMENT (Tables) | 12 Months Ended | |||||||
Dec. 31, 2014 | ||||||||
Property, Plant and Equipment [Abstract] | ||||||||
Details of property, plant and equipment | Details of our property, plant and equipment balance were as follows: | |||||||
December 31, | ||||||||
In millions | 2014 | 2013 | ||||||
Land and buildings | $ | 1,822 | $ | 1,427 | ||||
Machinery, equipment and fixtures | 4,722 | 4,174 | ||||||
Construction in process (1) | 579 | 809 | ||||||
Property, plant and equipment, gross | 7,123 | 6,410 | ||||||
Less: Accumulated depreciation | (3,437 | ) | (3,254 | ) | ||||
Property, plant and equipment, net | $ | 3,686 | $ | 3,156 | ||||
_______________________________________________ | ||||||||
(1) | Construction in process included $14 million in 2014 and $188 million in 2013 related to our light-duty diesel engine platform. |
GOODWILL_AND_OTHER_INTANGIBLE_1
GOODWILL AND OTHER INTANGIBLE ASSETS (Tables) | 12 Months Ended | |||||||||||||||||||
Dec. 31, 2014 | ||||||||||||||||||||
Goodwill and Intangible Assets Disclosure [Abstract] | ||||||||||||||||||||
Changes in the carrying amount of goodwill | The following table summarizes the changes in the carrying amount of goodwill for the years ended December 31, 2014 and 2013: | |||||||||||||||||||
In millions | Components | Distribution | Power Generation | Engine | Total | |||||||||||||||
Balance at December 31, 2012 | $ | 408 | $ | 19 | $ | 12 | $ | 6 | $ | 445 | ||||||||||
Acquisitions | — | 13 | — | — | 13 | |||||||||||||||
Translation and other | 3 | (1 | ) | 1 | — | 3 | ||||||||||||||
Balance at December 31, 2013 | 411 | 31 | 13 | 6 | 461 | |||||||||||||||
Acquisitions | — | 31 | — | — | 31 | |||||||||||||||
Translation and other | (11 | ) | — | (2 | ) | — | (13 | ) | ||||||||||||
Balance at December 31, 2014 | $ | 400 | $ | 62 | $ | 11 | $ | 6 | $ | 479 | ||||||||||
Summary of other intangible assets with finite useful lives that are subject to amortization | The following table summarizes our other intangible assets with finite useful lives that are subject to amortization: | |||||||||||||||||||
December 31, | ||||||||||||||||||||
In millions | 2014 | 2013 | ||||||||||||||||||
Software | $ | 472 | $ | 494 | ||||||||||||||||
Less: Accumulated amortization | (218 | ) | (218 | ) | ||||||||||||||||
Net software | 254 | 276 | ||||||||||||||||||
Trademarks, patents and other | 164 | 135 | ||||||||||||||||||
Less: Accumulated amortization | (75 | ) | (54 | ) | ||||||||||||||||
Net trademarks, patents and other | 89 | 81 | ||||||||||||||||||
Total | $ | 343 | $ | 357 | ||||||||||||||||
Projected amortization expense of intangible assets | The projected amortization expense of our intangible assets, assuming no further acquisitions or dispositions, is as follows: | |||||||||||||||||||
In millions | 2015 | 2016 | 2017 | 2018 | 2019 | |||||||||||||||
Projected amortization expense | $ | 86 | $ | 75 | $ | 56 | $ | 36 | $ | 25 | ||||||||||
DEBT_Tables
DEBT (Tables) | 12 Months Ended | ||||||||||||||||||||||||
Dec. 31, 2014 | |||||||||||||||||||||||||
Debt Disclosure [Abstract] | |||||||||||||||||||||||||
Weighted-average interest rate | The weighted-average interest rate for notes payable, bank overdrafts and current maturities of long-term debt at December 31, 2014, 2013 and 2012, was as follows: | ||||||||||||||||||||||||
2014 | 2013 | 2012 | |||||||||||||||||||||||
Weighted average interest rate | 3.7 | % | 2.59 | % | 3.21 | % | |||||||||||||||||||
Reconciliation of maximum capacity to amount available under the facility | A reconciliation of the maximum capacity of our revolver to the amount available under the facility was as follows: | ||||||||||||||||||||||||
In millions | 31-Dec-14 | ||||||||||||||||||||||||
Maximum credit capacity of the revolving credit facility | $ | 1,750 | |||||||||||||||||||||||
Less: Letters of credit against revolving credit facility | 24 | ||||||||||||||||||||||||
Amount available for borrowing under the revolving credit facility | $ | 1,726 | |||||||||||||||||||||||
Summary of long-term debt | |||||||||||||||||||||||||
December 31, | |||||||||||||||||||||||||
In millions | 2014 | 2013 | |||||||||||||||||||||||
Long-term debt | |||||||||||||||||||||||||
Senior notes, 3.65%, due 2023 | $ | 500 | $ | 500 | |||||||||||||||||||||
Debentures, 6.75%, due 2027 | 58 | 58 | |||||||||||||||||||||||
Debentures, 7.125%, due 2028 | 250 | 250 | |||||||||||||||||||||||
Senior notes, 4.875%, due 2043 | 500 | 500 | |||||||||||||||||||||||
Debentures, 5.65%, due 2098 (effective interest rate 7.48%) | 165 | 165 | |||||||||||||||||||||||
Credit facilities related to consolidated joint ventures | 3 | 92 | |||||||||||||||||||||||
Other debt | 31 | 65 | |||||||||||||||||||||||
Unamortized discount | (47 | ) | (48 | ) | |||||||||||||||||||||
Fair value adjustments due to hedge on indebtedness | 65 | 49 | |||||||||||||||||||||||
Capital leases | 87 | 92 | |||||||||||||||||||||||
Total long-term debt | 1,612 | 1,723 | |||||||||||||||||||||||
Less: Current maturities of long-term debt | (23 | ) | (51 | ) | |||||||||||||||||||||
Long-term debt | $ | 1,589 | $ | 1,672 | |||||||||||||||||||||
Principal repayments on long-term debt | Principal payments required on long-term debt during the next five years are as follows: | ||||||||||||||||||||||||
In millions | 2015 | 2016 | 2017 | 2018 | 2019 | ||||||||||||||||||||
Principal payments | $ | 23 | $ | 28 | $ | 12 | $ | 16 | $ | 11 | |||||||||||||||
Schedule of Interest Rate Derivatives [Table Text Block] | The following table summarizes these gains and losses for the years presented below: | ||||||||||||||||||||||||
Years ended December 31, | |||||||||||||||||||||||||
In millions | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Income Statement Classification | Gain/(Loss) on | Gain/(Loss) on | Gain/(Loss) on | Gain/(Loss) on | Gain/(Loss) on | Gain/(Loss) on | |||||||||||||||||||
Swaps | Borrowings | Swaps | Borrowings | Swaps | Borrowings | ||||||||||||||||||||
Interest expense (1) | $ | 23 | $ | (19 | ) | $ | (39 | ) | $ | 39 | $ | 6 | $ | (6 | ) | ||||||||||
___________________________________________ | |||||||||||||||||||||||||
(1) The difference between the gain/(loss) on swaps and borrowings represents hedge ineffectiveness. | |||||||||||||||||||||||||
Fair value and carrying value of total debt | Fair Value of Debt | ||||||||||||||||||||||||
Based on borrowing rates currently available to us for bank loans with similar terms and average maturities, considering our risk premium, the fair value and carrying value of total debt, including current maturities, was as follows: | |||||||||||||||||||||||||
In millions | December 31, 2014 | December 31, 2013 | |||||||||||||||||||||||
Fair value of total debt(1) | $ | 1,993 | $ | 1,877 | |||||||||||||||||||||
Carrying value of total debt | 1,698 | 1,740 | |||||||||||||||||||||||
___________________________________________ | |||||||||||||||||||||||||
(1) The fair value of debt is derived from Level 2 inputs. |
PRODUCT_WARRANTY_LIABILITY_Tab
PRODUCT WARRANTY LIABILITY (Tables) | 12 Months Ended | ||||||||||
Dec. 31, 2014 | |||||||||||
Product Warranties Disclosures [Abstract] | |||||||||||
Summary of activity in the product warranty account | A tabular reconciliation of the product warranty liability, including the deferred revenue related to our extended warranty coverage and accrued recall programs was as follows: | ||||||||||
December 31, | |||||||||||
In millions | 2014 | 2013 | |||||||||
Balance, beginning of year | $ | 1,129 | $ | 1,088 | |||||||
Provision for warranties issued | 411 | 431 | |||||||||
Deferred revenue on extended warranty contracts sold | 263 | 189 | |||||||||
Payments | (404 | ) | (427 | ) | |||||||
Amortization of deferred revenue on extended warranty contracts | (148 | ) | (115 | ) | |||||||
Changes in estimates for pre-existing warranties | 41 | (35 | ) | ||||||||
Foreign currency translation | (9 | ) | (2 | ) | |||||||
Balance, end of year | $ | 1,283 | $ | 1,129 | |||||||
Warranty related deferred revenue, supplier recovery receivables and the long-term portion of the warranty liability | Warranty related deferred revenue, supplier recovery receivables and the long-term portion of the warranty liability on our Consolidated Balance Sheets were as follows: | ||||||||||
December 31, | |||||||||||
In millions | 2014 | 2013 | Balance Sheet Location | ||||||||
Deferred revenue related to extended coverage programs | |||||||||||
Current portion | $ | 170 | $ | 145 | Deferred revenue | ||||||
Long-term portion | 438 | 349 | Other liabilities and deferred revenue | ||||||||
Total | $ | 608 | $ | 494 | |||||||
Receivables related to estimated supplier recoveries | |||||||||||
Current portion | $ | 12 | $ | 5 | Trade and other receivables | ||||||
Long-term portion | 4 | 5 | Other assets | ||||||||
Total | $ | 16 | $ | 10 | |||||||
Long-term portion of warranty liability | $ | 312 | $ | 275 | Other liabilities and deferred revenue | ||||||
PENSION_AND_OTHER_POSTRETIREME1
PENSION AND OTHER POSTRETIREMENT BENEFITS (Tables) | 12 Months Ended | ||||||||||||||||||||||||
Dec. 31, 2014 | |||||||||||||||||||||||||
Pension | |||||||||||||||||||||||||
Pension and other postretirement benefits | |||||||||||||||||||||||||
Information regarding total accumulated benefit obligation, PBO's and underfunded pension plans | The following table presents information regarding total accumulated benefit obligation, PBO's and underfunded pension plans that are included in the preceding table: | ||||||||||||||||||||||||
Qualified and Non-Qualified Pension Plans | |||||||||||||||||||||||||
U.S. Plans | U.K. Plans | ||||||||||||||||||||||||
In millions | 2014 | 2013 | 2014 | 2013 | |||||||||||||||||||||
Total accumulated benefit obligation | $ | 2,539 | $ | 2,231 | $ | 1,402 | $ | 1,309 | |||||||||||||||||
Plans with accumulated benefit obligation in excess of plan assets | |||||||||||||||||||||||||
Accumulated benefit obligation | 261 | 212 | — | — | |||||||||||||||||||||
Plans with projected benefit obligation in excess of plan assets | |||||||||||||||||||||||||
Projected benefit obligation | 301 | 243 | — | — | |||||||||||||||||||||
Amounts recognized in other comprehensive income | Other changes in benefit obligations and plan assets recognized in other comprehensive income in 2014, 2013 and 2012 were as follows: | ||||||||||||||||||||||||
In millions | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Amortization of prior service (cost) credit | $ | 1 | $ | 1 | $ | (1 | ) | ||||||||||||||||||
Recognized actuarial loss | (57 | ) | (86 | ) | (61 | ) | |||||||||||||||||||
Incurred prior service cost | — | — | 1 | ||||||||||||||||||||||
Incurred actuarial (gain) loss | 133 | (168 | ) | 124 | |||||||||||||||||||||
Foreign exchange translation adjustments | (18 | ) | 10 | 16 | |||||||||||||||||||||
Total recognized in other comprehensive income | $ | 59 | $ | (243 | ) | $ | 79 | ||||||||||||||||||
Total recognized in net periodic pension cost and other comprehensive income | $ | 116 | $ | (156 | ) | $ | 143 | ||||||||||||||||||
Various assumptions used in determining the net periodic cost | The table below presents various assumptions used in determining the net periodic pension cost and reflects weighted-average percentages for the various plans as follows: | ||||||||||||||||||||||||
Qualified and Non-Qualified Pension Plans | |||||||||||||||||||||||||
U.S. Plans | U.K. Plans | ||||||||||||||||||||||||
2014 | 2013 | 2012 | 2014 | 2013 | 2012 | ||||||||||||||||||||
Discount rate | 4.83 | % | 3.97 | % | 4.82 | % | 4.6 | % | 4.7 | % | 5.2 | % | |||||||||||||
Expected return on plan assets | 7.5 | % | 8 | % | 8 | % | 5.8 | % | 5.8 | % | 6.5 | % | |||||||||||||
Compensation increase rate | 4.91 | % | 4.91 | % | 4 | % | 4.5 | % | 4 | % | 4.25 | % | |||||||||||||
Estimated future contributions and benefit payments | The table below presents expected future benefit payments under our pension plans: | ||||||||||||||||||||||||
Qualified and Non-Qualified Pension Plans | |||||||||||||||||||||||||
In millions | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 - 2024 | |||||||||||||||||||
Expected benefit payments | $ | 231 | $ | 232 | $ | 238 | $ | 243 | $ | 247 | $ | 1,283 | |||||||||||||
Changes in benefit obligations and plan assets | The changes in the benefit obligations, the various plan assets, the funded status of the plans and the amounts recognized in our Consolidated Balance Sheets for our significant pension plans were as follows: | ||||||||||||||||||||||||
Qualified and Non-Qualified Pension Plans | |||||||||||||||||||||||||
U.S. Plans | U.K. Plans | ||||||||||||||||||||||||
In millions | 2014 | 2013 | 2014 | 2013 | |||||||||||||||||||||
Change in benefit obligation | |||||||||||||||||||||||||
Benefit obligation at the beginning of the year | $ | 2,261 | $ | 2,454 | $ | 1,429 | $ | 1,269 | |||||||||||||||||
Service cost | 66 | 70 | 24 | 21 | |||||||||||||||||||||
Interest cost | 105 | 93 | 63 | 57 | |||||||||||||||||||||
Actuarial loss (gain) | 301 | (193 | ) | 139 | 96 | ||||||||||||||||||||
Benefits paid from fund | (143 | ) | (150 | ) | (48 | ) | (50 | ) | |||||||||||||||||
Benefits paid directly by employer | (11 | ) | (13 | ) | — | — | |||||||||||||||||||
Exchange rate changes | — | — | (85 | ) | 37 | ||||||||||||||||||||
Other | — | — | — | (1 | ) | ||||||||||||||||||||
Benefit obligation at end of year | $ | 2,579 | $ | 2,261 | $ | 1,522 | $ | 1,429 | |||||||||||||||||
Change in plan assets | |||||||||||||||||||||||||
Fair value of plan assets at beginning of year | $ | 2,445 | $ | 2,327 | $ | 1,516 | $ | 1,324 | |||||||||||||||||
Actual return on plan assets | 311 | 168 | 254 | 142 | |||||||||||||||||||||
Employer contributions | 100 | 100 | 94 | 56 | |||||||||||||||||||||
Benefits paid | (143 | ) | (150 | ) | (48 | ) | (50 | ) | |||||||||||||||||
Exchange rate changes | — | — | (92 | ) | 44 | ||||||||||||||||||||
Fair value of plan assets at end of year | $ | 2,713 | $ | 2,445 | $ | 1,724 | $ | 1,516 | |||||||||||||||||
Funded status (including underfunded and nonfunded plans) at end of year | $ | 134 | $ | 184 | $ | 202 | $ | 87 | |||||||||||||||||
Amounts recognized in consolidated balance sheets | |||||||||||||||||||||||||
Prepaid pensions - long-term assets | $ | 435 | $ | 427 | $ | 202 | $ | 87 | |||||||||||||||||
Accrued compensation, benefits and retirement costs - current liabilities | (12 | ) | (11 | ) | — | — | |||||||||||||||||||
Pensions - long-term liabilities | (289 | ) | (232 | ) | — | — | |||||||||||||||||||
Net amount recognized | $ | 134 | $ | 184 | $ | 202 | $ | 87 | |||||||||||||||||
Amounts recognized in accumulated other comprehensive loss consist of: | |||||||||||||||||||||||||
Net actuarial loss | $ | 611 | $ | 478 | $ | 286 | $ | 361 | |||||||||||||||||
Prior service credit | (1 | ) | (1 | ) | — | — | |||||||||||||||||||
Net amount recognized | $ | 610 | $ | 477 | $ | 286 | $ | 361 | |||||||||||||||||
Net periodic cost | The following table presents the net periodic pension cost under our plans: | ||||||||||||||||||||||||
Qualified and Non-Qualified Pension Plans | |||||||||||||||||||||||||
U.S. Plans | U.K. Plans | ||||||||||||||||||||||||
In millions | 2014 | 2013 | 2012 | 2014 | 2013 | 2012 | |||||||||||||||||||
Service cost | $ | 66 | $ | 70 | $ | 58 | $ | 24 | $ | 21 | $ | 21 | |||||||||||||
Interest cost | 105 | 93 | 103 | 63 | 57 | 59 | |||||||||||||||||||
Expected return on plan assets | (173 | ) | (167 | ) | (157 | ) | (84 | ) | (72 | ) | (81 | ) | |||||||||||||
Amortization of prior service (credit) cost | (1 | ) | (1 | ) | (1 | ) | — | — | 1 | ||||||||||||||||
Recognized net actuarial loss | 31 | 62 | 47 | 26 | 24 | 14 | |||||||||||||||||||
Net periodic pension cost | $ | 28 | $ | 57 | $ | 50 | $ | 29 | $ | 30 | $ | 14 | |||||||||||||
Schedule of Assumptions Used [Table Text Block] | The table below presents various assumptions used in determining the pension benefit obligation for each year and reflects weighted-average percentages for the various plans as follows: | ||||||||||||||||||||||||
Qualified and Non-Qualified Pension Plans | |||||||||||||||||||||||||
U.S. Plans | U.K. Plans | ||||||||||||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||||||||||||
Discount rate | 4.07 | % | 4.83 | % | 3.8 | % | 4.6 | % | |||||||||||||||||
Compensation increase rate | 4.88 | % | 4.91 | % | 4.25 | % | 4.5 | % | |||||||||||||||||
U.S. Plans | |||||||||||||||||||||||||
Pension and other postretirement benefits | |||||||||||||||||||||||||
Target allocation of pension plan assets | The primary investment objective is to exceed, on a net-of-fee basis, the rate of return of a policy portfolio comprised of the following: | ||||||||||||||||||||||||
Asset Class | Target | Range | |||||||||||||||||||||||
U.S. equities | 9 | % | +/-5.0% | ||||||||||||||||||||||
Non-U.S. equities | 3 | % | +/-3.0% | ||||||||||||||||||||||
Global equities | 10 | % | +/-3.0% | ||||||||||||||||||||||
Total equities | 22 | % | |||||||||||||||||||||||
Real estate | 7 | % | -42.85714286 | ||||||||||||||||||||||
Private equity | 7 | % | -42.85714286 | ||||||||||||||||||||||
Fixed income | 64 | % | +/-5.0% | ||||||||||||||||||||||
Total | 100 | % | |||||||||||||||||||||||
Changes in the fair value of Level 3 plan assets | The reconciliation of Level 3 assets was as follows: | ||||||||||||||||||||||||
Fair Value Measurements as of December 31, | |||||||||||||||||||||||||
Using Significant Unobservable Inputs (Level 3) | |||||||||||||||||||||||||
In millions | Private Equity | Real Estate | Total | ||||||||||||||||||||||
Balance at December 31, 2012 | $ | 156 | $ | 130 | $ | 286 | |||||||||||||||||||
Actual return on plan assets | |||||||||||||||||||||||||
Unrealized (losses) gains on assets still held at the reporting date | 20 | 10 | 30 | ||||||||||||||||||||||
Purchases, sales and settlements, net | (23 | ) | 3 | (20 | ) | ||||||||||||||||||||
Balance at December 31, 2013 | 153 | 143 | 296 | ||||||||||||||||||||||
Actual return on plan assets | |||||||||||||||||||||||||
Unrealized (losses) gains on assets still held at the reporting date | 22 | 11 | 33 | ||||||||||||||||||||||
Purchases, sales and settlements, net | (27 | ) | 4 | (23 | ) | ||||||||||||||||||||
Balance at December 31, 2014 | $ | 148 | $ | 158 | $ | 306 | |||||||||||||||||||
Fair value of plan assets | The fair values of U.S. pension plan assets by asset category were as follows: | ||||||||||||||||||||||||
Fair Value Measurements as of December 31, 2014 | |||||||||||||||||||||||||
In millions | Quoted prices in active | Significant other | Significant | Total | |||||||||||||||||||||
markets for identical assets | observable inputs | unobservable inputs | |||||||||||||||||||||||
(Level 1) | (Level 2) | (Level 3) | |||||||||||||||||||||||
Equities | |||||||||||||||||||||||||
U.S. | $ | 103 | $ | 297 | $ | — | $ | 400 | |||||||||||||||||
Non-U.S. | 137 | 82 | — | 219 | |||||||||||||||||||||
Fixed Income | |||||||||||||||||||||||||
Government debt | — | 886 | — | 886 | |||||||||||||||||||||
Corporate debt | |||||||||||||||||||||||||
U.S. | — | 724 | — | 724 | |||||||||||||||||||||
Non-U.S. | — | 87 | — | 87 | |||||||||||||||||||||
Asset/mortgaged backed securities | — | 45 | — | 45 | |||||||||||||||||||||
Net cash equivalents(1) | 28 | 2 | — | 30 | |||||||||||||||||||||
Derivative instruments(2) | — | 2 | — | 2 | |||||||||||||||||||||
Private equity and real estate(3) | — | — | 306 | 306 | |||||||||||||||||||||
