Document and Entity Information
Document and Entity Information - USD ($) $ in Billions | 12 Months Ended | ||
Dec. 31, 2017 | Feb. 02, 2018 | Jul. 02, 2017 | |
Document and Entity Information | |||
Entity Registrant Name | CUMMINS INC | ||
Entity Central Index Key | 26,172 | ||
Document Period End Date | Dec. 31, 2017 | ||
Entity Filer Category | Large Accelerated Filer | ||
Document Type | 10-K | ||
Current Fiscal Year End Date | --12-31 | ||
Document Fiscal Year Focus | 2,017 | ||
Document Fiscal Period Focus | FY | ||
Amendment Flag | false | ||
Entity Common Stock, Shares Outstanding | 165,683,334 | ||
Entity Well-known Seasoned Issuer | Yes | ||
Entity Voluntary Filers | No | ||
Entity Current Reporting Status | Yes | ||
Entity Public Float | $ 27.2 |
CONSOLIDATED STATEMENTS OF INCO
CONSOLIDATED STATEMENTS OF INCOME - USD ($) $ in Millions | 12 Months Ended | ||||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | |||
Income Statement [Abstract] | |||||
NET SALES | [1] | $ 20,428 | $ 17,509 | $ 19,110 | |
Cost of sales | 15,338 | 13,057 | 14,163 | ||
GROSS MARGIN | 5,090 | 4,452 | 4,947 | ||
OPERATING EXPENSES AND INCOME | |||||
Selling, general and administrative expenses | 2,390 | 2,046 | 2,092 | ||
Research, development and engineering expenses | 752 | 636 | 735 | ||
Equity, royalty and interest income from investees (Note 3) | 357 | 301 | 315 | ||
Loss contingency (Note 12) | [2] | 5 | 138 | 60 | |
Impairment of light-duty diesel assets (Note 19) | 0 | 0 | 211 | [3],[4] | |
Restructuring actions and other charges (Note 20) | [5] | 90 | |||
Other operating income (expense), net | 65 | (5) | (17) | ||
OPERATING INCOME | 2,365 | 1,928 | 2,057 | ||
Interest income | 18 | 23 | 24 | ||
Interest expense (Note 9) | 81 | 69 | 65 | ||
Other income, net | 63 | 48 | 9 | ||
INCOME BEFORE INCOME TAXES | 2,365 | 1,930 | 2,025 | ||
Income tax expense (Note 2) | 1,371 | 474 | 555 | ||
CONSOLIDATED NET INCOME | 994 | 1,456 | 1,470 | ||
Less: Net (loss) income attributable to noncontrolling interests (Note 16) | (5) | 62 | 71 | ||
NET INCOME ATTRIBUTABLE TO CUMMINS INC. | $ 999 | $ 1,394 | $ 1,399 | ||
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC. (Note 17) | |||||
Basic (in dollars per share) | $ 5.99 | $ 8.25 | $ 7.86 | ||
Diluted (in dollars per share) | $ 5.97 | $ 8.23 | $ 7.84 | ||
Sales to nonconsolidated equity investees | $ 1,174 | $ 1,028 | $ 1,209 | ||
[1] | Includes sales to nonconsolidated equity investees of $1,174 million , $1,028 million and $1,209 million for the years ended December 31, 2017 , 2016 and 2015 | ||||
[2] | See Note 12 , " COMMITMENTS AND CONTINGENCIES | ||||
[3] | 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 , $3 million and $3 million for the years ended December 31, 2017, 2016 and 2015, respectively. | ||||
[4] | See Note 19 , " IMPAIRMENT OF LIGHT-DUTY DIESEL ASSETS | ||||
[5] | See Note 20 , " RESTRUCTURING ACTIONS AND OTHER CHARGES |
CONSOLIDATED STATEMENTS OF COMP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Millions | 12 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | |
Statement of Comprehensive Income [Abstract] | |||
CONSOLIDATED NET INCOME | $ 994 | $ 1,456 | $ 1,470 |
Other comprehensive income (loss), net of tax (Note 14) | |||
Change in pension and other postretirement defined benefit plans | (4) | (31) | 15 |
Foreign currency translation adjustments | 335 | (448) | (305) |
Unrealized gain (loss) on marketable securities | 2 | 1 | (1) |
Unrealized gain (loss) on derivatives | 5 | (12) | 6 |
Total other comprehensive (loss) income, net of tax | 338 | (490) | (285) |
COMPREHENSIVE INCOME | 1,332 | 966 | 1,185 |
Less: Comprehensive income attributable to noncontrolling interests | 15 | 45 | 56 |
COMPREHENSIVE INCOME ATTRIBUTABLE TO CUMMINS INC. | $ 1,317 | $ 921 | $ 1,129 |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS - USD ($) $ in Millions | Dec. 31, 2017 | Dec. 31, 2016 |
Current assets | ||
Cash and cash equivalents | $ 1,369 | $ 1,120 |
Marketable securities (Note 4) | 198 | 260 |
Total cash, cash equivalents and marketable securities | 1,567 | 1,380 |
Accounts and notes receivable, net | ||
Trade and other | 3,311 | 2,803 |
Nonconsolidated equity investees | 307 | 222 |
Inventories (Note 5) | 3,166 | 2,675 |
Prepaid expenses and other current assets | 577 | 627 |
Total current assets | 8,928 | 7,707 |
Long-term assets | ||