Total | $ | 268 | $ | 2,125 | $ | 306 | $ | 2,699 | |||||||||||||||||
Pending trade/purchases/sales | 5 | ||||||||||||||||||||||||
Accruals(4) | 9 | ||||||||||||||||||||||||
Total | $ | 2,713 | |||||||||||||||||||||||
Fair Value Measurements as of December 31, 2013 | |||||||||||||||||||||||||
In millions | Quoted prices in active | Significant other | Significant | Total | |||||||||||||||||||||
markets for identical assets | observable inputs | unobservable inputs | |||||||||||||||||||||||
(Level 1) (5) | (Level 2) (5) | (Level 3) | |||||||||||||||||||||||
Equities | |||||||||||||||||||||||||
U.S. | $ | 96 | $ | 387 | $ | — | $ | 483 | |||||||||||||||||
Non-U.S. | 143 | 126 | — | 269 | |||||||||||||||||||||
Fixed Income | |||||||||||||||||||||||||
Government debt | — | 780 | — | 780 | |||||||||||||||||||||
Corporate debt | |||||||||||||||||||||||||
U.S. | — | 523 | — | 523 | |||||||||||||||||||||
Non-U.S. | — | 64 | — | 64 | |||||||||||||||||||||
Asset/mortgaged backed securities | — | 12 | — | 12 | |||||||||||||||||||||
Net cash equivalents(1) | 33 | 3 | — | 36 | |||||||||||||||||||||
Derivative instruments (2) | — | 2 | — | 2 | |||||||||||||||||||||
Private equity and real estate (3) | — | — | 296 | 296 | |||||||||||||||||||||
Total | $ | 272 | $ | 1,897 | $ | 296 | $ | 2,465 | |||||||||||||||||
Pending trade/purchases/sales | (28 | ) | |||||||||||||||||||||||
Accruals(4) | 8 | ||||||||||||||||||||||||
Total | $ | 2,445 | |||||||||||||||||||||||
____________________________________________________ | |||||||||||||||||||||||||
-1 | Cash equivalents include commercial paper, short-term government/agency, mortgage and credit instruments. | ||||||||||||||||||||||||
-2 | Derivative instruments include interest rate swaps and credit default swaps. | ||||||||||||||||||||||||
-3 | The instruments in private equity and real estate funds, for which quoted market prices are not available, are valued at their estimated fair value as determined by applicable investment managers or by audited financial statement of the funds. | ||||||||||||||||||||||||
-4 | Interest or dividends that had not been settled as of the year ended December 31. | ||||||||||||||||||||||||
(5) | We revised 2013 balances to classify $683 million as Level 2 assets instead of Level 1. | ||||||||||||||||||||||||
Non-U.S. Plans | |||||||||||||||||||||||||
Pension and other postretirement benefits | |||||||||||||||||||||||||
Target allocation of pension plan assets | To achieve these objectives we have established the following targets: | ||||||||||||||||||||||||
Asset Class | Target | ||||||||||||||||||||||||
Global equities | 25.5 | % | |||||||||||||||||||||||
Real estate | 7.5 | % | |||||||||||||||||||||||
Re-insurance | 5 | % | |||||||||||||||||||||||
Private equity | 7.5 | % | |||||||||||||||||||||||
Corporate credit instruments | 4.5 | % | |||||||||||||||||||||||
Fixed income | 50 | % | |||||||||||||||||||||||
Total | 100 | % | |||||||||||||||||||||||
Changes in the fair value of Level 3 plan assets | The reconciliation of Level 3 assets was as follows: | ||||||||||||||||||||||||
Fair Value Measurements as of December 31, | |||||||||||||||||||||||||
Using Significant Unobservable Inputs (Level 3) | |||||||||||||||||||||||||
In millions | Insurance | Real Estate | Private Equity | Total | |||||||||||||||||||||
Balance at December 31, 2012 | $ | 424 | $ | 34 | $ | 28 | $ | 486 | |||||||||||||||||
Actual return on plan assets | |||||||||||||||||||||||||
Unrealized (losses) gains on assets still held at the reporting date | 29 | 2 | 5 | 36 | |||||||||||||||||||||
Purchases, sales and settlements, net | (13 | ) | 33 | 15 | 35 | ||||||||||||||||||||
Balance at December 31, 2013 | 440 | 69 | 48 | 557 | |||||||||||||||||||||
Actual return on plan assets | |||||||||||||||||||||||||
Unrealized (losses) gains on assets still held at the reporting date | 42 | (3 | ) | 11 | 50 | ||||||||||||||||||||
Purchases, sales and settlements, net | (20 | ) | (5 | ) | 22 | (3 | ) | ||||||||||||||||||
Balance at December 31, 2014 | $ | 462 | $ | 61 | $ | 81 | $ | 604 | |||||||||||||||||
Fair value of plan assets | The fair values of U.K. pension plan assets by asset category were as follows: | ||||||||||||||||||||||||
Fair Value Measurements as of December 31, 2014 | |||||||||||||||||||||||||
In millions | Quoted prices in active | Significant other | Significant | Total | |||||||||||||||||||||
markets for identical assets | observable inputs | unobservable inputs | |||||||||||||||||||||||
(Level 1) | (Level 2) | (Level 3) | |||||||||||||||||||||||
Equities | |||||||||||||||||||||||||
U.S. | $ | — | $ | 153 | $ | — | $ | 153 | |||||||||||||||||
Non-U.S. | — | 399 | — | 399 | |||||||||||||||||||||
Fixed Income | |||||||||||||||||||||||||
Corporate debt | |||||||||||||||||||||||||
U.S. | — | 321 | — | 321 | |||||||||||||||||||||
Non-U.S. | — | 158 | — | 158 | |||||||||||||||||||||
Net cash equivalents(1) | 24 | — | — | 24 | |||||||||||||||||||||
Re-insurance | — | 65 | — | 65 | |||||||||||||||||||||
Private equity, real estate & insurance(2) | — | — | 604 | 604 | |||||||||||||||||||||
Total | $ | 24 | $ | 1,096 | $ | 604 | $ | 1,724 | |||||||||||||||||
Fair Value Measurements as of December 31, 2013 | |||||||||||||||||||||||||
In millions | Quoted prices in active | Significant other | Significant | Total | |||||||||||||||||||||
markets for identical assets | observable inputs | unobservable inputs | |||||||||||||||||||||||
(Level 1) | (Level 2) | (Level 3) | |||||||||||||||||||||||
Equities | |||||||||||||||||||||||||
U.S. | $ | — | $ | 270 | $ | — | $ | 270 | |||||||||||||||||
Non-U.S. | — | 328 | — | 328 | |||||||||||||||||||||
Fixed Income | |||||||||||||||||||||||||
Government debt | — | 120 | — | 120 | |||||||||||||||||||||
Corporate debt non-U.S. | — | 138 | — | 138 | |||||||||||||||||||||
Net cash equivalents(1) | 13 | — | — | 13 | |||||||||||||||||||||
Derivative instruments(3) | — | 24 | — | 24 | |||||||||||||||||||||
Re-insurance | — | 66 | — | 66 | |||||||||||||||||||||
Private equity, real estate & insurance(2) | — | — | 557 | 557 | |||||||||||||||||||||
Total | $ | 13 | $ | 946 | $ | 557 | $ | 1,516 | |||||||||||||||||
_____________________________________________________ | |||||||||||||||||||||||||
(1) | Cash equivalents include commercial paper, short-term government/agency, mortgage and credit instruments. | ||||||||||||||||||||||||
(2) | The instruments in private equity and real estate funds, for which quoted market prices are not available, are valued at their estimated fair value as determined by applicable investment managers or by audited financial statement of the funds. | ||||||||||||||||||||||||
(3) | Derivative instruments consist of interest rate swaps. | ||||||||||||||||||||||||
Other Postretirement Benefits | |||||||||||||||||||||||||
Pension and other postretirement benefits | |||||||||||||||||||||||||
Amounts recognized in other comprehensive income | Other changes in benefit obligations recognized in other comprehensive income in 2014, 2013 and 2012 were as follows: | ||||||||||||||||||||||||
In millions | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Amortization of prior service credit | $ | — | $ | — | $ | 5 | |||||||||||||||||||
Recognized actuarial loss | — | (6 | ) | (3 | ) | ||||||||||||||||||||
Incurred actuarial (gain) loss | 38 | (49 | ) | 20 | |||||||||||||||||||||
Incurred prior service credit | — | — | (4 | ) | |||||||||||||||||||||
Other | — | — | (1 | ) | |||||||||||||||||||||
Total recognized in other comprehensive income | $ | 38 | $ | (55 | ) | $ | 17 | ||||||||||||||||||
Total recognized in net periodic other postretirement benefit cost and other comprehensive income | $ | 55 | $ | (32 | ) | $ | 37 | ||||||||||||||||||
Estimated future contributions and benefit payments | The table below presents expected benefit payments under our other postretirement benefit plans: | ||||||||||||||||||||||||
In millions | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 - 2024 | |||||||||||||||||||
Expected benefit payments | $ | 40 | $ | 38 | $ | 36 | $ | 33 | $ | 31 | $ | 134 | |||||||||||||
Changes in benefit obligations and plan assets | The changes in the benefit obligations, the funded status of the plans and the amounts recognized in our Consolidated Balance Sheets for our significant other postretirement benefit plans were as follows: | ||||||||||||||||||||||||
In millions | 2014 | 2013 | |||||||||||||||||||||||
Change in benefit obligation | |||||||||||||||||||||||||
Benefit obligation at the beginning of the year | $ | 398 | $ | 478 | |||||||||||||||||||||
Interest cost | 17 | 17 | |||||||||||||||||||||||
Plan participants' contributions | 10 | 10 | |||||||||||||||||||||||
Actuarial loss (gain) | 38 | (49 | ) | ||||||||||||||||||||||
Benefits paid directly by employer | (55 | ) | (58 | ) | |||||||||||||||||||||
Benefit obligation at end of year | $ | 408 | $ | 398 | |||||||||||||||||||||
Funded status at end of year | $ | (408 | ) | $ | (398 | ) | |||||||||||||||||||
Amounts recognized in consolidated balance sheets | |||||||||||||||||||||||||
Accrued compensation, benefits and retirement costs - current liabilities | $ | (39 | ) | $ | (42 | ) | |||||||||||||||||||
Postretirement benefits other than pensions-long-term liabilities | (369 | ) | (356 | ) | |||||||||||||||||||||
Net amount recognized | $ | (408 | ) | $ | (398 | ) | |||||||||||||||||||
Amounts recognized in accumulated other comprehensive loss consist of: | |||||||||||||||||||||||||
Net actuarial loss | $ | 65 | $ | 27 | |||||||||||||||||||||
Prior service credit | (5 | ) | (5 | ) | |||||||||||||||||||||
Net amount recognized | $ | 60 | $ | 22 | |||||||||||||||||||||
Net periodic cost | The following table presents the net periodic other postretirement benefits cost under our plans: | ||||||||||||||||||||||||
In millions | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Interest cost | $ | 17 | $ | 17 | $ | 21 | |||||||||||||||||||
Amortization of prior service credit | — | — | (5 | ) | |||||||||||||||||||||
Recognized net actuarial loss | — | 6 | 3 | ||||||||||||||||||||||
Other | — | — | 1 | ||||||||||||||||||||||
Net periodic other postretirement benefit cost | $ | 17 | $ | 23 | $ | 20 | |||||||||||||||||||
Schedule of Assumptions Used [Table Text Block] | The table below presents assumptions used in determining the other postretirement benefit obligation for each year and reflects weighted-average percentages for our other postretirement plans as follows: | ||||||||||||||||||||||||
2014 | 2013 | ||||||||||||||||||||||||
Discount rate | 3.9 | % | 4.55 | % | |||||||||||||||||||||
The table below presents assumptions used in determining the net periodic other postretirement benefits cost and reflects weighted-average percentages for the various plans as follows: | |||||||||||||||||||||||||
2014 | 2013 | 2012 | |||||||||||||||||||||||
Discount rate | 4.55 | % | 3.7 | % | 4.7 | % |
OTHER_LIABILITIES_AND_DEFERRED1
OTHER LIABILITIES AND DEFERRED REVENUE (Tables) | 12 Months Ended | ||||||||
Dec. 31, 2014 | |||||||||
OTHER LIABILITIES AND DEFERRED REVENUE | |||||||||
Other liabilities and deferred revenue | Other liabilities and deferred revenue included the following: | ||||||||
December 31, | |||||||||
In millions | 2014 | 2013 | |||||||
Deferred revenue | $ | 513 | $ | 414 | |||||
Accrued warranty | 312 | 275 | |||||||
Accrued compensation | 215 | 184 | |||||||
Other long-term liabilities | 375 | 357 | |||||||
Other liabilities and deferred revenue | $ | 1,415 | $ | 1,230 | |||||
COMMITMENTS_AND_CONTINGENCIES_
COMMITMENTS AND CONTINGENCIES (Tables) | 12 Months Ended | ||||||||||||
Dec. 31, 2014 | |||||||||||||
Commitments and Contingencies Disclosure [Abstract] | |||||||||||||
Rent expense under these leases | Rent expense under these leases was as follows: | ||||||||||||
Years ended December 31, | |||||||||||||
In millions | 2014 | 2013 | 2012 | ||||||||||
Rent expense | $ | 195 | $ | 186 | $ | 176 | |||||||
Schedule of capital leases by major property class | The following is a summary of the leased property under capital leases by major classes: | ||||||||||||
December 31, | |||||||||||||
In millions | 2014 | 2013 | |||||||||||
Building | $ | 105 | $ | 103 | |||||||||
Equipment | 98 | 97 | |||||||||||
Other | 15 | 16 | |||||||||||
Less: Accumulated depreciation | (105 | ) | (96 | ) | |||||||||
Total | $ | 113 | $ | 120 | |||||||||
Future minimum lease payments due under capital and operating leases | Following is a summary of the future minimum lease payments due under capital and operating leases, including leases in our rental business, with terms of more than one year at December 31, 2014, together with the net present value of the minimum payments due under capital leases: | ||||||||||||
In millions | Capital Leases | Operating Leases | |||||||||||
2015 | $ | 23 | $ | 152 | |||||||||
2016 | 22 | 119 | |||||||||||
2017 | 13 | 104 | |||||||||||
2018 | 11 | 81 | |||||||||||
2019 | 8 | 71 | |||||||||||
After 2019 | 41 | 105 | |||||||||||
Total minimum lease payments | $ | 118 | $ | 632 | |||||||||
Interest | (31 | ) | |||||||||||
Present value of net minimum lease payments | $ | 87 | |||||||||||
SHAREHOLDERS_EQUITY_Tables
SHAREHOLDERS' EQUITY (Tables) | 12 Months Ended | |||||||||||||||
Dec. 31, 2014 | ||||||||||||||||
Equity [Abstract] | ||||||||||||||||
Changes in shares of common stock, treasury stock and common stock held in trust for employee benefit plans | Changes in shares of common stock, treasury stock and common stock held in trust for employee benefit plans are as follows: | |||||||||||||||
In millions | Common | Treasury | Common Stock | |||||||||||||
Stock | Stock | Held in Trust | ||||||||||||||
Balance at December 31, 2011 | 222.2 | 30.2 | 1.8 | |||||||||||||
Shares acquired | — | 2.6 | — | |||||||||||||
Shares issued | 0.4 | (0.2 | ) | (0.3 | ) | |||||||||||
Other shareholder transactions | (0.2 | ) | — | — | ||||||||||||
Balance at December 31, 2012 | 222.4 | 32.6 | 1.5 | |||||||||||||
Shares acquired | — | 3.3 | — | |||||||||||||
Shares issued | 0.1 | (0.3 | ) | (0.2 | ) | |||||||||||
Other shareholder transactions | (0.2 | ) | — | — | ||||||||||||
Balance at December 31, 2013 | 222.3 | 35.6 | 1.3 | |||||||||||||
Shares acquired | — | 4.8 | — | |||||||||||||
Shares issued | 0.1 | (0.3 | ) | (0.2 | ) | |||||||||||
Other shareholder transactions | (0.1 | ) | — | — | ||||||||||||
Balance at December 31, 2014 | 222.3 | 40.1 | 1.1 | |||||||||||||
Repurchases of common stock | In 2014, quarterly purchases under the repurchase program were as follows: | |||||||||||||||
In millions (except per share amounts) | 2014 Shares Purchased | Average Cost | Total Cost of | Remaining | ||||||||||||
For each quarter ended | Per Share | Repurchases | Authorized | |||||||||||||
Capacity (1) | ||||||||||||||||
December 2012, $1 billion repurchase program | ||||||||||||||||
30-Mar | 3 | $ | 139.7 | $ | 419 | $ | 425 | |||||||||
29-Jun | 0.1 | 148.11 | 11 | 415 | ||||||||||||
28-Sep | 1.2 | 139.76 | 175 | 240 | ||||||||||||
31-Dec | 0.5 | 132.66 | 65 | 174 | ||||||||||||
Total | 4.8 | 139.12 | $ | 670 | 174 | |||||||||||
___________________________________________ | ||||||||||||||||
(1) The remaining authorized capacity is calculated based on the cost to purchase the shares, but excludes commission expenses according to the Board of Directors authorization. | ||||||||||||||||
Dividends per share paid to common shareholders | Cash dividends per share paid to common shareholders for the last three years were as follows: | |||||||||||||||
Quarterly Dividends | ||||||||||||||||
2014 | 2013 | 2012 | ||||||||||||||
First quarter | $ | 0.625 | $ | 0.5 | $ | 0.4 | ||||||||||
Second quarter | 0.625 | 0.5 | 0.4 | |||||||||||||
Third quarter | 0.78 | 0.625 | 0.5 | |||||||||||||
Fourth quarter | 0.78 | 0.625 | 0.5 | |||||||||||||
Total | $ | 2.81 | $ | 2.25 | $ | 1.8 | ||||||||||
OTHER_COMPREHENSIVE_INCOME_LOS1
OTHER COMPREHENSIVE INCOME (LOSS) (Tables) | 12 Months Ended | ||||||||||||||||||||||||||||
Dec. 31, 2014 | |||||||||||||||||||||||||||||
Equity [Abstract] | |||||||||||||||||||||||||||||
Changes in accumulated other comprehensive income (loss) by component | Following are the changes in accumulated other comprehensive income (loss) by component: | ||||||||||||||||||||||||||||
In millions | Change in | Foreign | Unrealized gain | Unrealized gain | Total | Noncontrolling | Total | ||||||||||||||||||||||
pensions and | currency | (loss) on | (loss) on | attributable to | interests | ||||||||||||||||||||||||
other | translation | marketable | derivatives | Cummins Inc. | |||||||||||||||||||||||||
postretirement | adjustment | securities | |||||||||||||||||||||||||||
defined benefit | |||||||||||||||||||||||||||||
plans | |||||||||||||||||||||||||||||
Balance at December 31, 2011 | $ | (724 | ) | $ | (198 | ) | $ | 4 | $ | (20 | ) | $ | (938 | ) | |||||||||||||||
Other comprehensive income before reclassifications | |||||||||||||||||||||||||||||
Before tax amount | (164 | ) | 51 | 6 | 16 | (91 | ) | $ | (8 | ) | $ | (99 | ) | ||||||||||||||||
Tax (expense) benefit | 54 | (14 | ) | (2 | ) | (4 | ) | 34 | — | 34 | |||||||||||||||||||
After tax amount | (110 | ) | 37 | 4 | 12 | (57 | ) | (8 | ) | (65 | ) | ||||||||||||||||||
Amounts reclassified from accumulated other comprehensive income(1) | 40 | — | (3 | ) | 8 | 45 | 1 | 46 | |||||||||||||||||||||
Net current period other comprehensive income (loss) | (70 | ) | 37 | 1 | 20 | (12 | ) | $ | (7 | ) | $ | (19 | ) | ||||||||||||||||
Balance at December 31, 2012 | $ | (794 | ) | $ | (161 | ) | $ | 5 | $ | — | $ | (950 | ) | ||||||||||||||||
Other comprehensive income before reclassifications | |||||||||||||||||||||||||||||
Before tax amount | 206 | (31 | ) | 16 | (6 | ) | 185 | $ | (28 | ) | $ | 157 | |||||||||||||||||
Tax (expense) benefit | (87 | ) | 13 | (9 | ) | 3 | (80 | ) | — | (80 | ) | ||||||||||||||||||
After tax amount | 119 | (18 | ) | 7 | (3 | ) | 105 | (28 | ) | 77 | |||||||||||||||||||
Amounts reclassified from accumulated other comprehensive income(1)(2) | 64 | — | (5 | ) | 2 | 61 | (1 | ) | 60 | ||||||||||||||||||||
Net current period other comprehensive income (loss) | 183 | (18 | ) | 2 | (1 | ) | 166 | $ | (29 | ) | $ | 137 | |||||||||||||||||
Balance at December 31, 2013 | $ | (611 | ) | $ | (179 | ) | $ | 7 | $ | (1 | ) | $ | (784 | ) | |||||||||||||||
Other comprehensive income before reclassifications | |||||||||||||||||||||||||||||
Before tax amount | (196 | ) | (241 | ) | 2 | 2 | (433 | ) | $ | (7 | ) | $ | (440 | ) | |||||||||||||||
Tax (expense) benefit | 92 | 14 | (1 | ) | (1 | ) | 104 | — | 104 | ||||||||||||||||||||
After tax amount | (104 | ) | (227 | ) | 1 | 1 | (329 | ) | (7 | ) | (336 | ) | |||||||||||||||||
Amounts reclassified from accumulated other comprehensive income(1)(2) | 46 | — | (9 | ) | (2 | ) | 35 | (4 | ) | 31 | |||||||||||||||||||
Net current period other comprehensive income (loss) | (58 | ) | (227 | ) | (8 | ) | (1 | ) | (294 | ) | $ | (11 | ) | $ | (305 | ) | |||||||||||||
Balance at December 31, 2014 | $ | (669 | ) | $ | (406 | ) | $ | (1 | ) | $ | (2 | ) | $ | (1,078 | ) | ||||||||||||||
_______________________________________________________________________ | |||||||||||||||||||||||||||||
(1) Amounts are net of tax. | |||||||||||||||||||||||||||||
(2) See reclassifications out of accumulated other comprehensive income (loss) disclosure below for further details. | |||||||||||||||||||||||||||||
Schedule of reclassification out of accumulated other comprehensive income (loss) and related tax effects | Following are the items reclassified out of accumulated other comprehensive income (loss) and the related tax effects: | ||||||||||||||||||||||||||||
In millions | Years ended December 31, | ||||||||||||||||||||||||||||
(Gain)/Loss Components | 2014 | 2013 | Statement of Income Location | ||||||||||||||||||||||||||
Realized (gain) loss on marketable securities | $ | (14 | ) | $ | (13 | ) | Other income (expense), net | ||||||||||||||||||||||
Income tax expense | 1 | 7 | Income tax expense | ||||||||||||||||||||||||||
Net realized (gain) loss on marketable securities | $ | (13 | ) | $ | (6 | ) | |||||||||||||||||||||||
Realized (gain) loss on derivatives | |||||||||||||||||||||||||||||
Foreign currency forward contracts | $ | (5 | ) | $ | 2 | Net sales | |||||||||||||||||||||||
Commodity swap contracts | 2 | 1 | Cost of sales | ||||||||||||||||||||||||||
Total before taxes | (3 | ) | 3 | ||||||||||||||||||||||||||
Income tax expense (benefit) | 1 | (1 | ) | Income tax expense | |||||||||||||||||||||||||
Net realized (gain) loss on derivatives | $ | (2 | ) | $ | 2 | ||||||||||||||||||||||||
Change in pension and other postretirement defined benefit plans | |||||||||||||||||||||||||||||
Recognized actuarial loss | $ | 63 | $ | 95 | (1) | ||||||||||||||||||||||||
Total before taxes | 63 | 95 | |||||||||||||||||||||||||||
Income tax expense (benefit) | (17 | ) | (31 | ) | Income tax expense | ||||||||||||||||||||||||
Net change in pensions and other postretirement defined benefit plans | $ | 46 | $ | 64 | |||||||||||||||||||||||||
Total reclassifications for the period | $ | 31 | $ | 60 | |||||||||||||||||||||||||
_______________________________________________________________________ | |||||||||||||||||||||||||||||
(1) These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 11, ''PENSION AND OTHER POSTRETIREMENT BENEFITS''). |
STOCK_INCENTIVE_AND_STOCK_OPTI1
STOCK INCENTIVE AND STOCK OPTION PLANS (Tables) | 12 Months Ended | ||||||||||||||
Dec. 31, 2014 | |||||||||||||||
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||||||||||||||
Activity in stock option plans | The tables below summarize the activity in the Plan: | ||||||||||||||
Options | Weighted-average | Weighted-average | Aggregate | ||||||||||||
Exercise Price | Remaining | Intrinsic Value | |||||||||||||
Contractual Life | (in millions) | ||||||||||||||
(in years) | |||||||||||||||
Balance at December 31, 2011 | 1,243,037 | $ | 59.02 | ||||||||||||
Granted | 321,945 | 119.34 | |||||||||||||
Exercised | (241,815 | ) | 31.73 | ||||||||||||
Forfeited | (13,999 | ) | 67.86 | ||||||||||||
Balance at December 31, 2012 | 1,309,168 | 78.8 | |||||||||||||
Granted | 432,370 | 112.07 | |||||||||||||
Exercised | (265,528 | ) | 40.48 | ||||||||||||
Forfeited | (13,674 | ) | 105.19 | ||||||||||||
Balance at December 31, 2013 | 1,462,336 | 95.35 | |||||||||||||
Granted | 350,630 | 148.98 | |||||||||||||
Exercised | (175,526 | ) | 82.06 | ||||||||||||
Forfeited | (10,716 | ) | 102.56 | ||||||||||||
Balance at December 31, 2014 | 1,626,724 | $ | 108.3 | 7.22 | $ | 62 | |||||||||
Exercisable, December 31, 2012 | 785,869 | $ | 51.4 | 6.26 | $ | 44 | |||||||||
Exercisable, December 31, 2013 | 758,936 | $ | 76.85 | 5.94 | $ | 48 | |||||||||
Exercisable, December 31, 2014 | 903,059 | $ | 92.18 | 6.05 | $ | 48 | |||||||||
Weighted-average grant date fair value of performance and restricted shares | The weighted-average grant date fair value of performance and restricted shares was as follows: | ||||||||||||||
Performance Shares | Restricted Shares | ||||||||||||||
Nonvested | Shares | Weighted-average | Shares | Weighted-average | |||||||||||
Fair Value | Fair Value | ||||||||||||||
Balance at December 31, 2011 | 525,391 | $ | 62.05 | 81,845 | $ | 61.49 | |||||||||
Granted | 325,590 | 89.92 | 3,150 | 91.68 | |||||||||||
Vested | (194,484 | ) | 25.46 | (22,766 | ) | 52.16 | |||||||||
Forfeited | (26,413 | ) | 91.94 | — | — | ||||||||||
Balance at December 31, 2012 | 630,084 | 86.49 | 62,229 | 66.43 | |||||||||||
Granted | 176,649 | 106.4 | 7,506 | 114.56 | |||||||||||
Vested | (303,882 | ) | 61.48 | (26,901 | ) | 62.03 | |||||||||
Forfeited | (26,938 | ) | 85.07 | (10,293 | ) | 65.41 | |||||||||
Balance at December 31, 2013 | 475,913 | 109.93 | 32,541 | 81.49 | |||||||||||
Granted | 206,031 | 130.38 | — | — | |||||||||||
Vested | (207,093 | ) | 107.64 | (21,266 | ) | 65.88 | |||||||||
Forfeited | (8,158 | ) | 121.18 | — | — | ||||||||||
Balance at December 31, 2014 | 466,693 | $ | 119.78 | 11,275 | $ | 110.94 | |||||||||
Fair value of option grant estimated on the grant date using Black-Scholes option pricing model assumptions | The fair value of each option grant was estimated on the grant date using the Black-Scholes option pricing model with the following assumptions: | ||||||||||||||
2014 | 2013 | 2012 | |||||||||||||
Expected life (years) | 5 | 5 | 5 | ||||||||||||
Risk-free interest rate | 1.8 | % | 0.79 | % | 1.05 | % | |||||||||
Expected volatility | 41.17 | % | 56.59 | % | 58.98 | % | |||||||||
Dividend yield | 1.61 | % | 1.55 | % | 1.3 | % |
NONCONTROLLING_INTERESTS_Table
NONCONTROLLING INTERESTS (Tables) | 12 Months Ended | ||||||||
Dec. 31, 2014 | |||||||||
Noncontrolling Interest [Abstract] | |||||||||
Noncontrolling interests in the equity of consolidated subsidiaries | Noncontrolling interests in the equity of consolidated subsidiaries were as follows: | ||||||||
December 31, | |||||||||
In millions | 2014 | 2013 | |||||||
Cummins India Ltd. | $ | 252 | $ | 252 | |||||
Wuxi Cummins Turbo Technologies Co. Ltd. | 67 | 81 | |||||||
Other | 25 | 27 | |||||||
Total | $ | 344 | $ | 360 | |||||
EARNINGS_PER_SHARE_Tables
EARNINGS PER SHARE (Tables) | 12 Months Ended | ||||||||||||
Dec. 31, 2014 | |||||||||||||
Earnings Per Share [Abstract] | |||||||||||||
Computations for basic and diluted earnings per share | Following are the computations for basic and diluted earnings per share: | ||||||||||||
Years ended December 31, | |||||||||||||
Dollars in millions, except per share amounts | 2014 | 2013 | 2012 | ||||||||||
Net income attributable to Cummins Inc. | $ | 1,651 | $ | 1,483 | $ | 1,645 | |||||||
Weighted-average common shares outstanding | |||||||||||||
Basic | 182,637,568 | 186,994,382 | 189,286,821 | ||||||||||
Dilutive effect of stock compensation awards | 441,727 | 423,459 | 381,883 | ||||||||||
Diluted | 183,079,295 | 187,417,841 | 189,668,704 | ||||||||||
Earnings per common share attributable to Cummins Inc. | |||||||||||||
Basic | $ | 9.04 | $ | 7.93 | $ | 8.69 | |||||||
Diluted | 9.02 | 7.91 | 8.67 | ||||||||||
OPERATING_SEGMENTS_Tables
OPERATING SEGMENTS (Tables) | 12 Months Ended | ||||||||||||||||||||||||
Dec. 31, 2014 | |||||||||||||||||||||||||
Segment Reporting [Abstract] | |||||||||||||||||||||||||
Financial information regarding reportable operating segments | 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 | Total | |||||||||||||||||||
Items(1) | |||||||||||||||||||||||||
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 | (3) | 684 | 168 | (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(3) | 1,041 | 388 | (3) | 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 | |||||||||||||||||||
2012 | |||||||||||||||||||||||||
External sales | $ | 9,101 | $ | 3,261 | $ | 2,809 | $ | 2,163 | $ | — | $ | 17,334 | |||||||||||||
Intersegment sales | 1,632 | 16 | 1,203 | 1,105 | (3,956 | ) | — | ||||||||||||||||||
Total sales | 10,733 | 3,277 | 4,012 | 3,268 | (3,956 | ) | 17,334 | ||||||||||||||||||
Depreciation and amortization(2) | 192 | 34 | 82 | 47 | — | 355 | |||||||||||||||||||
Research, development and engineering expenses | 433 | 6 | 213 | 76 | — | 728 | |||||||||||||||||||
Equity, royalty and interest income from investees | 127 | 188 | 29 | 40 | — | 384 | |||||||||||||||||||
Interest income | 11 | 2 | 3 | 9 | — | 25 | |||||||||||||||||||
Segment EBIT | 1,248 | 369 | (3) | 426 | 285 | (25 | ) | 2,303 | |||||||||||||||||
Net assets | 3,373 | 1,392 | 1,830 | 1,582 | — | 8,177 | |||||||||||||||||||
Investments and advances to equity investees | 401 | 281 | 127 | 88 | — | 897 | |||||||||||||||||||
Capital expenditures | 399 | 62 | 134 | 95 | — | 690 | |||||||||||||||||||
____________________________________________________ | |||||||||||||||||||||||||
(1) | Includes intersegment sales and profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the years ended December 31, 2014 and 2013. The year ended December 31, 2012, included a $20 million charge ($12 million after-tax) related to legal matters. The charge was excluded from segment results as it was not considered in our evaluation of operating results for the year ended December 31, 2012. | ||||||||||||||||||||||||
(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, $2 million and $6 million for the years ended December 31, 2014, 2013 and 2012, respectively. | ||||||||||||||||||||||||
(3) | Distribution segment EBIT included gains on the fair value adjustment resulting from the acquisition of controlling interests in North American distributors of $73 million, $12 million and $7 million for the periods ended December 31, 2014, 2013, and 2012, respectively. See Note 2, "ACQUISITIONS," for additional information. | ||||||||||||||||||||||||
Reconciliation of segment information | 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 | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Total EBIT | $ | 2,498 | $ | 2,160 | $ | 2,303 | |||||||||||||||||||
Less: Interest expense | 64 | 41 | 32 | ||||||||||||||||||||||
Income before income taxes | $ | 2,434 | $ | 2,119 | $ | 2,271 | |||||||||||||||||||
Reconciliation of segment information from net assets to total assets | |||||||||||||||||||||||||
December 31, | |||||||||||||||||||||||||
In millions | 2014 | 2013 | 2012 | ||||||||||||||||||||||
Net assets for operating segments | $ | 9,737 | $ | 9,646 | $ | 8,177 | |||||||||||||||||||
Liabilities deducted in arriving at net assets | 6,009 | 5,103 | 4,913 | ||||||||||||||||||||||
Pension and other postretirement benefit adjustments excluded from net assets | (319 | ) | (346 | ) | (977 | ) | |||||||||||||||||||
Deferred tax assets not allocated to segments | 314 | 292 | 410 | ||||||||||||||||||||||
Debt-related costs not allocated to segments | 35 | 33 | 25 | ||||||||||||||||||||||
Total assets | $ | 15,776 | $ | 14,728 | $ | 12,548 | |||||||||||||||||||
Net sales attributed to geographic areas based on the location of the customer | 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 | 2014 | 2013 | 2012 | ||||||||||||||||||||||
United States | $ | 10,058 | $ | 8,382 | $ | 8,107 | |||||||||||||||||||
China | 1,446 | 1,194 | 1,056 | ||||||||||||||||||||||
Canada | 771 | 655 | 642 | ||||||||||||||||||||||
Brazil | 730 | 882 | 798 | ||||||||||||||||||||||
India | 546 | 630 | 757 | ||||||||||||||||||||||
Mexico | 561 | 556 | 692 | ||||||||||||||||||||||
United Kingdom | 479 | 453 | 660 | ||||||||||||||||||||||
Other foreign countries | 4,630 | 4,549 | 4,622 | ||||||||||||||||||||||
Total net sales | $ | 19,221 | $ | 17,301 | $ | 17,334 | |||||||||||||||||||
Long-lived assets attributed to geographic areas | |||||||||||||||||||||||||
In millions | December 31, | ||||||||||||||||||||||||
Long-lived assets | 2014 | 2013 | 2012 | ||||||||||||||||||||||
United States | $ | 2,949 | $ | 2,606 | $ | 2,440 | |||||||||||||||||||
China | 692 | 646 | 589 | ||||||||||||||||||||||
India | 391 | 330 | 243 | ||||||||||||||||||||||
United Kingdom | 339 | 319 | 339 | ||||||||||||||||||||||
Brazil | 161 | 172 | 170 | ||||||||||||||||||||||
Netherlands | 156 | 138 | 130 | ||||||||||||||||||||||
Canada | 126 | 68 | 69 | ||||||||||||||||||||||
Mexico | 96 | 87 | 77 | ||||||||||||||||||||||
Germany | 79 | 69 | 49 | ||||||||||||||||||||||
Korea | 34 | 37 | 37 | ||||||||||||||||||||||
Romania | 31 | 27 | 15 | ||||||||||||||||||||||
Turkey | 30 | 28 | 29 | ||||||||||||||||||||||
Australia | 17 | 18 | 25 | ||||||||||||||||||||||
United Arab Emirates | 16 | 15 | 16 | ||||||||||||||||||||||
Singapore | 13 | 17 | 16 | ||||||||||||||||||||||
France | 12 | 13 | 13 | ||||||||||||||||||||||
Other foreign countries | 42 | 34 | 33 | ||||||||||||||||||||||
Total long-lived assets | $ | 5,184 | $ | 4,624 | $ | 4,290 | |||||||||||||||||||
SUMMARY_OF_SIGNIFICANT_ACCOUNT3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) (USD $) | 12 Months Ended | ||
In Millions, unless otherwise specified | Dec. 31, 2014 | Dec. 31, 2013 | Dec. 31, 2012 |
country | |||
location | |||
category | |||
Nature of Operations | |||
Company owned and independent distributor locations | 600 | ||
Dealer locations | 7,200 | ||
Countries and territories located in | 190 | ||
Equity, royalty and interest income from investees | |||
Prior Period Reclassification Adjustment | $103 | $92 | |
Revenue Recognition | |||
Number of sales incentives categories | 3 | ||
Foreign Currency Translation | |||
Foreign Currency Transaction Gain (Loss), before Tax | -6 | -27 | -14 |
Changes in current assets and liabilities, net of acquisitions and divestitures: | |||
Accounts and notes receivable | -89 | -148 | 87 |
Inventories | -256 | -46 | -32 |
Other current assets | 1 | 212 | -60 |
Accounts Payable | 244 | 163 | -256 |
Accrued Expenses | 168 | -246 | -514 |
Cash payments for income taxes, net of refunds | 659 | 380 | 691 |
Cash payments for interest, net of capitalized interest | 65 | 30 | 32 |
Activity in allowance for doubtful accounts | |||
Allowance for doubtful accounts receivable | $12 | $14 | |
Inventory Disclosure | |||
Percentage of total inventory values using LIFO | 14.00% | 14.00% | |
Minimum | |||
Investments in Equity Investees | |||
Percentage of equity method investment ownership | 20.00% | ||
Maximum | |||
Investments in Equity Investees | |||
Percentage of equity method investment ownership | 50.00% |
SUMMARY_OF_SIGNIFICANT_ACCOUNT4
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 2) (USD $) | 12 Months Ended | ||
In Millions, unless otherwise specified | Dec. 31, 2014 | Dec. 31, 2013 | Dec. 31, 2012 |
Property, Plant and Equipment | |||
Depreciation on property, plant and equipment | $351 | $318 | $287 |
Buildings | Minimum | |||
Property, Plant and Equipment | |||
Property, Plant and Equipment, Useful Life | 20 years | ||
Buildings | Maximum | |||
Property, Plant and Equipment | |||
Property, Plant and Equipment, Useful Life | 40 years | ||
Machinery, equipment and fixtures | Minimum | |||
Property, Plant and Equipment | |||
Property, Plant and Equipment, Useful Life | 3 years | ||
Machinery, equipment and fixtures | Maximum | |||
Property, Plant and Equipment | |||
Property, Plant and Equipment, Useful Life | 20 years | ||
Software developed or obtained for internal use | Minimum | |||
Property, Plant and Equipment | |||
Estimated useful life | 3 years | ||
Software developed or obtained for internal use | Maximum | |||
Property, Plant and Equipment | |||
Estimated useful life | 12 years |
SUMMARY_OF_SIGNIFICANT_ACCOUNT5
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 3) (USD $) | 12 Months Ended | ||
In Millions, unless otherwise specified | Dec. 31, 2014 | Dec. 31, 2013 | Dec. 31, 2012 |
Goodwill. | |||
Goodwill | $479 | $461 | $445 |
Percentage of total goodwill, emissions solutions and filtration | 82.00% | ||
Research and Development | |||
Research and development expenses, net of contract reimbursements | 737 | 700 | 721 |
Research and Development Arrangement, Contract to Perform for Others, Compensation Earned | $121 | $76 | $86 |
ACQUISITIONS_AND_DIVESTITURES_
ACQUISITIONS AND DIVESTITURES (Details) (USD $) | 12 Months Ended | 0 Months Ended | 12 Months Ended | 1 Months Ended | 0 Months Ended | |||||||||||||||||||||||
In Millions, unless otherwise specified | Dec. 31, 2014 | Dec. 31, 2013 | Dec. 31, 2012 | Nov. 03, 2014 | Sep. 29, 2014 | Aug. 04, 2014 | 5-May-14 | Mar. 31, 2014 | Feb. 14, 2014 | Dec. 31, 2013 | 6-May-13 | Jul. 01, 2013 | Jan. 31, 2013 | Jul. 02, 2012 | Dec. 31, 2011 | Jul. 31, 2012 | Sep. 16, 2013 | |||||||||||
Business Acquisition | ||||||||||||||||||||||||||||
Investments and advances related to equity method investees | $981 | $931 | $897 | $931 | ||||||||||||||||||||||||
Gain on remeasurement of pre-existing ownership interest in the acquiree company | 73 | 12 | 7 | |||||||||||||||||||||||||
Business Combination Purchase Price Distributed in Future Quarters | 22 | |||||||||||||||||||||||||||
The purchase price was allocated as follows: | ||||||||||||||||||||||||||||
Goodwill | 479 | 461 | 445 | 461 | ||||||||||||||||||||||||
Net sales, included in consolidated statement | 19,221 | 17,301 | 17,334 | [1] | ||||||||||||||||||||||||
Cummins Bridgeway LLC | ||||||||||||||||||||||||||||
Business Acquisition | ||||||||||||||||||||||||||||
Business Acquisition, Percentage of Voting Interests Acquired | 54.00% | [2] | ||||||||||||||||||||||||||
Cash paid for business acquisition | 22 | [2] | ||||||||||||||||||||||||||
Payments to Acquire Businesses Liabilities Paid | 45 | [2] | ||||||||||||||||||||||||||
Gain on remeasurement of pre-existing ownership interest in the acquiree company | 13 | [2],[3] | ||||||||||||||||||||||||||
Net sales prior to acquisition | 331 | [4] | ||||||||||||||||||||||||||
The purchase price was allocated as follows: | ||||||||||||||||||||||||||||
Intangible assets, other than goodwill | 15 | [2],[5] | ||||||||||||||||||||||||||
Goodwill | 4 | [2] | ||||||||||||||||||||||||||
Consideration transferred | 77 | [2],[6] | ||||||||||||||||||||||||||
Cummins Npower LLC | ||||||||||||||||||||||||||||
Business Acquisition | ||||||||||||||||||||||||||||
Business Acquisition, Percentage of Voting Interests Acquired | 50.00% | |||||||||||||||||||||||||||
Cash paid for business acquisition | 33 | |||||||||||||||||||||||||||
Payments to Acquire Businesses Liabilities Paid | 34 | |||||||||||||||||||||||||||
Gain on remeasurement of pre-existing ownership interest in the acquiree company | 15 | [3] | ||||||||||||||||||||||||||
Net sales prior to acquisition | 374 | [4] | ||||||||||||||||||||||||||
The purchase price was allocated as follows: | ||||||||||||||||||||||||||||
Intangible assets, other than goodwill | 8 | [5] | ||||||||||||||||||||||||||
Goodwill | 7 | |||||||||||||||||||||||||||
Consideration transferred | 73 | [6] | ||||||||||||||||||||||||||
Cummins Power South LLC | ||||||||||||||||||||||||||||
Business Acquisition | ||||||||||||||||||||||||||||
Business Acquisition, Percentage of Voting Interests Acquired | 50.00% | |||||||||||||||||||||||||||
Cash paid for business acquisition | 17 | |||||||||||||||||||||||||||
Payments to Acquire Businesses Liabilities Paid | 16 | |||||||||||||||||||||||||||
Gain on remeasurement of pre-existing ownership interest in the acquiree company | 7 | [3] | ||||||||||||||||||||||||||
Net sales prior to acquisition | 239 | [4] | ||||||||||||||||||||||||||
The purchase price was allocated as follows: | ||||||||||||||||||||||||||||
Intangible assets, other than goodwill | 1 | [5] | ||||||||||||||||||||||||||
Goodwill | 8 | |||||||||||||||||||||||||||
Consideration transferred | 35 | [6] | ||||||||||||||||||||||||||
Cummins Eastern Canada LP | ||||||||||||||||||||||||||||
Business Acquisition | ||||||||||||||||||||||||||||
Business Acquisition, Percentage of Voting Interests Acquired | 50.00% | |||||||||||||||||||||||||||
Cash paid for business acquisition | 29 | |||||||||||||||||||||||||||
Payments to Acquire Businesses Liabilities Paid | 32 | |||||||||||||||||||||||||||