Property, plant and equipment, net (Note 6) | 3,927 | 3,800 |
Investments and advances related to equity method investees (Note 3) | 1,156 | 946 |
Goodwill (Note 7) | 1,082 | 480 |
Other intangible assets, net (Note 7) | 973 | 332 |
Pension assets (Note 10) | 1,043 | 731 |
Other assets | 966 | 1,015 |
Total assets | 18,075 | 15,011 |
Current liabilities | ||
Accounts payable (principally trade) | 2,579 | 1,854 |
Loans payable (Note 9) | 57 | 41 |
Commercial paper (Note 9) | 298 | 212 |
Accrued compensation, benefits and retirement costs | 811 | 412 |
Current portion of accrued product warranty (Note 8) | 454 | 333 |
Current portion of deferred revenue | 500 | 468 |
Other accrued expenses | 915 | 970 |
Current maturities of long-term debt (Note 9) | 63 | 35 |
Total current liabilities | 5,677 | 4,325 |
Long-term liabilities | ||
Long-term debt (Note 9) | 1,588 | 1,568 |
Postretirement benefits other than pensions (Note 10) | 289 | 329 |
Pensions (Note 10) | 330 | 326 |
Other liabilities and deferred revenue (Note 11) | 2,027 | 1,289 |
Total liabilities | 9,911 | 7,837 |
Commitments and contingencies (Note 12) | ||
Cummins Inc. shareholders’ equity (Note 13) | ||
Common stock, $2.50 par value, 500 shares authorized, 222.4 and 222.4 shares issued | 2,210 | 2,153 |
Retained earnings | 11,464 | 11,040 |
Treasury stock, at cost, 56.7 and 54.2 shares | (4,905) | (4,489) |
Common stock held by employee benefits trust, at cost, 0.5 and 0.7 shares | (7) | (8) |
Accumulated other comprehensive loss (Note 14) | (1,503) | (1,821) |
Total Cummins Inc. shareholders' equity | 7,259 | 6,875 |
Stockholders' Equity Attributable to Noncontrolling Interest | 905 | 299 |
Total equity | 8,164 | 7,174 |
Total liabilities and equity | $ 18,075 | $ 15,011 |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares shares in Millions | Dec. 31, 2017 | Dec. 31, 2016 |
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 | 222.4 | 222.4 |
Treasury stock, shares | 56.7 | 54.2 |
Common stock held by employee benefits trust, at cost, shares | 0.5 | 0.7 |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Millions | 12 Months Ended | |||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | ||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||
Consolidated net income | $ 994 | $ 1,456 | $ 1,470 | |
Adjustments to reconcile consolidated net income to net cash provided by operating activities | ||||
Impact of tax legislation, net (Note 2) | 820 | 0 | 0 | |
Depreciation and amortization | 583 | 530 | 514 | |
Gains on fair value adjustment for consolidated investees (Note 18) | 0 | (15) | (18) | |
Deferred income taxes (Note 2) | (54) | 50 | (108) | |
Equity in income of investees, net of dividends (Note 3) | (123) | (46) | (36) | |
Pension contributions in excess of expense (Note 10) | (161) | (92) | (127) | |
Other post retirement benefits payments in excess of expense (Note 10) | (5) | (25) | (23) | |
Stock-based compensation expense (Note 15) | 41 | 32 | 24 | |
Loss contingency charges, net of payments (Note 12) | 5 | 122 | 60 | |
Impairment of light-duty diesel assets (Note 19) | 0 | 0 | 211 | [1],[2] |
Restructuring charges and other actions, net of cash payments (Note 20) | 0 | (59) | 64 | |
Proceeds from corporate owned life insurance | (52) | (22) | 6 | |
Translation and hedging activities | 71 | (55) | 26 | |
Changes in current assets and liabilities, net of acquisitions | ||||
Accounts and notes receivable | (508) | (265) | 103 | |
Inventories | (407) | (4) | 150 | |
Other current assets | (12) | 14 | (151) | |
Accounts Payable | 639 | 188 | (130) | |
Accrued Expenses | 378 | (195) | (226) | |
Changes in other liabilities and deferred revenue | 241 | 200 | 292 | |
Other, net | (173) | 125 | (36) | |
Net cash provided by operating activities | 2,277 | 1,939 | 2,065 | |
CASH FLOWS FROM INVESTING ACTIVITIES | ||||
Capital expenditures | (506) | (531) | (744) | |
Investments in internal use software | (81) | (63) | (55) | |
Proceeds from disposals of property, plant and equipment | 110 | 14 | 25 | |
Investments in and advances to equity investees | (66) | (41) | (7) | |
Acquisitions of businesses, net of cash acquired (Note 18) | (662) | (94) | (117) | |
Investments in marketable securities—acquisitions (Note 4) | (194) | (478) | (282) | |
Investments in marketable securities—liquidations (Note 4) | 266 | 306 | 270 | |
Proceeds from sale of equity investees (Note 3) | 0 | 60 | 0 | |