Gain on remeasurement of pre-existing ownership interest in the acquiree company | 18 | [3] | ||||||||||||||||||||||||||
Net sales prior to acquisition | 228 | [4] | ||||||||||||||||||||||||||
The purchase price was allocated as follows: | ||||||||||||||||||||||||||||
Intangible assets, other than goodwill | 4 | [5] | ||||||||||||||||||||||||||
Goodwill | 5 | |||||||||||||||||||||||||||
Consideration transferred | 62 | [6] | ||||||||||||||||||||||||||
Cummins Power Systems LLC | ||||||||||||||||||||||||||||
Business Acquisition | ||||||||||||||||||||||||||||
Business Acquisition, Percentage of Voting Interests Acquired | 30.00% | |||||||||||||||||||||||||||
Cash paid for business acquisition | 14 | |||||||||||||||||||||||||||
Payments to Acquire Businesses Liabilities Paid | 0 | |||||||||||||||||||||||||||
The purchase price was allocated as follows: | ||||||||||||||||||||||||||||
Consideration transferred | 14 | |||||||||||||||||||||||||||
Cummins Southern Plains LLC | ||||||||||||||||||||||||||||
Business Acquisition | ||||||||||||||||||||||||||||
Business Acquisition, Percentage of Voting Interests Acquired | 50.00% | |||||||||||||||||||||||||||
Cash paid for business acquisition | 43 | |||||||||||||||||||||||||||
Payments to Acquire Businesses Liabilities Paid | 48 | |||||||||||||||||||||||||||
Gain on remeasurement of pre-existing ownership interest in the acquiree company | 13 | [3] | ||||||||||||||||||||||||||
Net sales prior to acquisition | 433 | [4] | ||||||||||||||||||||||||||
The purchase price was allocated as follows: | ||||||||||||||||||||||||||||
Accounts receivable | 63 | |||||||||||||||||||||||||||
Inventory | 59 | |||||||||||||||||||||||||||
Fixed assets | 47 | |||||||||||||||||||||||||||
Intangible assets, other than goodwill | 11 | [5] | ||||||||||||||||||||||||||
Goodwill | 1 | |||||||||||||||||||||||||||
Other assets | 8 | |||||||||||||||||||||||||||
Current liabilities | -53 | |||||||||||||||||||||||||||
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Noncurrent Liabilities | 0 | |||||||||||||||||||||||||||
Total business valuation | 136 | |||||||||||||||||||||||||||
Fair value of pre-existing 33 percent interest | -44 | |||||||||||||||||||||||||||
Consideration transferred | 92 | [6] | ||||||||||||||||||||||||||
Cummins Mid-South LLC | ||||||||||||||||||||||||||||
Business Acquisition | ||||||||||||||||||||||||||||
Business Acquisition, Percentage of Voting Interests Acquired | 62.20% | |||||||||||||||||||||||||||
Cash paid for business acquisition | 55 | |||||||||||||||||||||||||||
Payments to Acquire Businesses Liabilities Paid | 61 | |||||||||||||||||||||||||||
Gain on remeasurement of pre-existing ownership interest in the acquiree company | 7 | [3] | ||||||||||||||||||||||||||
Net sales prior to acquisition | 368 | [4] | ||||||||||||||||||||||||||
The purchase price was allocated as follows: | ||||||||||||||||||||||||||||
Accounts receivable | 71 | |||||||||||||||||||||||||||
Inventory | 70 | |||||||||||||||||||||||||||
Fixed assets | 37 | |||||||||||||||||||||||||||
Intangible assets, other than goodwill | 8 | [5] | ||||||||||||||||||||||||||
Goodwill | 4 | |||||||||||||||||||||||||||
Other assets | 10 | |||||||||||||||||||||||||||
Current liabilities | -43 | |||||||||||||||||||||||||||
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Noncurrent Liabilities | -4 | |||||||||||||||||||||||||||
Total business valuation | 153 | |||||||||||||||||||||||||||
Fair value of pre-existing 33 percent interest | -35 | |||||||||||||||||||||||||||
Consideration transferred | 118 | [6] | ||||||||||||||||||||||||||
Cummins Western Canada LP | ||||||||||||||||||||||||||||
Business Acquisition | ||||||||||||||||||||||||||||
Business Acquisition, Percentage of Voting Interests Acquired | 35.00% | 35.00% | ||||||||||||||||||||||||||
Cash paid for business acquisition | 32 | |||||||||||||||||||||||||||
Payments to Acquire Businesses Liabilities Paid | 0 | 0 | ||||||||||||||||||||||||||
The purchase price was allocated as follows: | ||||||||||||||||||||||||||||
Consideration transferred | 32 | |||||||||||||||||||||||||||
Cummins Rocky Mountain LLC | ||||||||||||||||||||||||||||
Business Acquisition | ||||||||||||||||||||||||||||
Business Acquisition, Percentage of Voting Interests Acquired | 67.00% | |||||||||||||||||||||||||||
Cash paid for business acquisition | 62 | |||||||||||||||||||||||||||
Payments to Acquire Businesses Liabilities Paid | 74 | |||||||||||||||||||||||||||
Gain on remeasurement of pre-existing ownership interest in the acquiree company | 5 | [3] | ||||||||||||||||||||||||||
Net sales prior to acquisition | 384 | [4] | ||||||||||||||||||||||||||
The purchase price was allocated as follows: | ||||||||||||||||||||||||||||
Accounts receivable | 48 | |||||||||||||||||||||||||||
Inventory | 100 | |||||||||||||||||||||||||||
Fixed assets | 34 | |||||||||||||||||||||||||||
Intangible assets, other than goodwill | 8 | [5] | ||||||||||||||||||||||||||
Goodwill | 10 | |||||||||||||||||||||||||||
Other assets | 8 | |||||||||||||||||||||||||||
Current liabilities | -41 | |||||||||||||||||||||||||||
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Noncurrent Liabilities | 0 | |||||||||||||||||||||||||||
Total business valuation | 167 | |||||||||||||||||||||||||||
Fair value of pre-existing 33 percent interest | -31 | |||||||||||||||||||||||||||
Consideration transferred | 136 | |||||||||||||||||||||||||||
Cummins Northwest LLC | ||||||||||||||||||||||||||||
Business Acquisition | ||||||||||||||||||||||||||||
Business Acquisition, Percentage of Voting Interests Acquired | 20.01% | 50.00% | [7] | |||||||||||||||||||||||||
Cash paid for business acquisition | 4 | 18 | [7] | |||||||||||||||||||||||||
Gain on remeasurement of pre-existing ownership interest in the acquiree company | 7 | [3],[7] | ||||||||||||||||||||||||||
Net sales prior to acquisition | 137 | [4],[7] | ||||||||||||||||||||||||||
Additional interest acquired (as a percent) | 20.01% | |||||||||||||||||||||||||||
Ownership in partnership formed, post acquisition (as a percent) | 79.99% | |||||||||||||||||||||||||||
The purchase price was allocated as follows: | ||||||||||||||||||||||||||||
Intangible assets, other than goodwill | 2 | [5],[7] | ||||||||||||||||||||||||||
Goodwill | 3 | [7] | ||||||||||||||||||||||||||
Consideration transferred | 4 | 18 | [7] | |||||||||||||||||||||||||
Cummins Central Power LLC | ||||||||||||||||||||||||||||
Business Acquisition | ||||||||||||||||||||||||||||
Business Acquisition, Percentage of Voting Interests Acquired | 45.00% | [8] | ||||||||||||||||||||||||||
Cash paid for business acquisition | 26 | |||||||||||||||||||||||||||
Gain on remeasurement of pre-existing ownership interest in the acquiree company | 7 | [3] | ||||||||||||||||||||||||||
Net sales prior to acquisition | 209 | [4] | ||||||||||||||||||||||||||
Ownership in partnership formed, post acquisition (as a percent) | 79.99% | |||||||||||||||||||||||||||
The purchase price was allocated as follows: | ||||||||||||||||||||||||||||
Intangible assets, other than goodwill | 4 | [5] | ||||||||||||||||||||||||||
Consideration transferred | 26 | |||||||||||||||||||||||||||
Hilite Germany GmbH | ||||||||||||||||||||||||||||
Business Acquisition | ||||||||||||||||||||||||||||
Net sales prior to acquisition | 104 | |||||||||||||||||||||||||||
The purchase price was allocated as follows: | ||||||||||||||||||||||||||||
Inventory | 5 | |||||||||||||||||||||||||||
Fixed assets | 5 | |||||||||||||||||||||||||||
Intangible assets, other than goodwill | 83 | |||||||||||||||||||||||||||
Goodwill | 91 | |||||||||||||||||||||||||||
Liabilities | -8 | |||||||||||||||||||||||||||
Purchase Price | 176 | |||||||||||||||||||||||||||
Acquisition related costs | 4 | |||||||||||||||||||||||||||
Finite-Lived Intangibles | 83 | |||||||||||||||||||||||||||
Weighted average amortization life | 8 years 6 months | |||||||||||||||||||||||||||
Net sales, included in consolidated statement | 46 | |||||||||||||||||||||||||||
Hilite Germany GmbH | Technology | ||||||||||||||||||||||||||||
The purchase price was allocated as follows: | ||||||||||||||||||||||||||||
Finite-Lived Intangibles | 52 | |||||||||||||||||||||||||||
Weighted average amortization life | 10 years 7 months 6 days | |||||||||||||||||||||||||||
Hilite Germany GmbH | Customer | ||||||||||||||||||||||||||||
The purchase price was allocated as follows: | ||||||||||||||||||||||||||||
Finite-Lived Intangibles | 23 | |||||||||||||||||||||||||||
Weighted average amortization life | 4 years 6 months | |||||||||||||||||||||||||||
Hilite Germany GmbH | License agreements | ||||||||||||||||||||||||||||
The purchase price was allocated as follows: | ||||||||||||||||||||||||||||
Finite-Lived Intangibles | $8 | |||||||||||||||||||||||||||
Weighted average amortization life | 6 years | |||||||||||||||||||||||||||
Minimum | ||||||||||||||||||||||||||||
Business Acquisition | ||||||||||||||||||||||||||||
Acquisition period for North American distributors | 3 years | |||||||||||||||||||||||||||
Maximum | ||||||||||||||||||||||||||||
Business Acquisition | ||||||||||||||||||||||||||||
Acquisition period for North American distributors | 5 years | |||||||||||||||||||||||||||
Maximum | Customer | ||||||||||||||||||||||||||||
The purchase price was allocated as follows: | ||||||||||||||||||||||||||||
Weighted average amortization life | 5 years | |||||||||||||||||||||||||||
[1] | Includes sales to nonconsolidated equity investees of $2,063 million, $2,319 million and $2,427 million for the years ended December 31, 2014, 2013 and 2012, respectively. | |||||||||||||||||||||||||||
[2] | Purchase accounting for this acquisition is preliminary awaiting customary adjustment to purchase price in accordance with the purchase agreements. | |||||||||||||||||||||||||||
[3] | All results from acquired entities were included in Distribution segment results subsequent to the acquisition date. Previously consolidated entities were accounted for as equity transactions (EQUITY). Newly consolidated entities were accounted for as business combinations (COMB) with gains recognized based on the requirement to remeasure our pre-existing ownership to fair value in accordance with GAAP and are included in the Consolidated Statements of Income as "Other income (expense), net." | |||||||||||||||||||||||||||
[4] | Sales amounts are not fully incremental to our consolidated sales as the amount would be reduced by the elimination of sales to the previously unconsolidated entity. | |||||||||||||||||||||||||||
[5] | Intangible assets acquired in business combinations were mostly customer related, the majority of which will be amortized over a period of up to five years from the date of the acquisition. | |||||||||||||||||||||||||||
[6] | The "Total Purchase Consideration" represents the total amount that will or is estimated to be paid to complete the acquisition. In some instances a portion of the acquisition payment has not yet been made and will be paid in future periods in accordance with the purchase contract. The total outstanding consideration at December 31, 2014, was $22 million. | |||||||||||||||||||||||||||
[7] | Prior to our decision to acquire the remaining interest in our North American and Canadian distributors, we acquired the remaining ownership interest in Northwest and immediately formed a new partnership with a new distributor principal and sold 20.01 percent to the new distributor principal. We retained a new ownership in Northwest of 79.99 percent. We subsequently repurchased the remaining outstanding interest under the new contract in July 2013. | |||||||||||||||||||||||||||
[8] | After the acquisition, Cummins owned a 79.99 percent interest in Central Power. |
INVESTMENTS_IN_EQUITY_INVESTEE2
INVESTMENTS IN EQUITY INVESTEES (Details) (USD $) | 12 Months Ended | |||||
In Millions, unless otherwise specified | Dec. 31, 2014 | Dec. 31, 2013 | Dec. 31, 2012 | Sep. 28, 2014 | ||
l | ||||||
Equity, royalty and interest income from investees | ||||||
Investments and advances related to equity method investees | $981 | $931 | $897 | |||
Cummins share of net income | 330 | 325 | 347 | |||
Royalty and interest income | 40 | 36 | 37 | |||
Equity, royalty and interest income from investees | 370 | 361 | 384 | |||
Minimum | ||||||
Equity, royalty and interest income from investees | ||||||
Ownership percentage | 20.00% | |||||
Maximum | ||||||
Equity, royalty and interest income from investees | ||||||
Ownership percentage | 50.00% | |||||
Distribution - North American distributors | ||||||
Equity, royalty and interest income from investees | ||||||
Investments and advances related to equity method investees | 41 | [1] | 114 | |||
Cummins share of net income | 107 | 129 | 147 | |||
Number of partially-owned distributors | 3 | |||||
Minimum ownership percentage in partially-owned distributors that are consolidated | 50.00% | |||||
Number of partially-owned distributors, consolidated | 2 | |||||
Distribution - North American distributors | Minimum | ||||||
Equity, royalty and interest income from investees | ||||||
Ownership percentage | 49.00% | [1] | ||||
Distribution - North American distributors | Maximum | ||||||
Equity, royalty and interest income from investees | ||||||
Ownership percentage | 50.00% | [1] | ||||
Distribution - Komatsu Cummins Chile, Ltda. | ||||||
Equity, royalty and interest income from investees | ||||||
Cummins share of net income | 29 | 25 | 26 | |||
Distribution - All other distributors | ||||||
Equity, royalty and interest income from investees | ||||||
Cummins share of net income | 4 | 1 | 4 | |||
Distribution - International Distributors | ||||||
Equity, royalty and interest income from investees | ||||||
Ownership percentage | 50.00% | |||||
Number of partially-owned distributors | 5 | |||||
Manufacturing Entities | Maximum | ||||||
Equity, royalty and interest income from investees | ||||||
Ownership percentage | 50.00% | |||||
Manufacturing - Dongfeng Cummins Engine Company, Ltd. | ||||||
Equity, royalty and interest income from investees | ||||||
Ownership percentage | 50.00% | |||||
Investments and advances related to equity method investees | 136 | 135 | ||||
Cummins share of net income | 67 | 63 | 52 | |||
Manufacturing - Dongfeng Cummins Engine Company, Ltd. | Minimum | ||||||
Equity, royalty and interest income from investees | ||||||
Capacity of mechanical engines (in liters) | 4 | |||||
Power of mechanical engines (in horsepower) | 125 | |||||
Manufacturing - Dongfeng Cummins Engine Company, Ltd. | Maximum | ||||||
Equity, royalty and interest income from investees | ||||||
Capacity of mechanical engines (in liters) | 13 | |||||
Power of mechanical engines (in horsepower) | 545 | |||||
Manufacturing - Chongqing Cummins Engine Company, Ltd. | ||||||
Equity, royalty and interest income from investees | ||||||
Ownership percentage | 50.00% | |||||
Investments and advances related to equity method investees | 92 | 67 | ||||
Cummins share of net income | 51 | 58 | 61 | |||
Manufacturing - Beijing Foton Cummins Engine Co., Ltd. | ||||||
Equity, royalty and interest income from investees | ||||||
Ownership percentage | 50.00% | [2] | ||||
Investments and advances related to equity method investees | 117 | [2] | 103 | [2] | ||
Manufacturing - Beijing Foton Cummins Engine Company (Light-Duty) [Member] | ||||||
Equity, royalty and interest income from investees | ||||||
Cummins share of net income | 28 | 17 | 5 | |||
Manufacturing - Beijing Foton Cummins Engine Company (Light-Duty) [Member] | Minimum | ||||||
Equity, royalty and interest income from investees | ||||||
Capacity of mechanical engines (in liters) | 2.8 | |||||
Manufacturing - Beijing Foton Cummins Engine Company (Light-Duty) [Member] | Maximum | ||||||
Equity, royalty and interest income from investees | ||||||
Capacity of mechanical engines (in liters) | 3.8 | |||||
Manuafacturing - Beijing Foton Cummins Engine Company (Heavy-Duty) [Member] | ||||||
Equity, royalty and interest income from investees | ||||||
Cummins share of net income | -30 | -21 | -13 | |||
Manuafacturing - Beijing Foton Cummins Engine Company (Heavy-Duty) [Member] | Minimum | ||||||
Equity, royalty and interest income from investees | ||||||
Capacity of mechanical engines (in liters) | 10.5 | |||||
Manuafacturing - Beijing Foton Cummins Engine Company (Heavy-Duty) [Member] | Maximum | ||||||
Equity, royalty and interest income from investees | ||||||
Capacity of mechanical engines (in liters) | 11.8 | |||||
Manufacturing - All other manufacturers | ||||||
Equity, royalty and interest income from investees | ||||||
Cummins share of net income | 74 | 53 | 65 | |||
Manufacturing - Komatsu manufacturing alliances | ||||||
Equity, royalty and interest income from investees | ||||||
Investments and advances related to equity method investees | 160 | 132 | ||||
Manufacturing - Komatsu manufacturing alliances | Minimum | ||||||
Equity, royalty and interest income from investees | ||||||
Ownership percentage | 20.00% | |||||
Manufacturing - Komatsu manufacturing alliances | Maximum | ||||||
Equity, royalty and interest income from investees | ||||||
Ownership percentage | 50.00% | |||||
Manufacturing - Cummins-Scania XPI Manufacturing, LLC | ||||||
Equity, royalty and interest income from investees | ||||||
Ownership percentage | 50.00% | |||||
Investments and advances related to equity method investees | 85 | 71 | ||||
Manufacturing - Tata Cummins, Ltd. | ||||||
Equity, royalty and interest income from investees | ||||||
Ownership percentage | 50.00% | |||||
Investments and advances related to equity method investees | 57 | 50 | ||||
Other Distributors and Manufacturers | ||||||
Equity, royalty and interest income from investees | ||||||
Investments and advances related to equity method investees | $293 | $259 | ||||
[1] | Current ownership percentage of North American distributor investments as of December 31, 2014 | |||||
[2] | Includes both the light-duty and the heavy-duty businesses. |
INVESTMENTS_IN_EQUITY_INVESTEE3
INVESTMENTS IN EQUITY INVESTEES (Details 2) (USD $) | 12 Months Ended | ||
In Millions, unless otherwise specified | Dec. 31, 2014 | Dec. 31, 2013 | Dec. 31, 2012 |
Equity Method Investments and Joint Ventures [Abstract] | |||
Investment account representing cumulative undistributed income in equity investees | $489 | ||
Dividends from the unconsolidated equity investees | 227 | 271 | 329 |
Net sales | 7,426 | 7,799 | 8,296 |
Gross margin | 1,539 | 1,719 | 1,870 |
Net income | 630 | 690 | 747 |
Cummins share of net income | 330 | 325 | 347 |
Royalty and interest income | 40 | 36 | 37 |
Equity, royalty and interest income from investees | 370 | 361 | 384 |
Current assets | 2,476 | 2,742 | |
Non-current assets | 1,667 | 1,794 | |
Current liabilities | -1,875 | -2,090 | |
Non-current liabilities | -420 | -541 | |
Net assets | 1,848 | 1,905 | |
Cummins share of net assets | $956 | $967 |
INCOME_TAXES_Details
INCOME TAXES (Details) (USD $) | 12 Months Ended | ||
Dec. 31, 2014 | Dec. 31, 2013 | Dec. 31, 2012 | |
Income before income taxes: | |||
U.S. income | $1,407,000,000 | $1,058,000,000 | $998,000,000 |
Foreign income | 1,027,000,000 | 1,061,000,000 | 1,273,000,000 |
INCOME BEFORE INCOME TAXES | 2,434,000,000 | 2,119,000,000 | 2,271,000,000 |
Current: | |||
U.S. federal and state | 470,000,000 | 239,000,000 | 118,000,000 |
Foreign | 197,000,000 | 192,000,000 | 299,000,000 |
Total current | 667,000,000 | 431,000,000 | 417,000,000 |
Deferred: | |||
U.S. federal and state | 39,000,000 | 67,000,000 | 108,000,000 |
Foreign | -8,000,000 | 33,000,000 | 8,000,000 |
Total deferred | 31,000,000 | 100,000,000 | 116,000,000 |
Income tax expense | 698,000,000 | 531,000,000 | 533,000,000 |
Reconciliation of the income tax provision | |||
Statutory U.S. federal income tax rate | 35.00% | 35.00% | 35.00% |
State income tax, net of federal effect | 1.10% | 0.20% | 1.00% |
Differences in rates and taxability of foreign subsidiaries and joint ventures | -5.70% | -6.00% | -12.10% |
Effective Income Tax Rate Reconciliation, Tax Credit, Research, Percent | -1.50% | -3.70% | -0.40% |
Other, net | -0.20% | -0.40% | 0.00% |
Effective Income Tax Rate Reconciliation, Percent | 28.70% | 25.10% | 23.50% |
Income Tax Reconciliation, Increase (Decrease) in Effective Income Tax Rate, Percent | 3.60% | ||
EffectiveIncomeTaxRateReconciliationTaxCreditsResearchVariance | 1.20% | ||
Effective Income Tax Rate Reconciliation,Other Reconciling Items, Percent | 2.40% | ||
Income tax disclosures | |||
Release of U.S. deferred tax liabilities | 12,000,000 | ||
Permanently reinvested retained earnings | 3,800,000,000 | 3,100,000,000 | 2,300,000,000 |
U.S. deferred tax liability | 204,000,000 | 201,000,000 | |
Income (Loss) from Equity Method Investments - Foreign | 212,000,000 | 203,000,000 | 192,000,000 |
China | |||
Income tax disclosures | |||
U.S. deferred tax liability | 155,000,000 | ||
Retained earnings and related cumulative translation adjustments in China operations | $661,000,000 | ||
Maximum period for foreign earnings to be distributed | 5 years |
INCOME_TAXES_Details_2
INCOME TAXES (Details 2) (USD $) | 12 Months Ended | ||||
In Millions, unless otherwise specified | Dec. 31, 2014 | Dec. 31, 2013 | Dec. 31, 2012 | Dec. 31, 2015 | Jan. 01, 2015 |
Components of Deferred Tax Assets and Liabilities | |||||
Cummins share of net income | $330 | $325 | $347 | ||
Effective Income Tax Rate Reconciliation, Equity in Earnings (Losses) of Unconsolidated Subsidiary, Amount for Repatriation of Equity Earnings | 14 | 13 | 9 | ||
Deferred tax assets: | |||||
U.S. federal and state carryforward benefits | 124 | 124 | |||
Foreign carryforward benefits | 66 | 63 | |||
Employee benefit plans | 367 | 328 | |||
Warranty and marketing expenses | 354 | 332 | |||
Accrued expenses | 89 | 70 | |||
Other | 45 | 51 | |||
Gross deferred tax assets | 1,045 | 968 | |||
Valuation allowance | -144 | -101 | |||
Total deferred tax assets | 901 | 867 | |||
Deferred tax liabilities: | |||||
Property, plant and equipment | -329 | -304 | |||
Unremitted income of foreign subsidiaries and joint ventures | -204 | -201 | |||
Employee benefit plans | -161 | -158 | |||
Other | -23 | -27 | |||
Total deferred tax liabilities | -717 | -690 | |||
Net deferred tax assets | 184 | 177 | |||
Net increase (decrease) in valuation allowance | 43 | 6 | |||
Deferred tax assets included in prepaid and other current assets | 274 | 232 | |||
Income taxes refundable included in prepaid and other current assets | 170 | 152 | |||
Deferred tax assets included in other assets | 40 | 61 | |||
Income taxes refundable long-term included in other assets | 24 | 59 | |||
Deferred tax liabilities included in other liabilities and deferred revenue | 130 | 116 | |||
Reconciliation of unrecognized tax benefits | |||||
Beginning balance | 169 | 145 | 86 | ||
Additions based on tax positions related to the current year | 8 | 10 | 4 | ||
Additions based on tax positions related to the prior years | 5 | 21 | 57 | ||
Reductions for tax positions related to prior years | -2 | -6 | -2 | ||
Reductions for tax positions relating to settlements with taxing authorities | -5 | ||||
Reductions for tax positions relating to lapse of statute of limitations | -1 | -1 | |||
Ending balance | 174 | 169 | 145 | ||
Unrecognized tax benefits that would impact effective tax rate | 114 | 107 | |||
Unrecognized tax benefits, interest accrued | 7 | 3 | 2 | ||
Net interest expense recognized | 4 | 1 | -3 | ||
Scenario, Forecast | |||||
Significant Change in Unrecognized Tax Benefits is Reasonably Possible [Line Items] | |||||
Significant (Increase) Decrease in Unrecognized Tax Benefits is Reasonably Possible, Estimated Range of Change, Lower Bound | 60 | ||||
Significant (Increase) Decrease in Unrecognized Tax Benefits is REasonably Possible, Estimated Range of Change, Upper Bound | 70 | ||||
Scenario, Forecast | Minimum | |||||
Significant Change in Unrecognized Tax Benefits is Reasonably Possible [Line Items] | |||||
Estimated Future Tax Expense (Benefit) | 10 | ||||
Scenario, Forecast | Maximum | |||||
Significant Change in Unrecognized Tax Benefits is Reasonably Possible [Line Items] | |||||
Estimated Future Tax Expense (Benefit) | $20 |
MARKETABLE_SECURITIES_Details
MARKETABLE SECURITIES (Details) (USD $) | 12 Months Ended | |||||
In Millions, unless otherwise specified | Dec. 31, 2014 | Dec. 31, 2013 | Dec. 31, 2012 | |||
Schedule of Available-for-sale Securities | ||||||
Cost | $92 | $136 | ||||
Gross Unrealized Gain (Loss) | 1 | 14 | ||||
Estimated fair value | 93 | 150 | ||||
Prior Period Reclassification Adjustment | 72 | |||||
Proceeds from sales and maturities of marketable securities | 336 | 525 | 585 | |||
Gross realized gains from the sale of available-for-sale securities | 14 | [1] | 14 | [1] | 3 | [1] |
Quoted prices in active markets for identical assets (Level 1) | ||||||
Schedule of Available-for-sale Securities | ||||||
Cost | 10 | [2],[3] | ||||
Gross Unrealized Gain (Loss) | 13 | [2],[3] | ||||
Estimated fair value | 23 | [2],[3] | ||||
Quoted prices in active markets for identical assets (Level 1) | Equity Securities | ||||||
Schedule of Available-for-sale Securities | ||||||
Cost | 10 | [2],[3],[4] | ||||
Gross Unrealized Gain (Loss) | 13 | [2],[3],[4] | ||||
Estimated fair value | 23 | [2],[3],[4] | ||||
Gross realized gains from the sale of available-for-sale securities | 9 | |||||
Significant other observable inputs (Level 2) | ||||||
Schedule of Available-for-sale Securities | ||||||
Cost | 92 | [3],[5] | 126 | [3],[5] | ||
Gross Unrealized Gain (Loss) | 1 | [3],[5] | 1 | [3],[5] | ||
Estimated fair value | 93 | [3],[5] | 127 | [3],[5] | ||
Significant other observable inputs (Level 2) | Debt mutual funds | ||||||
Schedule of Available-for-sale Securities | ||||||
Cost | 75 | 99 | [3],[5] | |||
Gross Unrealized Gain (Loss) | 1 | 2 | [3],[5] | |||
Estimated fair value | 76 | 101 | [3],[5] | |||
Significant other observable inputs (Level 2) | Equity Funds | ||||||
Schedule of Available-for-sale Securities | ||||||
Cost | 9 | |||||
Estimated fair value | 9 | |||||
Significant other observable inputs (Level 2) | Bank debentures | ||||||
Schedule of Available-for-sale Securities | ||||||
Cost | 6 | 2 | [3],[5] | |||
Estimated fair value | 6 | 2 | [3],[5] | |||
Significant other observable inputs (Level 2) | Certificates of deposit | ||||||
Schedule of Available-for-sale Securities | ||||||
Cost | 22 | [3],[5] | ||||
Estimated fair value | 22 | [3],[5] | ||||
Significant other observable inputs (Level 2) | Government debt securities-non-U.S. | ||||||
Schedule of Available-for-sale Securities | ||||||
Cost | 2 | 3 | [3],[5] | |||
Gross Unrealized Gain (Loss) | -1 | [3],[5] | ||||
Estimated fair value | $2 | $2 | [3],[5] | |||
Minimum | ||||||
Schedule of Available-for-sale Securities | ||||||
Bank debentures and certificates of deposit period of maturity | 6 months | |||||
Maximum | ||||||
Schedule of Available-for-sale Securities | ||||||
Bank debentures and certificates of deposit period of maturity | 5 years | |||||
[1] | Gross realized losses from the sale of available-for-sale securities were immaterial. | |||||
[2] | The fair value of Level 1 securities is estimated primarily by referencing quoted prices in active markets for identical assets. | |||||
[3] | We revised 2013 balances to classify $72 million as Level 2 assets instead of Level 1. | |||||
[4] | In the first quarter of 2013, we realized a $9 million gain on the sale of equity securities.(4) | |||||
[5] | The fair value of Level 2 securities is estimated primarily using actively quoted prices for similar instruments from brokers and observable inputs, including market transactions and third-party pricing services. We do not currently have any Level 3 securities, and there were no transfers between Level 2 or 3 during 2014 and 2013. |
MARKETABLE_SECURITIES_Details_
MARKETABLE SECURITIES (Details 2) (USD $) | Dec. 31, 2014 |
In Millions, unless otherwise specified | |
Fair value of available-for-sale investments in debt securities by contractual maturity | |
1 year or less | $77 |
1-5 years | 6 |
5-10 years | 1 |
Total | $84 |
INVENTORIES_Details
INVENTORIES (Details) (USD $) | Dec. 31, 2014 | Dec. 31, 2013 |
In Millions, unless otherwise specified | ||
Inventory Disclosure [Abstract] | ||
Finished products | $1,859 | $1,487 |
Work-in-process and raw materials | 1,129 | 1,005 |
Inventories at FIFO cost | 2,988 | 2,492 |
Excess of FIFO over LIFO | -122 | -111 |
Total inventories | $2,866 | $2,381 |
PROPERTY_PLANT_AND_EQUIPMENT_D
PROPERTY, PLANT AND EQUIPMENT (Details) (USD $) | Dec. 31, 2014 | Dec. 31, 2013 | ||
In Millions, unless otherwise specified | ||||
Property, Plant and Equipment | ||||
Property, plant and equipment, gross | $7,123 | $6,410 | ||
Accumulated depreciation | -3,437 | -3,254 | ||
Property, plant and equipment, net | 3,686 | 3,156 | ||
Land and buildings | ||||
Property, Plant and Equipment | ||||
Property, plant and equipment, gross | 1,822 | 1,427 | ||
Machinery, equipment and fixtures | ||||
Property, Plant and Equipment | ||||
Property, plant and equipment, gross | 4,722 | 4,174 | ||
Construction in process | ||||
Property, Plant and Equipment | ||||
Property, plant and equipment, gross | 579 | [1] | 809 | [1] |
Construction in process, light-duty diesel engine platform | $14 | $188 | ||
[1] | Construction in process included $14 million in 2014 and $188 million in 2013 related to our light-duty diesel engine platform. |
GOODWILL_AND_OTHER_INTANGIBLE_2
GOODWILL AND OTHER INTANGIBLE ASSETS (Details) (USD $) | 12 Months Ended | |
In Millions, unless otherwise specified | Dec. 31, 2014 | Dec. 31, 2013 |
Changes in the carrying amount of goodwill | ||
Balance at beginning of period | $461 | $445 |
Acquisitions | 31 | 13 |
Translation and other | -13 | 3 |
Balance at end of period | 479 | 461 |
Components | ||
Changes in the carrying amount of goodwill | ||
Balance at beginning of period | 411 | 408 |
Acquisitions | 0 | 0 |
Translation and other | -11 | 3 |
Balance at end of period | 400 | 411 |
Distribution | ||
Changes in the carrying amount of goodwill | ||
Balance at beginning of period | 31 | 19 |
Acquisitions | 31 | 13 |
Translation and other | 0 | -1 |
Balance at end of period | 62 | 31 |
Power Generation | ||
Changes in the carrying amount of goodwill | ||
Balance at beginning of period | 13 | 12 |
Acquisitions | 0 | 0 |
Translation and other | -2 | 1 |
Balance at end of period | 11 | 13 |
Engine | ||
Changes in the carrying amount of goodwill | ||
Balance at beginning of period | 6 | 6 |
Acquisitions | 0 | 0 |
Translation and other | 0 | 0 |
Balance at end of period | $6 | $6 |
GOODWILL_AND_OTHER_INTANGIBLE_3
GOODWILL AND OTHER INTANGIBLE ASSETS (Details 2) (USD $) | 12 Months Ended | ||
In Millions, unless otherwise specified | Dec. 31, 2014 | Dec. 31, 2013 | Dec. 31, 2012 |
Finite Lived Intangible Assets | |||
Intangible asset, Net | $343 | $357 | |
Amortization expense for software and other intangibles | 99 | 86 | 64 |
Projected amortization expense | |||
2015 | 86 | ||
2016 | 75 | ||
2017 | 56 | ||
2018 | 36 | ||
2019 | 25 | ||
Software | |||
Finite Lived Intangible Assets | |||
Intangible asset, Gross | 472 | 494 | |
Less: Accumulated amortization | -218 | -218 | |
Intangible asset, Net | 254 | 276 | |
Trademarks, patents and other | |||
Finite Lived Intangible Assets | |||
Intangible asset, Gross | 164 | 135 | |
Less: Accumulated amortization | -75 | -54 | |
Intangible asset, Net | $89 | $81 | |
Trademarks, patents and other | Low end of range | |||
Finite Lived Intangible Assets | |||
Finite lived intangible assets amortization period | 3 years | ||
Trademarks, patents and other | High end of range | |||
Finite Lived Intangible Assets | |||
Finite lived intangible assets amortization period | 12 years | ||
Software developed or obtained for internal use | Low end of range | |||
Finite Lived Intangible Assets | |||
Finite lived intangible assets amortization period | 3 years | ||
Software developed or obtained for internal use | High end of range | |||
Finite Lived Intangible Assets | |||
Finite lived intangible assets amortization period | 12 years |
DEBT_Details
DEBT (Details) (USD $) | 0 Months Ended | 12 Months Ended | 0 Months Ended | 1 Months Ended | ||||||
Sep. 19, 2013 | Dec. 31, 2014 | Dec. 31, 2013 | Dec. 31, 2012 | Nov. 09, 2012 | Feb. 28, 2014 | Nov. 30, 2005 | ||||
Debt Instruments | ||||||||||
Loans payable | $86,000,000 | $17,000,000 | ||||||||
Unamortized discount | -47,000,000 | -48,000,000 | ||||||||
Fair value adjustment due to hedge on indebtedness | 65,000,000 | 49,000,000 | ||||||||
Capital leases | 87,000,000 | 92,000,000 | ||||||||
Total long-term debt | 1,612,000,000 | 1,723,000,000 | ||||||||
Less: Current maturities of long-term debt | -23,000,000 | -51,000,000 | ||||||||
Long-term debt | 1,589,000,000 | 1,672,000,000 | ||||||||
Debt Instrument Face Amount, upon issuance | 1,000,000,000 | |||||||||
Proceeds from borrowings | 979,000,000 | 55,000,000 | 1,004,000,000 | 64,000,000 | ||||||
Principal payments required on long-term debt | ||||||||||
2015 | 23,000,000 | |||||||||
2016 | 28,000,000 | |||||||||
2017 | 12,000,000 | |||||||||
2018 | 16,000,000 | |||||||||
2019 | 11,000,000 | |||||||||
Fair value | ||||||||||
Fair value of total debt | 1,993,000,000 | 1,877,000,000 | ||||||||
Carrying value of total debt | 1,698,000,000 | 1,740,000,000 | ||||||||
Loans payable | ||||||||||
Debt Instruments | ||||||||||
Weighted average interest rate (as a percent) | 3.70% | 2.59% | 3.21% | |||||||
Total interest incurred | 71,000,000 | 48,000,000 | 39,000,000 | |||||||
Interest capitalized | 7,000,000 | 7,000,000 | 7,000,000 | |||||||
5-year revolving credit agreement | ||||||||||
Debt Instruments | ||||||||||
Term of loan | 5 years | |||||||||
Revolving credit facility amount available for swingline loans | 200,000,000 | |||||||||
Debt Instrument, Description of Variable Rate Basis | LIBOR | |||||||||
Percentage added to reference rate to compute the variable interest rate | 0.88% | |||||||||
Leverage ratio | 3.25 | |||||||||
Maximum credit capacity of the revolving credit facility | 1,750,000,000 | 1,750,000,000 | ||||||||
Less: Letters of credit against revolving credit facility | 24,000,000 | |||||||||
Amount available for borrowing under the revolving credit facility | 1,726,000,000 | |||||||||
International and other domestic short-term credit facilities | ||||||||||
Debt Instruments | ||||||||||
Amount available for borrowing under the revolving credit facility | 261,000,000 | |||||||||
Borrowings against other domestic and international short-term facilities | 86,000,000 | 17,000,000 | ||||||||
Senior Notes, 3.65%, due 2023 | ||||||||||
Debt Instruments | ||||||||||
Long-term debt gross | 500,000,000 | 500,000,000 | ||||||||
Debt Instrument Face Amount, upon issuance | 500,000,000 | |||||||||
Debt instrument interest rate (as a percent) | 3.65% | |||||||||
Debentures, 6.75%, due 2027 | ||||||||||
Debt Instruments | ||||||||||
Long-term debt gross | 58,000,000 | 58,000,000 | ||||||||
Debt instrument interest rate (as a percent) | 6.75% | |||||||||
Debentures, 7.125%, due 2028 | ||||||||||
Debt Instruments | ||||||||||
Long-term debt gross | 250,000,000 | 250,000,000 | ||||||||
Debt instrument interest rate (as a percent) | 7.13% | |||||||||
Senior Notes 4.875 Percent, Due 2043 | ||||||||||
Debt Instruments | ||||||||||
Long-term debt gross | 500,000,000 | 500,000,000 | ||||||||
Debt Instrument Face Amount, upon issuance | 500,000,000 | |||||||||
Debt instrument interest rate (as a percent) | 4.88% | |||||||||
Debentures, 5.65%, due 2098 (effective interest rate 7.48%) | ||||||||||
Debt Instruments | ||||||||||
Long-term debt gross | 165,000,000 | 165,000,000 | ||||||||
Debt instrument interest rate (as a percent) | 5.65% | |||||||||
Effective interest rate (as a percent) | 7.48% | |||||||||
Credit Facility Related to Consolidated Joint Ventures | ||||||||||
Debt Instruments | ||||||||||
Long-term debt gross | 3,000,000 | 92,000,000 | ||||||||
Other long-term debt | ||||||||||
Debt Instruments | ||||||||||
Long-term debt gross | 31,000,000 | 65,000,000 | ||||||||
Interest rate contracts | Senior Notes, 3.65%, due 2023 | ||||||||||
Debt Instruments | ||||||||||
Debt Instrument Face Amount, upon issuance | 500,000,000 | |||||||||
Fixed rate on debt issue, due in 2023 (as a percent) | 3.65% | |||||||||
Interest rate contracts | Debentures, 7.125%, due 2028 | ||||||||||
Debt Instruments | ||||||||||
Debt Instrument Face Amount, upon issuance | 250,000,000 | |||||||||
Other debt disclosure | ||||||||||
Deferred Gain (Loss) on Discontinuation of Interest Rate Fair Value Hedge | 52,000,000 | |||||||||
Amortization Period of Deferred Gain (Loss) on Discontinuation of Interest Rate Fair Value Hedge | 14 years | |||||||||
London Interbank Offered Rate (LIBOR) [Member] | Interest rate contracts | Senior Notes, 3.65%, due 2023 | ||||||||||
Debt Instruments | ||||||||||
Debt Instrument, Description of Variable Rate Basis | one-month LIBOR | |||||||||
London Interbank Offered Rate (LIBOR) [Member] | Interest rate contracts | Debentures, 7.125%, due 2028 | ||||||||||
Debt Instruments | ||||||||||
Debt Instrument, Description of Variable Rate Basis | LIBOR | |||||||||
Interest Expense [Member] | Interest rate contracts | ||||||||||
Debt Instruments | ||||||||||
Increase (Decrease) in Fair Value of Interest Rate Fair Value Hedging Instruments | 23,000,000 | [1] | -39,000,000 | [1] | 6,000,000 | [1] | ||||
Increase (Decrease) in Fair Value of Hedged Item in Interest Rate Fair Value Hedge | ($19,000,000) | [1] | $39,000,000 | [1] | ($6,000,000) | [1] | ||||
[1] | The difference between the gain/(loss) on swaps and borrowings represents hedge ineffectiveness. |
PRODUCT_WARRANTY_LIABILITY_Det
PRODUCT WARRANTY LIABILITY (Details) (USD $) | 12 Months Ended | |
In Millions, unless otherwise specified | Dec. 31, 2014 | Dec. 31, 2013 |
Product Warranty Liability: | ||
Balance, beginning of year | $1,129 | $1,088 |
Provision for warranties issued | 411 | 431 |
Deferred revenue on extended warranty contracts sold | 263 | 189 |
Payments | -404 | -427 |
Amortization of deferred revenue on extended warranty contracts | -148 | -115 |
Changes in estimates for pre-existing warranties | 41 | -35 |
Foreign currency translation | -9 | -2 |
Balance, end of period | 1,283 | 1,129 |
Product Warranty Liability | ||
Deferred revenue related to extended coverage programs, Current portion | 401 | 285 |
Deferred revenue related to extended coverage programs, Noncurrent portion | 513 | 414 |
Total deferred revenue related to extended coverage programs | 608 | 494 |
Total receivables related to estimated supplier recoveries | 16 | 10 |
Long-term portion of warranty liability | 312 | 275 |
Deferred Revenue | ||
Product Warranty Liability | ||