Cash flows from derivatives not designated as hedges | 76 | (102) | 8 | |
Other, net | 5 | 12 | (16) | |
Net cash used in investing activities | (1,052) | (917) | (918) | |
CASH FLOWS FROM FINANCING ACTIVITIES | ||||
Proceeds from borrowings | 6 | 111 | 44 | |
Net borrowings of commercial paper | 86 | 212 | 0 | |
Payments on borrowings and capital lease obligations | (60) | (163) | (76) | |
Net borrowings (payments) under short-term credit agreements | 12 | 19 | (41) | |
Distributions to noncontrolling interests | (29) | (65) | (49) | |
Dividend payments on common stock (Note 13) | (701) | (676) | (622) | |
Repurchases of common stock (Note 13) | (451) | (778) | (900) | |
Acquisitions of noncontrolling interests (Note 18) | 0 | (98) | (10) | |
Other, net | 63 | 25 | 4 | |
Net cash used in financing activities | (1,074) | (1,413) | (1,650) | |
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS | 98 | (200) | (87) | |
Net increase (decrease) in cash and cash equivalents | 249 | (591) | (590) | |
Cash and cash equivalents at beginning of year | 1,120 | 1,711 | 2,301 | |
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ 1,369 | $ 1,120 | $ 1,711 | |
[1] | 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 , $3 million and $3 million for the years ended December 31, 2017, 2016 and 2015, respectively. | |||
[2] | See Note 19 , " IMPAIRMENT OF LIGHT-DUTY DIESEL ASSETS |
CONSOLIDATED STATEMENTS OF CHAN
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY - USD ($) $ in Millions | Total | Total Cummins Inc. Shareholders' Equity | Common Stock | Additional paid-in Capital | Retained Earnings | Treasury Stock | Common Stock Held in Trust | Accumulated Other Comprehensive Loss | Noncontrolling interests |
BALANCE, AT THE BEGINNING OF THE PERIOD at Dec. 31, 2014 | $ 8,093 | $ 7,749 | $ 556 | $ 1,583 | $ 9,545 | $ (2,844) | $ (13) | $ (1,078) | $ 344 |
Increase (Decrease) in Shareholders' Equity | |||||||||
Net income | 1,470 | 1,399 | 1,399 | 71 | |||||
Other comprehensive income (loss), net of tax (Note 14) | (285) | (270) | (270) | (15) | |||||
Issuance of common stock | 9 | 9 | 9 | ||||||
Employee benefits trust activity (Note 13) | 27 | 27 | 25 | 2 | |||||
Repurchases of common stock (Note 13) | (900) | (900) | (900) | ||||||
Cash dividends on common stock (Note 13) | (622) | (622) | (622) | ||||||
Distributions to noncontrolling interests | (49) | (49) | |||||||
Stock based awards | 5 | 5 | (4) | 9 | |||||
Acquisition of noncontrolling interests (Note 18) | (10) | (3) | (3) | (7) | |||||
Other shareholder transactions | 12 | 12 | 12 | 0 | |||||
BALANCE, AT THE END OF THE PERIOD at Dec. 31, 2015 | 7,750 | 7,406 | 556 | 1,622 | 10,322 | (3,735) | (11) | (1,348) | 344 |
Increase (Decrease) in Shareholders' Equity | |||||||||
Net income | 1,456 | 1,394 | 1,394 | 62 | |||||
Other comprehensive income (loss), net of tax (Note 14) | (490) | (473) | (473) | (17) | |||||
Issuance of common stock | 6 | 6 | 6 | ||||||
Employee benefits trust activity (Note 13) | 26 | 26 | 23 | 3 | |||||
Repurchases of common stock (Note 13) | (778) | (778) | (778) | ||||||
Cash dividends on common stock (Note 13) | (676) | (676) | (676) | ||||||
Distributions to noncontrolling interests | (65) | (65) | |||||||
Stock based awards | 19 | 19 | (5) | 24 | |||||
Acquisition of noncontrolling interests (Note 18) | (98) | (73) | (73) | (25) | |||||
Other shareholder transactions | 24 | (24) | 24 | 0 | |||||
BALANCE, AT THE END OF THE PERIOD at Dec. 31, 2016 | 7,174 | 6,875 | 556 | 1,597 | 11,040 | (4,489) | (8) | (1,821) | 299 |
Increase (Decrease) in Shareholders' Equity | |||||||||
Impact of tax legislation (Note 2) | 126 | 126 | 126 | ||||||
Net income | 994 | 999 | 999 | (5) | |||||
Other comprehensive income (loss), net of tax (Note 14) | 338 | 318 | 318 | 20 | |||||
Issuance of common stock | 6 | 6 | 6 | ||||||
Employee benefits trust activity (Note 13) | 18 | 18 | 17 | 1 | |||||
Repurchases of common stock (Note 13) | (451) | (451) | (451) | ||||||
Cash dividends on common stock (Note 13) | (701) | (701) | (701) | ||||||
Distributions to noncontrolling interests | (29) | (29) | |||||||
Stock based awards | 38 | 38 | 3 | 35 | |||||
Acquisition of business (Note 18) | 600 | 600 | |||||||
Other shareholder transactions | 51 | 31 | 31 | 20 | |||||
BALANCE, AT THE END OF THE PERIOD at Dec. 31, 2017 | $ 8,164 | $ 7,259 | $ 556 | $ 1,654 | $ 11,464 | $ (4,905) | $ (7) | $ (1,503) | $ 905 |