Deferred revenue related to extended coverage programs, Current portion | 170 | 145 |
Other liabilities and deferred revenue | ||
Product Warranty Liability | ||
Deferred revenue related to extended coverage programs, Noncurrent portion | 438 | 349 |
Long-term portion of warranty liability | 312 | 275 |
Trade and other receivables | ||
Product Warranty Liability | ||
Receivables related to estimated supplier recoveries, Current portion | 12 | 5 |
Other assets | ||
Product Warranty Liability | ||
Receivables related to estimated supplier recoveries, Long-term portion | $4 | $5 |
PENSION_AND_OTHER_POSTRETIREME2
PENSION AND OTHER POSTRETIREMENT BENEFITS (Details) (USD $) | 12 Months Ended | ||
In Millions, unless otherwise specified | Dec. 31, 2014 | Dec. 31, 2013 | Dec. 31, 2012 |
Amounts recognized in consolidated balance sheets | |||
Prepaid pensions - long-term assets | $637 | $514 | |
Pensions - long-term liabilities | -289 | -232 | |
Postretirement benefits other than pensions - long-term liabilities | -369 | -356 | |
U.S. Plans | |||
Change in benefit obligation | |||
Benefit obligation at beginning of year | 2,261 | 2,454 | |
Service cost | 66 | 70 | 58 |
Interest cost | 105 | 93 | 103 |
Actuarial losses (gains) | 301 | -193 | |
Benefits paid from fund | -143 | -150 | |
Benefits paid directly by employer | -11 | -13 | |
Benefit obligation at end of year | 2,579 | 2,261 | 2,454 |
Change in plan assets | |||
Fair value of plan assets at beginning of year | 2,445 | 2,327 | |
Actual return on plan assets | 311 | 168 | |
Employer contributions | 100 | 100 | |
Benefits paid from fund | -143 | -150 | |
Fair value of plan assets at end of year | 2,713 | 2,445 | 2,327 |
Funded status | |||
Funded status (including underfunded and nonfunded plans) at end of year | 134 | 184 | |
Amounts recognized in consolidated balance sheets | |||
Prepaid pensions - long-term assets | 435 | 427 | |
Accrued compensation, benefits and retirement costs-current liabilities | -12 | -11 | |
Pensions - long-term liabilities | -289 | -232 | |
Net amount recognized | 134 | 184 | |
Amounts recognized in accumulated other comprehensive loss consist of: | |||
Net actuarial loss | 611 | 478 | |
Prior service credit | -1 | -1 | |
Net amount recognized | 610 | 477 | |
Non-U.S. Plans | |||
Change in benefit obligation | |||
Benefit obligation at beginning of year | 1,429 | 1,269 | |
Service cost | 24 | 21 | 21 |
Interest cost | 63 | 57 | 59 |
Actuarial losses (gains) | 139 | 96 | |
Benefits paid from fund | -48 | -50 | |
Exchange rate changes | -85 | 37 | |
Other | -1 | ||
Benefit obligation at end of year | 1,522 | 1,429 | 1,269 |
Change in plan assets | |||
Fair value of plan assets at beginning of year | 1,516 | 1,324 | |
Actual return on plan assets | 254 | 142 | |
Employer contributions | 94 | 56 | |
Benefits paid from fund | -48 | -50 | |
Exchange rate changes | -92 | 44 | |
Fair value of plan assets at end of year | 1,724 | 1,516 | 1,324 |
Funded status | |||
Funded status (including underfunded and nonfunded plans) at end of year | 202 | 87 | |
Amounts recognized in consolidated balance sheets | |||
Prepaid pensions - long-term assets | 202 | 87 | |
Net amount recognized | 202 | 87 | |
Amounts recognized in accumulated other comprehensive loss consist of: | |||
Net actuarial loss | 286 | 361 | |
Net amount recognized | 286 | 361 | |
Other Postretirement Benefits | |||
Change in benefit obligation | |||
Benefit obligation at beginning of year | 398 | 478 | |
Interest cost | 17 | 17 | 21 |
Actuarial losses (gains) | 38 | -49 | |
Benefits paid directly by employer | -55 | -58 | |
Benefit obligation at end of year | 408 | 398 | 478 |
Plan participants' contributions | 10 | 10 | |
Funded status | |||
Funded status (including underfunded and nonfunded plans) at end of year | -408 | -398 | |
Amounts recognized in consolidated balance sheets | |||
Accrued compensation, benefits and retirement costs-current liabilities | -39 | -42 | |
Postretirement benefits other than pensions - long-term liabilities | -369 | -356 | |
Net amount recognized | -408 | -398 | |
Amounts recognized in accumulated other comprehensive loss consist of: | |||
Net actuarial loss | 65 | 27 | |
Prior service credit | -5 | -5 | |
Net amount recognized | $60 | $22 |
PENSION_AND_OTHER_POSTRETIREME3
PENSION AND OTHER POSTRETIREMENT BENEFITS (Details 2) (USD $) | 12 Months Ended | ||
Dec. 31, 2014 | Dec. 31, 2013 | Dec. 31, 2012 | |
Less Significant Plan Defined Benefit [Member] | |||
Less Significant Defined Benefit and Postretirement Plans | |||
Number of countries with less significant defined benefit plans | 14 | ||
Maximum percentage of defined benefit plan assets included in Plans reflected in Other liabilities and deferred revenue (as a percent) | 3.00% | ||
Maximum percentage of defined benefit plan obligations included in Plans reflected in Other liabilities and deferred revenue (as a percent) | 5.00% | ||
Less Significant Other Postretirement Benefit Plans Defined Benefit | |||
Less Significant Defined Benefit and Postretirement Plans | |||
Number of countries with less significant Postretirement benefit plans | 4 | ||
Maximum percentage of defined benefit plan obligations included in Plans reflected in Other liabilities and deferred revenue (as a percent) | 7.00% | ||
Pension | |||
Changes in benefit obligations and plan assets recognized in other comprehensive income | |||
Amortization of prior service (cost) credit | $1,000,000 | $1,000,000 | ($1,000,000) |
Recognized net actuarial gain (loss) | -57,000,000 | -86,000,000 | -61,000,000 |
Incurred actuarial (gain) loss | 133,000,000 | -168,000,000 | 124,000,000 |
Incurred prior service cost (credit) | 1,000,000 | ||
Foreign exchange translation adjustments | -18,000,000 | 10,000,000 | 16,000,000 |
Total recognized in other comprehensive income | 59,000,000 | -243,000,000 | 79,000,000 |
Total amount recognized in net periodic benefit cost and other comprehensive income | 116,000,000 | -156,000,000 | 143,000,000 |
Net actuarial loss anticipated to be recognized in the next fiscal year | 71,000,000 | ||
U.S. Plans | |||
Pension and other postretirement benefits | |||
Total accumulated benefit obligation | 2,539,000,000 | 2,231,000,000 | |
Plans with accumulated benefit obligation in excess of plan assets: | |||
Accumulated benefit obligation | 261,000,000 | 212,000,000 | |
Plans with projected benefit obligation in excess of plan assets: | |||
Projected benefit obligation | 301,000,000 | 243,000,000 | |
Components of Net Periodic Benefit Cost | |||
Service cost | 66,000,000 | 70,000,000 | 58,000,000 |
Interest cost | 105,000,000 | 93,000,000 | 103,000,000 |
Expected return on plan assets | -173,000,000 | -167,000,000 | -157,000,000 |
Amortization of prior service (credit) cost | -1,000,000 | -1,000,000 | -1,000,000 |
Recognized net actuarial loss | 31,000,000 | 62,000,000 | 47,000,000 |
Net periodic benefit cost | 28,000,000 | 57,000,000 | 50,000,000 |
Non-U.S. Plans | |||
Pension and other postretirement benefits | |||
Total accumulated benefit obligation | 1,402,000,000 | 1,309,000,000 | |
Components of Net Periodic Benefit Cost | |||
Service cost | 24,000,000 | 21,000,000 | 21,000,000 |
Interest cost | 63,000,000 | 57,000,000 | 59,000,000 |
Expected return on plan assets | -84,000,000 | -72,000,000 | -81,000,000 |
Amortization of prior service (credit) cost | 1,000,000 | ||
Recognized net actuarial loss | 26,000,000 | 24,000,000 | 14,000,000 |
Net periodic benefit cost | 29,000,000 | 30,000,000 | 14,000,000 |
Other Postretirement Benefits | |||
Components of Net Periodic Benefit Cost | |||
Interest cost | 17,000,000 | 17,000,000 | 21,000,000 |
Amortization of prior service (credit) cost | -5,000,000 | ||
Recognized net actuarial loss | 6,000,000 | 3,000,000 | |
Defined Benefit Plan, Other Costs | 1,000,000 | ||
Net periodic benefit cost | 17,000,000 | 23,000,000 | 20,000,000 |
Changes in benefit obligations and plan assets recognized in other comprehensive income | |||
Amortization of prior service (cost) credit | 5,000,000 | ||
Recognized net actuarial gain (loss) | -6,000,000 | -3,000,000 | |
Incurred actuarial (gain) loss | 38,000,000 | -49,000,000 | 20,000,000 |
Incurred prior service cost (credit) | -4,000,000 | ||
Other | -1,000,000 | ||
Total recognized in other comprehensive income | 38,000,000 | -55,000,000 | 17,000,000 |
Total amount recognized in net periodic benefit cost and other comprehensive income | 55,000,000 | -32,000,000 | 37,000,000 |
Net actuarial loss anticipated to be recognized in the next fiscal year | $5,000,000 |
PENSION_AND_OTHER_POSTRETIREME4
PENSION AND OTHER POSTRETIREMENT BENEFITS (Details 3) (USD $) | 12 Months Ended | ||
In Millions, unless otherwise specified | Dec. 31, 2014 | Dec. 31, 2013 | Dec. 31, 2012 |
U.S. Plans | |||
Assumptions Used in Determining the Pension Benefit Obligation | |||
Discount rate (as a percent) | 4.07% | 4.83% | |
Compensation increase rate (as a percent) | 4.88% | 4.91% | |
Assumptions Used in Determining the Net Periodic Pension Cost | |||
Discount rate (as a percent) | 4.83% | 3.97% | 4.82% |
Expected return on plan assets (as a percent) | 7.50% | 8.00% | 8.00% |
Compensation increase rate (as a percent) | 4.91% | 4.91% | 4.00% |
Target Allocations | |||
Percentage assumption for the expected return on assets for the following year | 7.50% | ||
Asset allocation (as a percent) | 100.00% | ||
U.S. Plans | U.S. Equity | |||
Target Allocations | |||
Asset allocation (as a percent) | 9.00% | ||
Asset allocation, minimum range (as a percent) | -5.00% | ||
Asset allocation, maximum range (as a percent) | 5.00% | ||
U.S. Plans | Non-U.S. Equity | |||
Target Allocations | |||
Asset allocation (as a percent) | 3.00% | ||
Asset allocation, minimum range (as a percent) | -3.00% | ||
Asset allocation, maximum range (as a percent) | 3.00% | ||
U.S. Plans | Global Equities | |||
Target Allocations | |||
Asset allocation (as a percent) | 10.00% | ||
Asset allocation, minimum range (as a percent) | -3.00% | ||
Asset allocation, maximum range (as a percent) | 3.00% | ||
U.S. Plans | Total equities | |||
Target Allocations | |||
Asset allocation (as a percent) | 22.00% | ||
U.S. Plans | Real estate | |||
Target Allocations | |||
Asset allocation (as a percent) | 7.00% | ||
Asset allocation, minimum range (as a percent) | -7.00% | ||
Asset allocation, maximum range (as a percent) | 3.00% | ||
U.S. Plans | Private equity | |||
Target Allocations | |||
Asset allocation (as a percent) | 7.00% | ||
Asset allocation, minimum range (as a percent) | -7.00% | ||
Asset allocation, maximum range (as a percent) | 3.00% | ||
U.S. Plans | Fixed income | |||
Target Allocations | |||
Asset allocation (as a percent) | 64.00% | ||
Asset allocation, minimum range (as a percent) | -5.00% | ||
Asset allocation, maximum range (as a percent) | 5.00% | ||
Asset allocation covers exposure to changes in portion of discount rate (as a percent) | 95.00% | ||
Non-U.S. Plans | |||
Assumptions Used in Determining the Pension Benefit Obligation | |||
Discount rate (as a percent) | 3.80% | 4.60% | |
Compensation increase rate (as a percent) | 4.25% | 4.50% | |
Assumptions Used in Determining the Net Periodic Pension Cost | |||
Discount rate (as a percent) | 4.60% | 4.70% | 5.20% |
Expected return on plan assets (as a percent) | 5.80% | 5.80% | 6.50% |
Compensation increase rate (as a percent) | 4.50% | 4.00% | 4.25% |
Target Allocations | |||
Percentage assumption for the expected return on assets for the following year | 5.80% | ||
Asset allocation (as a percent) | 100.00% | ||
Non-U.S. Plans | Global Equities | |||
Target Allocations | |||
Asset allocation (as a percent) | 25.50% | ||
Non-U.S. Plans | Real estate | |||
Target Allocations | |||
Asset allocation (as a percent) | 7.50% | ||
Non-U.S. Plans | Re-insurance | |||
Target Allocations | |||
Asset allocation (as a percent) | 5.00% | ||
Non-U.S. Plans | Private equity | |||
Target Allocations | |||
Asset allocation (as a percent) | 7.50% | ||
Non-U.S. Plans | Corporate Credit Instruments | |||
Target Allocations | |||
Asset allocation (as a percent) | 4.50% | ||
Non-U.S. Plans | Fixed income | |||
Target Allocations | |||
Asset allocation (as a percent) | 50.00% | ||
Other Postretirement Benefits | |||
Assumptions Used in Determining the Pension Benefit Obligation | |||
Discount rate (as a percent) | 3.90% | 4.55% | |
Assumptions Used in Determining the Net Periodic Pension Cost | |||
Discount rate (as a percent) | 4.55% | 3.70% | 4.70% |
Target Allocations | |||
Annual rate of increase in the per capita cost of covered health care benefits | 7.00% | ||
Ultimate per capita trend rate for health care costs from 2019 and thereafter (as a percent) | 5.00% | ||
Increase in APBO due to increase in the health care cost trends of one percent | 22 | ||
Decrease in net periodic other postretirement benefit expense due to decrease in the health care cost trends of one percent | 1 | ||
Decrease in APBO due to decrease in the health care cost trends of one percent | 18 | ||
Increase in net periodic other postretirement benefit expense due to increase in health care cost trend rates of one percent | 1 |
PENSION_AND_OTHER_POSTRETIREME5
PENSION AND OTHER POSTRETIREMENT BENEFITS (Details 4) (USD $) | 1 Months Ended | |||||
In Millions, unless otherwise specified | Jul. 31, 2012 | Dec. 31, 2013 | Dec. 31, 2014 | Dec. 31, 2012 | ||
Pension and other postretirement benefits | ||||||
US Pension Fair Value Reclassified from Level 1 to Level 2 | $683 | |||||
U.S. Plans | ||||||
Pension and other postretirement benefits | ||||||
Fair Value of Plan Assets | 2,445 | 2,713 | 2,327 | |||
Pending trade purchases/sales | -28 | 5 | ||||
Accruals | 8 | [1] | 9 | [1] | ||
U.S. Plans | Quoted prices in active markets for identical assets (Level 1) | ||||||
Pension and other postretirement benefits | ||||||
Fair Value of Plan Assets | 272 | [2] | 268 | |||
U.S. Plans | Quoted prices in active markets for identical assets (Level 1) | U.S. Equity | ||||||
Pension and other postretirement benefits | ||||||
Fair Value of Plan Assets | 96 | [2] | 103 | |||
U.S. Plans | Quoted prices in active markets for identical assets (Level 1) | Non-U.S. Equity | ||||||
Pension and other postretirement benefits | ||||||
Fair Value of Plan Assets | 143 | [2] | 137 | |||
U.S. Plans | Quoted prices in active markets for identical assets (Level 1) | Net cash equivalents | ||||||
Pension and other postretirement benefits | ||||||
Fair Value of Plan Assets | 33 | [2],[3] | 28 | [3] | ||
U.S. Plans | Significant other observable inputs (Level 2) | ||||||
Pension and other postretirement benefits | ||||||
Fair Value of Plan Assets | 1,897 | [2] | 2,125 | |||
U.S. Plans | Significant other observable inputs (Level 2) | U.S. Equity | ||||||
Pension and other postretirement benefits | ||||||
Fair Value of Plan Assets | 387 | [2] | 297 | |||
U.S. Plans | Significant other observable inputs (Level 2) | Non-U.S. Equity | ||||||
Pension and other postretirement benefits | ||||||
Fair Value of Plan Assets | 126 | [2] | 82 | |||
U.S. Plans | Significant other observable inputs (Level 2) | Government debt | ||||||
Pension and other postretirement benefits | ||||||
Fair Value of Plan Assets | 780 | [2] | 886 | |||
U.S. Plans | Significant other observable inputs (Level 2) | U.S. Corporate debt | ||||||
Pension and other postretirement benefits | ||||||
Fair Value of Plan Assets | 523 | [2] | 724 | |||
U.S. Plans | Significant other observable inputs (Level 2) | Non-U.S. Corporate debt | ||||||
Pension and other postretirement benefits | ||||||
Fair Value of Plan Assets | 64 | [2] | 87 | |||
U.S. Plans | Significant other observable inputs (Level 2) | Asset/mortgaged backed securities | ||||||
Pension and other postretirement benefits | ||||||
Fair Value of Plan Assets | 12 | [2] | 45 | |||
U.S. Plans | Significant other observable inputs (Level 2) | Net cash equivalents | ||||||
Pension and other postretirement benefits | ||||||
Fair Value of Plan Assets | 3 | [2],[3] | 2 | [3] | ||
U.S. Plans | Significant other observable inputs (Level 2) | Derivative instruments | ||||||
Pension and other postretirement benefits | ||||||
Fair Value of Plan Assets | 2 | [2],[4] | 2 | [4] | ||
U.S. Plans | Significant unobservable inputs (Level 3) | ||||||
Pension and other postretirement benefits | ||||||
Fair Value of Plan Assets | 296 | 306 | 286 | |||
U.S. Plans | Significant unobservable inputs (Level 3) | Private equity and real estate | ||||||
Pension and other postretirement benefits | ||||||
Fair Value of Plan Assets | 296 | [5] | 306 | [5] | ||
U.S. Plans | Total | ||||||
Pension and other postretirement benefits | ||||||
Fair Value of Plan Assets | 2,465 | 2,699 | ||||
U.S. Plans | Total | U.S. Equity | ||||||
Pension and other postretirement benefits | ||||||
Fair Value of Plan Assets | 483 | 400 | ||||
U.S. Plans | Total | Non-U.S. Equity | ||||||
Pension and other postretirement benefits | ||||||
Fair Value of Plan Assets | 269 | 219 | ||||
U.S. Plans | Total | Government debt | ||||||
Pension and other postretirement benefits | ||||||
Fair Value of Plan Assets | 780 | 886 | ||||
U.S. Plans | Total | U.S. Corporate debt | ||||||
Pension and other postretirement benefits | ||||||
Fair Value of Plan Assets | 523 | 724 | ||||
U.S. Plans | Total | Non-U.S. Corporate debt | ||||||
Pension and other postretirement benefits | ||||||
Fair Value of Plan Assets | 64 | 87 | ||||
U.S. Plans | Total | Asset/mortgaged backed securities | ||||||
Pension and other postretirement benefits | ||||||
Fair Value of Plan Assets | 12 | 45 | ||||
U.S. Plans | Total | Net cash equivalents | ||||||
Pension and other postretirement benefits | ||||||
Fair Value of Plan Assets | 36 | [3] | 30 | [3] | ||
U.S. Plans | Total | Derivative instruments | ||||||
Pension and other postretirement benefits | ||||||
Fair Value of Plan Assets | 2 | [4] | 2 | [4] | ||
U.S. Plans | Total | Private equity and real estate | ||||||
Pension and other postretirement benefits | ||||||
Fair Value of Plan Assets | 296 | [5] | 306 | [5] | ||
Non-U.S. Plans | ||||||
Pension and other postretirement benefits | ||||||
Fair Value of Plan Assets | 1,516 | 1,724 | 1,324 | |||
Non-U.S. Plans | Insurance contract | ||||||
Pension and other postretirement benefits | ||||||
Payment deferment period | 10 years | |||||
Non-U.S. Plans | Quoted prices in active markets for identical assets (Level 1) | ||||||
Pension and other postretirement benefits | ||||||
Fair Value of Plan Assets | 13 | 24 | ||||
Non-U.S. Plans | Quoted prices in active markets for identical assets (Level 1) | Net cash equivalents | ||||||
Pension and other postretirement benefits | ||||||
Fair Value of Plan Assets | 13 | [3] | 24 | [3] | ||
Non-U.S. Plans | Significant other observable inputs (Level 2) | ||||||
Pension and other postretirement benefits | ||||||
Fair Value of Plan Assets | 946 | 1,096 | ||||
Non-U.S. Plans | Significant other observable inputs (Level 2) | U.S. Equity | ||||||
Pension and other postretirement benefits | ||||||
Fair Value of Plan Assets | 270 | 153 | ||||
Non-U.S. Plans | Significant other observable inputs (Level 2) | Non-U.S. Equity | ||||||
Pension and other postretirement benefits | ||||||
Fair Value of Plan Assets | 328 | 399 | ||||
Non-U.S. Plans | Significant other observable inputs (Level 2) | Government debt | ||||||
Pension and other postretirement benefits | ||||||
Fair Value of Plan Assets | 120 | |||||
Non-U.S. Plans | Significant other observable inputs (Level 2) | U.S. Corporate debt | ||||||
Pension and other postretirement benefits | ||||||
Fair Value of Plan Assets | 321 | |||||
Non-U.S. Plans | Significant other observable inputs (Level 2) | Non-U.S. Corporate debt | ||||||
Pension and other postretirement benefits | ||||||
Fair Value of Plan Assets | 138 | 158 | ||||
Non-U.S. Plans | Significant other observable inputs (Level 2) | Derivative instruments | ||||||
Pension and other postretirement benefits | ||||||
Fair Value of Plan Assets | 24 | [6] | ||||
Non-U.S. Plans | Significant other observable inputs (Level 2) | Re-insurance | ||||||
Pension and other postretirement benefits | ||||||
Fair Value of Plan Assets | 66 | 65 | ||||
Non-U.S. Plans | Significant unobservable inputs (Level 3) | ||||||
Pension and other postretirement benefits | ||||||
Fair Value of Plan Assets | 557 | 604 | 486 | |||
Non-U.S. Plans | Significant unobservable inputs (Level 3) | Insurance contract | ||||||
Pension and other postretirement benefits | ||||||
Fair Value of Plan Assets | 440 | 462 | ||||
Non-U.S. Plans | Significant unobservable inputs (Level 3) | Private equity, real estate and insurance | ||||||
Pension and other postretirement benefits | ||||||
Fair Value of Plan Assets | 557 | [5] | 604 | [5] | ||
Non-U.S. Plans | Total | ||||||
Pension and other postretirement benefits | ||||||
Fair Value of Plan Assets | 1,516 | 1,724 | ||||
Non-U.S. Plans | Total | U.S. Equity | ||||||
Pension and other postretirement benefits | ||||||
Fair Value of Plan Assets | 270 | 153 | ||||
Non-U.S. Plans | Total | Non-U.S. Equity | ||||||
Pension and other postretirement benefits | ||||||
Fair Value of Plan Assets | 328 | 399 | ||||
Non-U.S. Plans | Total | Government debt | ||||||
Pension and other postretirement benefits | ||||||
Fair Value of Plan Assets | 120 | |||||
Non-U.S. Plans | Total | U.S. Corporate debt | ||||||
Pension and other postretirement benefits | ||||||
Fair Value of Plan Assets | 321 | |||||
Non-U.S. Plans | Total | Non-U.S. Corporate debt | ||||||
Pension and other postretirement benefits | ||||||
Fair Value of Plan Assets | 138 | 158 | ||||
Non-U.S. Plans | Total | Net cash equivalents | ||||||
Pension and other postretirement benefits | ||||||
Fair Value of Plan Assets | 13 | [3] | 24 | [3] | ||
Non-U.S. Plans | Total | Derivative instruments | ||||||
Pension and other postretirement benefits | ||||||
Fair Value of Plan Assets | 24 | [6] | ||||
Non-U.S. Plans | Total | Re-insurance | ||||||
Pension and other postretirement benefits | ||||||
Fair Value of Plan Assets | 66 | 65 | ||||
Non-U.S. Plans | Total | Private equity, real estate and insurance | ||||||
Pension and other postretirement benefits | ||||||
Fair Value of Plan Assets | $557 | [5] | $604 | [5] | ||
[1] | Interest or dividends that had not been settled as of the year ended December 31. | |||||
[2] | We revised 2013 balances to classify $683 million as Level 2 assets instead of Level 1. | |||||
[3] | Cash equivalents include commercial paper, short-term government/agency, mortgage and credit instruments. | |||||
[4] | Derivative instruments include interest rate swaps and credit default swaps. | |||||
[5] | The instruments in private equity and real estate funds, for which quoted market prices are not available, are valued at their estimated fair value as determined by applicable investment managers or by audited financial statement of the funds. | |||||
[6] | Derivative instruments consist of interest rate swaps. |
PENSION_AND_OTHER_POSTRETIREME6
PENSION AND OTHER POSTRETIREMENT BENEFITS (Details 5) (USD $) | 12 Months Ended | ||
In Millions, unless otherwise specified | Dec. 31, 2014 | Dec. 31, 2013 | Dec. 31, 2012 |
U.S. Plans | |||
Summary of changes in the fair value of level 3 assets | |||
Fair value of plan assets at beginning of year | $2,327 | ||
Fair value of plan assets at end of year | 2,713 | 2,445 | 2,327 |
U.S. Plans | Significant unobservable inputs (Level 3) | |||
Summary of changes in the fair value of level 3 assets | |||
Fair value of plan assets at beginning of year | 296 | 286 | |
Unrealized (losses) gains on assets still held at the reporting date | 33 | 30 | |
Purchases, sales and settlements, net | -23 | -20 | |
Fair value of plan assets at end of year | 306 | 296 | |
U.S. Plans | Significant unobservable inputs (Level 3) | Private equity | |||
Summary of changes in the fair value of level 3 assets | |||
Fair value of plan assets at beginning of year | 153 | 156 | |
Unrealized (losses) gains on assets still held at the reporting date | 22 | 20 | |
Purchases, sales and settlements, net | -27 | -23 | |
Fair value of plan assets at end of year | 148 | 153 | |
U.S. Plans | Significant unobservable inputs (Level 3) | Real estate | |||
Summary of changes in the fair value of level 3 assets | |||
Fair value of plan assets at beginning of year | 143 | 130 | |
Unrealized (losses) gains on assets still held at the reporting date | 11 | 10 | |
Purchases, sales and settlements, net | 4 | 3 | |
Fair value of plan assets at end of year | 158 | 143 | |
Non-U.S. Plans | |||
Summary of changes in the fair value of level 3 assets | |||
Fair value of plan assets at beginning of year | 1,324 | ||
Fair value of plan assets at end of year | 1,724 | 1,516 | 1,324 |
Non-U.S. Plans | Significant unobservable inputs (Level 3) | |||
Summary of changes in the fair value of level 3 assets | |||
Fair value of plan assets at beginning of year | 557 | 486 | |
Unrealized (losses) gains on assets still held at the reporting date | 50 | 36 | |
Purchases, sales and settlements, net | -3 | 35 | |
Fair value of plan assets at end of year | 604 | 557 | |
Non-U.S. Plans | Significant unobservable inputs (Level 3) | Private equity | |||
Summary of changes in the fair value of level 3 assets | |||
Fair value of plan assets at beginning of year | 48 | 28 | |
Unrealized (losses) gains on assets still held at the reporting date | 11 | 5 | |
Purchases, sales and settlements, net | 22 | 15 | |
Fair value of plan assets at end of year | 81 | 48 | |
Non-U.S. Plans | Significant unobservable inputs (Level 3) | Real estate | |||
Summary of changes in the fair value of level 3 assets | |||
Fair value of plan assets at beginning of year | 69 | 34 | |
Unrealized (losses) gains on assets still held at the reporting date | -3 | 2 | |
Purchases, sales and settlements, net | -5 | 33 | |
Fair value of plan assets at end of year | 61 | 69 | |
Non-U.S. Plans | Significant unobservable inputs (Level 3) | Insurance | |||
Summary of changes in the fair value of level 3 assets | |||
Fair value of plan assets at beginning of year | 440 | 424 | |
Unrealized (losses) gains on assets still held at the reporting date | 42 | 29 | |
Purchases, sales and settlements, net | -20 | -13 | |
Fair value of plan assets at end of year | $462 | $440 |
PENSION_AND_OTHER_POSTRETIREME7
PENSION AND OTHER POSTRETIREMENT BENEFITS (Details 6) (USD $) | 12 Months Ended | ||
In Millions, unless otherwise specified | Dec. 31, 2014 | Dec. 31, 2013 | Dec. 31, 2012 |
Other Defined Pension Contribution Plans | |||
Defined Contribution Plan Disclosure [Line Items] | |||
Defined contribution pension plans | $73 | $66 | $74 |
Pension | |||
Expected benefit payments | |||
2015 | 231 | ||
2016 | 232 | ||
2017 | 238 | ||
2018 | 243 | ||
2019 | 247 | ||
2020 - 2024 | 1,283 | ||
Estimated future contributions | 175 | ||
Other Postretirement Benefits | |||
Expected benefit payments | |||
2015 | 40 | ||
2016 | 38 | ||
2017 | 36 | ||
2018 | 33 | ||
2019 | 31 | ||
2020 - 2024 | $134 |
OTHER_LIABILITIES_AND_DEFERRED2
OTHER LIABILITIES AND DEFERRED REVENUE (Details) (USD $) | Dec. 31, 2014 | Dec. 31, 2013 |
In Millions, unless otherwise specified | ||
Other liabilities and deferred revenue: | ||
Deferred revenue | $513 | $414 |
Accrued warranty | 312 | 275 |
Accrued compensation | 215 | 184 |
Other long-term liabilities | 375 | 357 |
Other liabilities and deferred revenue | $1,415 | $1,230 |
COMMITMENTS_AND_CONTINGENCIES_1
COMMITMENTS AND CONTINGENCIES (Details) (USD $) | 12 Months Ended | |
In Millions, unless otherwise specified | Dec. 31, 2014 | Dec. 31, 2013 |
U.S. Distributor Commitments | ||
Commitments and contingencies: | ||
Licensing agreement term | 3 years | |
Number of days in which distributors can terminate agreements without cause | 60 days | |
Number of days in which distributors can terminate agreements with cause | 30 days | |
Other Guarantees and Commitments | ||
Commitments and contingencies: | ||
Guarantee obligations, maximum potential loss | 5 | |
Long-term purchase commitment, penalty exposure | 79 | |
Commodity Contract Liability Noncurrent | 96 | |
Engine parts supplier | ||
Commitments and contingencies: | ||
Long-term purchase commitment, penalty exposure | 41 | |
Performance bonds and other performance-related guarantees | ||
Commitments and contingencies: | ||
Guarantee obligations, current carrying value | 76 | $66 |
COMMITMENTS_AND_CONTINGENCIES_2
COMMITMENTS AND CONTINGENCIES (Details 2) (USD $) | 12 Months Ended | ||
In Millions, unless otherwise specified | Dec. 31, 2014 | Dec. 31, 2013 | Dec. 31, 2012 |
Commitments and Contingencies Disclosure [Abstract] | |||
Rent expense | $195 | $186 | $176 |
Leased property under capital leases by major classes | |||
Less: Accumulated amortization | -105 | -96 | |
Total | 113 | 120 | |
Net present value of the minimum payments due under capital leases | |||
2015 | 23 | ||
2016 | 22 | ||
2017 | 13 | ||
2018 | 11 | ||
2019 | 8 | ||
After 2019 | 41 | ||
Total minimum lease payments | 118 | ||
Interest | -31 | ||
Present value of net minimum lease payments | 87 | ||
Net present value of the minimum payments due under operating Leases | |||
2015 | 152 | ||
2016 | 119 | ||
2017 | 104 | ||
2018 | 81 | ||
2019 | 71 | ||
After 2019 | 105 | ||
Total minimum lease payments | 632 | ||
Buildings | |||
Leased property under capital leases by major classes | |||
Capital lease asset | 105 | 103 | |
Equipment | |||
Leased property under capital leases by major classes | |||
Capital lease asset | 98 | 97 | |
Other | |||
Leased property under capital leases by major classes | |||
Capital lease asset | 15 | 16 | |
Maximum | |||
Leased property under capital leases by major classes | |||
Lessee Leasing Arrangements, Operating Leases, Term of Contract | 10 years | ||
Operating Leases, Future Minimum Payments Receivable, Current | 2 | ||
Operating Leases, Future Minimum Payments Receivable, in Two Years | 2 | ||
Operating Leases, Future Minimum Payments Receivable, in Three Years | 2 | ||
Operating Leases, Future Minimum Payments Receivable, in Four Years | $2 |
SHAREHOLDERS_EQUITY_Details
SHAREHOLDERS' EQUITY (Details) (USD $) | 12 Months Ended | 1 Months Ended | 3 Months Ended | 1 Months Ended | ||||||||||||||||
Share data in Millions, except Per Share data, unless otherwise specified | Dec. 31, 2014 | Dec. 31, 2013 | Dec. 31, 2012 | Jul. 31, 2013 | Jul. 31, 2012 | Jul. 31, 2011 | Dec. 31, 2014 | Sep. 28, 2014 | Jun. 29, 2014 | Mar. 30, 2014 | Dec. 31, 2013 | Sep. 29, 2013 | Jun. 30, 2013 | Mar. 31, 2013 | Dec. 31, 2012 | Sep. 30, 2012 | Jul. 01, 2012 | Apr. 01, 2012 | Jul. 31, 2014 | Dec. 31, 2012 |
Changes in shares of stock | ||||||||||||||||||||
Shares acquired (in shares) | 4.8 | |||||||||||||||||||
Dividends Paid | ||||||||||||||||||||
Dividend payments on common stock (in dollars) | $512,000,000 | $420,000,000 | $340,000,000 | |||||||||||||||||
Employee Benefits Trust | ||||||||||||||||||||
Contributions charged to income (in dollars) | 35,000,000 | 34,000,000 | 35,000,000 | |||||||||||||||||
Preferred Stock | ||||||||||||||||||||
Class of Stock | ||||||||||||||||||||
Preferred Stock, Shares Authorized | 1 | 1 | ||||||||||||||||||
Preference Stock | ||||||||||||||||||||
Class of Stock | ||||||||||||||||||||
Preferred Stock, Shares Authorized | 1 | 1 | ||||||||||||||||||
Common Stock | ||||||||||||||||||||
Changes in shares of stock | ||||||||||||||||||||
Balance at beginning of period (in shares) | 222.3 | 222.4 | 222.2 | 222.3 | 222.4 | 222.2 | ||||||||||||||
Stock Issued During Period, Shares, New Issues | 0.1 | 0.1 | 0.4 | |||||||||||||||||
Other shareholder transactions (in shares) | -0.1 | -0.2 | -0.2 | |||||||||||||||||
Balance at the end of the period (in shares) | 222.3 | 222.3 | 222.4 | 222.3 | 222.3 | 222.4 | 222.4 | |||||||||||||
Dividends Paid | ||||||||||||||||||||
Cash dividend (in dollars per share) | $2.81 | $2.25 | $1.80 | $0.78 | $0.78 | $0.63 | $0.63 | $0.63 | $0.63 | $0.50 | $0.50 | $0.50 | $0.50 | $0.40 | $0.40 | |||||
Employee Benefits Trust | ||||||||||||||||||||
Percentage increase in cash dividend per common share | 25.00% | 25.00% | 25.00% | |||||||||||||||||
Treasury Stock | ||||||||||||||||||||
Changes in shares of stock | ||||||||||||||||||||
Balance at beginning of period (in shares) | 35.6 | 32.6 | 30.2 | 35.6 | 32.6 | 30.2 | ||||||||||||||
Shares acquired (in shares) | 4.8 | 3.3 | 2.6 | |||||||||||||||||
Stock Issued During Period, Shares, New Issues | -0.3 | -0.3 | -0.2 | |||||||||||||||||
Balance at the end of the period (in shares) | 40.1 | 35.6 | 32.6 | 40.1 | 35.6 | 32.6 | 32.6 | |||||||||||||
Treasury Stock | ||||||||||||||||||||
Treasury Stock Repurchase Authorization Value | 1,000,000,000 | 1,000,000,000 | ||||||||||||||||||
Common Stock Held in Trust | ||||||||||||||||||||
Changes in shares of stock | ||||||||||||||||||||
Balance at beginning of period (in shares) | 1.3 | 1.5 | 1.8 | 1.3 | 1.5 | 1.8 | ||||||||||||||
Stock Issued During Period, Shares, New Issues | -0.2 | -0.2 | -0.3 | |||||||||||||||||
Balance at the end of the period (in shares) | 1.1 | 1.3 | 1.5 | 1.1 | 1.3 | 1.5 | 1.5 | |||||||||||||
Employee Benefits Trust | ||||||||||||||||||||
Contributions charged to income (in dollars) | $24,000,000 | $24,000,000 | $27,000,000 |
SHAREHOLDERS_EQUITY_Details_2
SHAREHOLDERS' EQUITY (Details 2) (USD $) | 12 Months Ended | 3 Months Ended | ||||||||
In Millions, except Per Share data, unless otherwise specified | Dec. 31, 2014 | Dec. 31, 2014 | Sep. 28, 2014 | Jun. 29, 2014 | Mar. 30, 2014 | |||||
Share repurchase program | ||||||||||
Shares acquired | 4.8 | |||||||||
Average Cost Per Share (in dollars per share) | $139.12 | |||||||||
Total Cost of Repurchases | $670 | |||||||||
Remaining Authorized Capacity | 174 | [1] | 174 | [1] | ||||||
1 billion repurchase program 2012 | ||||||||||
Share repurchase program | ||||||||||
Shares acquired | 0.5 | 1.2 | 0.1 | 3 | ||||||
Average Cost Per Share (in dollars per share) | $132.66 | $139.76 | $148.11 | $139.70 | ||||||
Total Cost of Repurchases | 65 | 175 | 11 | 419 | ||||||
Remaining Authorized Capacity | $174 | [1] | $174 | [1] | $240 | [1] | $415 | [1] | $425 | [1] |
[1] | The remaining authorized capacity is calculated based on the cost to purchase the shares, but excludes commission expenses according to the Board of Directors authorization. |
OTHER_COMPREHENSIVE_INCOME_LOS2
OTHER COMPREHENSIVE INCOME (LOSS) (Details) (USD $) | 12 Months Ended | |||||
In Millions, unless otherwise specified | Dec. 31, 2014 | Dec. 31, 2013 | Dec. 31, 2012 | |||
Changes in accumulated other comprehensive income (loss) by component: | ||||||
Balance at the beginning of period | ($784) | |||||
Before tax amount | -440 | 157 | -99 | |||
Other Comprehensive Income (Loss), Tax, Portion Attributable to Parent | 104 | -80 | 34 | |||
After tax amount | -336 | 77 | -65 | |||
Amounts reclassified from accumulated other comprehensive income | 31 | [1],[2] | 60 | [1],[2] | 46 | [1] |
Total other comprehensive (loss) income, net of tax | -305 | 137 | -19 | |||
Balance at the end of period | -1,078 | -784 | ||||
Total attributable to Cummins Inc. | ||||||
Changes in accumulated other comprehensive income (loss) by component: | ||||||
Balance at the beginning of period | -784 | -950 | -938 | |||
Before tax amount | -433 | 185 | -91 | |||
Other Comprehensive Income (Loss), Tax, Portion Attributable to Parent | 104 | -80 | 34 | |||
After tax amount | -329 | 105 | -57 | |||
Amounts reclassified from accumulated other comprehensive income | 35 | [1],[2] | 61 | [1],[2] | 45 | [1] |
Total other comprehensive (loss) income, net of tax | -294 | 166 | -12 | |||
Balance at the end of period | -1,078 | -784 | -950 | |||
Change in pensions and other postretirement defined benefit plans | ||||||
Changes in accumulated other comprehensive income (loss) by component: | ||||||
Balance at the beginning of period | -611 | -794 | -724 | |||
Before tax amount | -196 | 206 | -164 | |||
Other Comprehensive Income (Loss), Tax, Portion Attributable to Parent | 92 | -87 | 54 | |||
After tax amount | -104 | 119 | -110 | |||
Amounts reclassified from accumulated other comprehensive income | 46 | [1],[2] | 64 | [1],[2] | 40 | [1] |
Total other comprehensive (loss) income, net of tax | -58 | 183 | -70 | |||
Balance at the end of period | -669 | -611 | -794 | |||
Foreign currency translation adjustment | ||||||
Changes in accumulated other comprehensive income (loss) by component: | ||||||
Balance at the beginning of period | -179 | -161 | -198 | |||
Before tax amount | -241 | -31 | 51 | |||
Other Comprehensive Income (Loss), Tax, Portion Attributable to Parent | 14 | 13 | -14 | |||
After tax amount | -227 | -18 | 37 | |||
Total other comprehensive (loss) income, net of tax | -227 | -18 | 37 | |||
Balance at the end of period | -406 | -179 | -161 | |||
Unrealized gain (loss) on marketable securities | ||||||
Changes in accumulated other comprehensive income (loss) by component: | ||||||
Balance at the beginning of period | 7 | 5 | 4 | |||
Before tax amount | 2 | 16 | 6 | |||
Other Comprehensive Income (Loss), Tax, Portion Attributable to Parent | -1 | -9 | -2 | |||
After tax amount | 1 | 7 | 4 | |||
Amounts reclassified from accumulated other comprehensive income | -9 | [1],[2] | -5 | [1],[2] | -3 | [1] |
Total other comprehensive (loss) income, net of tax | -8 | 2 | 1 | |||
Balance at the end of period | -1 | 7 | 5 | |||
Unrealized gain (loss) on derivatives | ||||||
Changes in accumulated other comprehensive income (loss) by component: | ||||||
Balance at the beginning of period | -1 | 0 | -20 | |||
Before tax amount | 2 | -6 | 16 | |||
Other Comprehensive Income (Loss), Tax, Portion Attributable to Parent | -1 | 3 | -4 | |||
After tax amount | 1 | -3 | 12 | |||
Amounts reclassified from accumulated other comprehensive income | -2 | [1],[2] | 2 | [1],[2] | 8 | [1] |
Total other comprehensive (loss) income, net of tax | -1 | -1 | 20 | |||
Balance at the end of period | -2 | -1 | 0 | |||
Noncontrolling interests | ||||||
Changes in accumulated other comprehensive income (loss) by component: | ||||||
Before tax amount | -7 | -28 | -8 | |||
After tax amount | -7 | -28 | -8 | |||
Amounts reclassified from accumulated other comprehensive income | -4 | [1],[2] | -1 | [1],[2] | 1 | [1] |
Total other comprehensive (loss) income, net of tax | ($11) | ($29) | ($7) | |||
[1] | Amounts are net of tax. | |||||
[2] | See reclassifications out of accumulated other comprehensive income (loss) disclosure below for further details. |
OTHER_COMPREHENSIVE_INCOME_LOS3
OTHER COMPREHENSIVE INCOME (LOSS) (Details 2) (USD $) | 12 Months Ended | |||||
In Millions, unless otherwise specified | Dec. 31, 2014 | Dec. 31, 2013 | Dec. 31, 2012 | |||
Reclassified out of accumulated other comprehensive income (loss) and related tax effects | ||||||
Other income (expense), net | $110 | $32 | $24 | |||
Income tax expense | -698 | -531 | -533 | |||
NET SALES | 19,221 | 17,301 | 17,334 | [1] | ||
Cost of sales | 14,360 | 13,021 | 12,918 | |||
Total before taxes | 2,434 | 2,119 | 2,271 | |||
Consolidated net income | 1,736 | 1,588 | 1,738 | |||
Reclassification out of accumulated other comprehensive income (loss) | ||||||
Reclassified out of accumulated other comprehensive income (loss) and related tax effects | ||||||
Consolidated net income | 31 | 60 | ||||
Realized (gain) loss on marketable securities | Reclassification out of accumulated other comprehensive income (loss) | ||||||
Reclassified out of accumulated other comprehensive income (loss) and related tax effects | ||||||
Other income (expense), net | -14 | -13 | ||||
Income tax expense | 1 | 7 | ||||
Consolidated net income | -13 | -6 | ||||
Realized (gain) loss on derivatives | Reclassification out of accumulated other comprehensive income (loss) | ||||||
Reclassified out of accumulated other comprehensive income (loss) and related tax effects | ||||||
Income tax expense | 1 | -1 | ||||
Total before taxes | -3 | 3 | ||||
Consolidated net income | -2 | 2 | ||||
Realized (gain) loss on derivatives | Foreign currency forward contracts | Reclassification out of accumulated other comprehensive income (loss) | ||||||
Reclassified out of accumulated other comprehensive income (loss) and related tax effects | ||||||
NET SALES | -5 | 2 | ||||
Realized (gain) loss on derivatives | Commodity swap contracts | Reclassification out of accumulated other comprehensive income (loss) | ||||||
Reclassified out of accumulated other comprehensive income (loss) and related tax effects | ||||||
Cost of sales | 2 | 1 | ||||
Change in pensions and other postretirement defined benefit plans | Reclassification out of accumulated other comprehensive income (loss) | ||||||
Reclassified out of accumulated other comprehensive income (loss) and related tax effects | ||||||
Income tax expense | -17 | -31 | ||||
Total before taxes | 63 | 95 | ||||
Recognized actuarial loss | 63 | [2] | 95 | [2] | ||
Consolidated net income | $46 | $64 | ||||
[1] | Includes sales to nonconsolidated equity investees of $2,063 million, $2,319 million and $2,427 million for the years ended December 31, 2014, 2013 and 2012, respectively. | |||||
[2] | These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 11, ''PENSION AND OTHER POSTRETIREMENT BENEFITS''). |
STOCK_INCENTIVE_AND_STOCK_OPTI2
STOCK INCENTIVE AND STOCK OPTION PLANS (Details) (USD $) | 12 Months Ended | |||
In Millions, except Share data, unless otherwise specified | Dec. 31, 2014 | Dec. 31, 2013 | Dec. 31, 2012 | 31-May-12 |
option | ||||
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||||
Number of stock-based awards authorized to be granted to executives, employees and non-employee directors under the 2012 Omnibus Plant (in shares) | 3,500,000 | |||
Stock options' expiration from the date of grant | 10 years | |||
Stock options vesting period | 3 years | 2 years | ||
Stock options granted for every even block of 100 KESIP shares purchased by the employee | 50 | |||
Number of shares in every even block of KESIP shares | 100 | |||
Compensation expense (net of estimated forfeitures) | $35 | $34 | $35 | |
Excess tax benefit / (deficiency) associated with share-based plans | 5 | 13 | 14 | |
Total unrecognized compensation expense (net of estimated forfeitures) | $32 | |||
Weighted-average maximum period of recognition of total unrecognized compensation expense related to nonvested awards | 2 years | |||
Performance Shares | ||||
Share-based Compensation Arrangement by Share-based Payment Award | ||||
Performance period | 3 years | |||
Performance Shares | Minimum | ||||
Share-based Compensation Arrangement by Share-based Payment Award | ||||
Target award based on the actual ROE performance (as a percent) | 0.00% | |||
Performance Shares | Maximum | ||||
Share-based Compensation Arrangement by Share-based Payment Award | ||||
Target award based on the actual ROE performance (as a percent) | 200.00% | |||
Restricted Shares | ||||
Share-based Compensation Arrangement by Share-based Payment Award | ||||
Restricted shares released after two years (as a percent) | 33.33% | |||
Period after which portion of issued restricted shares will be released | 2 years | |||
Restricted shares released on the grant date each year after the first two years (as a percent) | 33.33% | |||
Restriction period to recognize compensation expense | 4 years |
STOCK_INCENTIVE_AND_STOCK_OPTI3
STOCK INCENTIVE AND STOCK OPTION PLANS (Details 2) (USD $) | 12 Months Ended | ||
In Millions, except Share data, unless otherwise specified | Dec. 31, 2014 | Dec. 31, 2013 | Dec. 31, 2012 |
Stock option plan activity | |||
Balance, at the beginning of the period (in shares) | 1,462,336 | 1,309,168 | 1,243,037 |
Granted (in shares) | 350,630 | 432,370 | 321,945 |
Exercised (in shares) | -175,526 | -265,528 | -241,815 |
Forfeited (in shares) | -10,716 | -13,674 | -13,999 |
Balance, at the end of the period (in shares) | 1,626,724 | 1,462,336 | 1,309,168 |
Exercisable (in shares) | 903,059 | 758,936 | 785,869 |
Weighted average exercise price activity | |||
Weighted-average Exercise Price at the beginning of the period (in dollars per share) | $95.35 | $78.80 | $59.02 |
Weighted-average Exercise Price Granted (in dollars per share) | $148.98 | $112.07 | $119.34 |
Weighted-average Exercise Price Exercised (in dollars per share) | $82.06 | $40.48 | $31.73 |
Weighted-average Exercise Price Forfeited (in dollars per share) | $102.56 | $105.19 | $67.86 |
Weighted-average Exercise Price at the end of the period (in dollars per share) | $108.30 | $95.35 | $78.80 |
Weighted-average Exercise Price Exercisable (in dollars per share) | $92.18 | $76.85 | $51.40 |
Weighted-average remaining contractual life of options outstanding | 7 years 2 months 20 days | ||
Weighted-average remaining contractual life of options exercisable | 6 years 18 days | 5 years 11 months 9 days | 6 years 3 months 4 days |
Aggregate intrinsic value of options outstanding | $62 | ||
Aggregate intrinsic value of options exercisable | 48 | 48 | 44 |
Weighted average grant date fair value of options granted (in dollars per share) | $49.16 | $48 | $54.25 |
Total intrinsic value of options exercised | $12 | $22 | $19 |
STOCK_INCENTIVE_AND_STOCK_OPTI4
STOCK INCENTIVE AND STOCK OPTION PLANS (Details 3) (USD $) | 12 Months Ended | ||
In Millions, except Share data, unless otherwise specified | Dec. 31, 2014 | Dec. 31, 2013 | Dec. 31, 2012 |
Black-Scholes option pricing model assumptions | |||
Expected life | 5 years | 5 years | 5 years |
Risk-free interest rate | 1.80% | 0.79% | 1.05% |
Expected volatility | 41.17% | 56.59% | 58.98% |
Dividend yield | 1.61% | 1.55% | 1.30% |
Performance Shares | |||
Share-based compensation plan, other than stock options, activity | |||
Nonvested at the beginning of the period (in shares) | 475,913 | 630,084 | 525,391 |
Granted (in shares) | 206,031 | 176,649 | 325,590 |
Vested (in shares) | -207,093 | -303,882 | -194,484 |
Forfeited (in shares) | -8,158 | -26,938 | -26,413 |
Nonvested at the end of the period (in shares) | 466,693 | 475,913 | 630,084 |
Share-based compensation plan, other than stock options, weighted average grant date fair value activity | |||
Weighted-average Fair Value, Nonvested at the beginning of the period (in dollars per share) | 109.93 | 86.49 | 62.05 |
Granted (in dollars per share) | 130.38 | 106.4 | 89.92 |
Vested (in dollars per share) | 107.64 | 61.48 | 25.46 |
Forfeited (in dollars per share) | 121.18 | 85.07 | 91.94 |
Weighted-average Nonvested, Outstanding at the end of the period (in dollars per share) | 119.78 | 109.93 | 86.49 |
Total fair value of equity instruments other than options vested in period (in dollars) | 30 | 35 | 24 |
Restricted Shares | |||
Share-based compensation plan, other than stock options, activity | |||
Nonvested at the beginning of the period (in shares) | 32,541 | 62,229 | 81,845 |
Granted (in shares) | 0 | 7,506 | 3,150 |
Vested (in shares) | -21,266 | -26,901 | -22,766 |
Forfeited (in shares) | 0 | -10,293 | |
Nonvested at the end of the period (in shares) | 11,275 | 32,541 | 62,229 |
Share-based compensation plan, other than stock options, weighted average grant date fair value activity | |||
Weighted-average Fair Value, Nonvested at the beginning of the period (in dollars per share) | 81.49 | 66.43 | 61.49 |
Granted (in dollars per share) | 0 | 114.56 | 91.68 |
Vested (in dollars per share) | 65.88 | 62.03 | 52.16 |
Forfeited (in dollars per share) | 0 | 65.41 | |
Weighted-average Nonvested, Outstanding at the end of the period (in dollars per share) | 110.94 | 81.49 | 66.43 |
Total fair value of equity instruments other than options vested in period (in dollars) | 3 | 3 | 3 |
NONCONTROLLING_INTERESTS_Detai
NONCONTROLLING INTERESTS (Details) (USD $) | Dec. 31, 2014 | Dec. 31, 2013 |
In Millions, unless otherwise specified | ||
Noncontrolling Interest | ||
Noncontrolling interests in the equity | $344 | $360 |
Cummins India Ltd. | ||
Noncontrolling Interest | ||
Noncontrolling interests in the equity | 252 | 252 |
Wuxi Cummins Turbo Technologies Co. Ltd. | ||
Noncontrolling Interest | ||
Noncontrolling interests in the equity | 67 | 81 |
Other | ||
Noncontrolling Interest | ||
Noncontrolling interests in the equity | $25 | $27 |
EARNINGS_PER_SHARE_Details
EARNINGS PER SHARE (Details) (USD $) | 12 Months Ended | ||
In Millions, except Share data, unless otherwise specified | Dec. 31, 2014 | Dec. 31, 2013 | Dec. 31, 2012 |
Earnings Per Share [Abstract] | |||
Net income attributable to Cummins Inc. | $1,651 | $1,483 | $1,645 |
Weighted-average common shares outstanding: | |||
Basic (in shares) | 182,637,568 | 186,994,382 | 189,286,821 |
Dilutive effect of stock compensation awards (in shares) | 441,727 | 423,459 | 381,883 |
Diluted (in shares) | 183,079,295 | 187,417,841 | 189,668,704 |
Earnings per common share attributable to Cummins Inc. | |||
Basic (in dollars per share) | $9.04 | $7.93 | $8.69 |
Diluted (in dollars per share) | $9.02 | $7.91 | $8.67 |
Weighted-average shares, common stock options excluded (in shares) | 165,840 | 359,641 | 453,893 |
OPERATING_SEGMENTS_Details
OPERATING SEGMENTS (Details) (USD $) | 12 Months Ended | |||||
In Millions, unless otherwise specified | Dec. 31, 2014 | Dec. 31, 2013 | Dec. 31, 2012 | |||
Operating results: | ||||||
Total sales | $19,221 | $17,301 | $17,334 | [1] | ||
Depreciation and amortization | 452 | [2] | 405 | [2] | 355 | [2] |
Research, development and engineering expenses | 754 | 713 | 728 | |||
Equity, royalty and interest income from investees | 370 | 361 | 384 | |||
Interest income | 23 | 27 | 25 | |||
Segment EBIT | 2,498 | 2,160 | [3] | 2,303 | ||
Less: Interest expense | 64 | 41 | 32 | |||
INCOME BEFORE INCOME TAXES | 2,434 | 2,119 | 2,271 | |||
Net assets for operating segments | 9,737 | 9,646 | 8,177 | |||
Investments and advances related to equity method investees | 981 | 931 | 897 | |||
Capital expenditures | 743 | 676 | 690 | |||
Amortization of Debt Discount (Premium) | 3 | 2 | 6 | |||
Gain on remeasurement of pre-existing ownership interest in the acquiree company | 73 | 12 | 7 | |||
Liabilities deducted in arriving at net assets | 6,009 | 5,103 | 4,913 | |||
Pension and other postretirement benefit adjustments excluded from net assets | -319 | -346 | -977 | |||
Deferred tax assets not allocated to segments | 314 | 292 | 410 | |||
Debt-related costs not allocated to segments | 35 | 33 | 25 | |||
Total assets | 15,776 | 14,728 | 12,548 | |||
Engine | ||||||
Operating results: | ||||||
Depreciation and amortization | 207 | [2] | 205 | [2] | 192 | [2] |
Research, development and engineering expenses | 438 | 416 | 433 | |||
Equity, royalty and interest income from investees | 147 | 136 | 127 | |||
Interest income | 12 | 16 | 11 | |||
Segment EBIT | 1,225 | 1,041 | 1,248 | |||
Net assets for operating segments | 3,450 | 4,323 | 3,373 | |||
Investments and advances related to equity method investees | 468 | 419 | 401 | |||
Capital expenditures | 395 | 372 | 399 | |||
Distribution | ||||||
Operating results: | ||||||
Depreciation and amortization | 86 | [2] | 54 | [2] | 34 | [2] |
Research, development and engineering expenses | 9 | 6 | 6 | |||
Equity, royalty and interest income from investees | 148 | 165 | 188 | |||
Interest income | 4 | 2 | 2 | |||
Segment EBIT | 491 | [3] | 388 | [3] | 369 | [3] |
Net assets for operating segments | 2,441 | 1,637 | 1,392 | |||
Investments and advances related to equity method investees | 209 | 262 | 281 | |||
Capital expenditures | 89 | 57 | 62 | |||
Components | ||||||
Operating results: | ||||||
Depreciation and amortization | 106 | [2] | 96 | [2] | 82 | [2] |
Research, development and engineering expenses | 230 | 218 | 213 | |||
Equity, royalty and interest income from investees | 36 | 28 | 29 | |||
Interest income | 4 | 3 | 3 | |||
Segment EBIT | 684 | 527 | 426 | |||
Net assets for operating segments | 2,152 | 1,885 | 1,830 | |||
Investments and advances related to equity method investees | 164 | 140 | 127 | |||
Capital expenditures | 162 | 141 | 134 | |||
Power Generation | ||||||
Operating results: | ||||||
Depreciation and amortization | 53 | [2] | 50 | [2] | 47 | [2] |
Research, development and engineering expenses | 77 | 73 | 76 | |||
Equity, royalty and interest income from investees | 39 | 32 | 40 | |||
Interest income | 3 | 6 | 9 | |||
Segment EBIT | 168 | 218 | 285 | |||
Net assets for operating segments | 1,694 | 1,801 | 1,582 | |||
Investments and advances related to equity method investees | 140 | 110 | 88 | |||
Capital expenditures | 97 | 106 | 95 | |||
Non-segment items | ||||||
Operating results: | ||||||
Segment EBIT | -70 | [4] | -14 | [4] | -25 | [4] |
Non-segment items, unallocated corporate expenses | ||||||
Operating results: | ||||||
Reserve for legal matters before tax | 20 | |||||
Reserve for legal matters after tax | 12 | |||||
External Sales [Member] | Engine | ||||||
Operating results: | ||||||
Total sales | 8,437 | 8,270 | 9,101 | |||
External Sales [Member] | Distribution | ||||||
Operating results: | ||||||
Total sales | 5,135 | 3,726 | 3,261 | |||
External Sales [Member] | Components | ||||||
Operating results: | ||||||
Total sales | 3,791 | 3,151 | 2,809 | |||
External Sales [Member] | Power Generation | ||||||
Operating results: | ||||||
Total sales | 1,858 | 2,154 | 2,163 | |||
Intersegment Eliminations | Engine | ||||||
Operating results: | ||||||
Total sales | 2,525 | 1,743 | 1,632 | |||
Intersegment Eliminations | Distribution | ||||||
Operating results: | ||||||
Total sales | 39 | 23 | 16 | |||
Intersegment Eliminations | Components | ||||||
Operating results: | ||||||
Total sales | 1,327 | 1,191 | 1,203 | |||
Intersegment Eliminations | Power Generation | ||||||
Operating results: | ||||||
Total sales | 1,038 | 877 | 1,105 | |||
Intersegment Eliminations | Non-segment items | ||||||
Operating results: | ||||||
Total sales | -4,929 | [4] | -3,834 | [4] | -3,956 | [4] |
Reportable Segment | ||||||
Operating results: | ||||||
Total sales | 19,221 | 17,301 | 17,334 | |||
Reportable Segment | Engine | ||||||
Operating results: | ||||||
Total sales | 10,962 | 10,013 | 10,733 | |||
Reportable Segment | Distribution | ||||||
Operating results: | ||||||
Total sales | 5,174 | 3,749 | 3,277 | |||
Reportable Segment | Components | ||||||
Operating results: | ||||||
Total sales | 5,118 | 4,342 | 4,012 | |||
Reportable Segment | Power Generation | ||||||
Operating results: | ||||||
Total sales | 2,896 | 3,031 | 3,268 | |||
Reportable Segment | Non-segment items | ||||||
Operating results: | ||||||
Total sales | ($4,929) | [4] | ($3,834) | [4] | ($3,956) | [4] |
[1] | Includes sales to nonconsolidated equity investees of $2,063 million, $2,319 million and $2,427 million for the years ended December 31, 2014, 2013 and 2012, respectively. | |||||
[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] | Distribution segment EBIT included gains on the fair value adjustment resulting from the acquisition of controlling interests in North American distributors of $73 million, $12 million and $7 million for the periods ended December 31, 2014, 2013, and 2012, respectively. See Note 2, "ACQUISITIONS," for additional information. | |||||
[4] | Includes intersegment sales and profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the years ended December 31, 2014 and 2013. The year ended December 31, 2012, included a $20 million charge ($12 million after-tax) related to legal matters. The charge was excluded from segment results as it was not considered in our evaluation of operating results for the year ended December 31, 2012. |
OPERATING_SEGMENTS_Details_2
OPERATING SEGMENTS (Details 2) (USD $) | 12 Months Ended | |||
In Millions, unless otherwise specified | Dec. 31, 2014 | Dec. 31, 2013 | Dec. 31, 2012 | |
Segment reporting | ||||
NET SALES | $19,221 | $17,301 | $17,334 | [1] |
Total long-lived assets | 5,184 | 4,624 | 4,290 | |
United States | ||||
Segment reporting | ||||
NET SALES | 10,058 | 8,382 | 8,107 | |
Total long-lived assets | 2,949 | 2,606 | 2,440 | |
China | ||||
Segment reporting | ||||
NET SALES | 1,446 | 1,194 | 1,056 | |
Total long-lived assets | 692 | 646 | 589 | |
India | ||||
Segment reporting | ||||
NET SALES | 546 | 630 | 757 | |
Total long-lived assets | 391 | 330 | 243 | |
United Kingdom | ||||
Segment reporting | ||||
NET SALES | 479 | 453 | 660 | |
Total long-lived assets | 339 | 319 | 339 | |
Brazil | ||||
Segment reporting | ||||
NET SALES | 730 | 882 | 798 | |
Total long-lived assets | 161 | 172 | 170 | |
Netherlands | ||||
Segment reporting | ||||
Total long-lived assets | 156 | 138 | 130 | |
Canada | ||||
Segment reporting | ||||
NET SALES | 771 | 655 | 642 | |
Total long-lived assets | 126 | 68 | 69 | |
Mexico | ||||
Segment reporting | ||||
NET SALES | 561 | 556 | 692 | |
Total long-lived assets | 96 | 87 | 77 | |
Germany | ||||
Segment reporting | ||||
Total long-lived assets | 79 | 69 | 49 | |
Korea | ||||
Segment reporting | ||||
Total long-lived assets | 34 | 37 | 37 | |
Romania | ||||
Segment reporting | ||||
Total long-lived assets | 31 | 27 | 15 | |
Turkey | ||||
Segment reporting | ||||
Total long-lived assets | 30 | 28 | 29 | |
Australia | ||||
Segment reporting | ||||
Total long-lived assets | 17 | 18 | 25 | |
United Arab Emirates | ||||
Segment reporting | ||||
Total long-lived assets | 16 | 15 | 16 | |
Singapore | ||||
Segment reporting | ||||
Total long-lived assets | 13 | 17 | 16 | |
France | ||||
Segment reporting | ||||
Total long-lived assets | 12 | 13 | 13 | |
Other foreign countries | ||||
Segment reporting | ||||
NET SALES | 4,630 | 4,549 | 4,622 | |
Total long-lived assets | $42 | $34 | $33 | |
[1] | Includes sales to nonconsolidated equity investees of $2,063 million, $2,319 million and $2,427 million for the years ended December 31, 2014, 2013 and 2012, respectively. |
OPERATING_SEGMENTS_Details_3
OPERATING SEGMENTS (Details 3) (USD $) | 12 Months Ended | |||
In Millions, unless otherwise specified | Dec. 31, 2014 | Dec. 31, 2013 | Dec. 31, 2012 | |
Concentration of risk | ||||
NET SALES | $19,221 | $17,301 | $17,334 | [1] |
Sales | PACCAR Inc. | ||||
Concentration of risk | ||||
NET SALES | $2,706 | $2,085 | $2,232 | |
Percentage of consolidated net sales | 14.00% | 12.00% | 13.00% | |
[1] | Includes sales to nonconsolidated equity investees of $2,063 million, $2,319 million and $2,427 million for the years ended December 31, 2014, 2013 and 2012, respectively. |