SUMMARY OF SIGNIFICANT ACCOUNTI
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 12 Months Ended |
Dec. 31, 2017 | |
Accounting Policies [Abstract] | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations We were founded in 1919 as Cummins Engine Company, a corporation in Columbus, Indiana and one of the first diesel engine manufacturers. In 2001, we changed our name to Cummins Inc. 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, transmissions 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 500 wholly-owned and independent distributor locations and over 7,500 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 (loss) income attributable to noncontrolling interests" in our Consolidated Statements of Income . 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 generally accepted accounting principles in the United States of America (GAAP) for variable interest entities. Most of these VIEs are unconsolidated. Reclassifications Certain amounts for 2016 and 2015 have been reclassified to conform to the current year presentation. 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 rate and other assumptions for pension and other postretirement benefit 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 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 . We classify shipping and handling billed to customers as sales in our Consolidated Statements of Income . Substantially all shipping and handling costs are included in "Cost of sales." 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 systems 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 loss (AOCL) 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 , $12 million and $18 million for the years ended December 31, 2017 , 2016 and 2015 , respectively. Fair Value Measurements A three-level valuation hierarchy, based upon the observable and unobservable inputs, is used for fair value measurements. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions based on the best evidence available. These two types of inputs create the following fair value hierarchy: • Level 1 - Quoted prices for identical instruments in active markets; • Level 2 - Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations whose significant inputs are observable; and • Level 3 - Instruments whose significant inputs are unobservable . 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 physical forward contracts, options 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 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 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. To minimize the income volatility resulting from the remeasurement of net monetary assets and payables denominated in a currency other than the functional currency, we enter into foreign currency forward contracts, which are considered economic hedges. The objective is to offset the gain or loss from remeasurement with the gain or loss from the fair market valuation of the forward contract. These derivative instruments are not designated as hedges under GAAP. 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 physical forward contracts and zero-cost collar contracts with designated banks and other counterparties to fix the cost of certain raw material purchases with the objective of minimizing changes in inventory cost due to market price fluctuations. The physical forward contracts qualify for the normal purchases scope exceptions and are treated as purchase commitments. The commodity zero-cost collar contracts that represent an economic hedge, but are not designated for hedge accounting, are marked to market through earnings. 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 net operating 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 provisions 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 net operating loss and credit carryforwards is disclosed in NOTE 2 , " 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 2017 2016 2015 Cash payments for income taxes, net of refunds $ 622 $ 430 $ 732 Cash payments for interest, net of capitalized interest 82 68 65 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, 2017 and 2016 , 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 4 , " 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, 2017 and 2016 were $16 million and $16 million , respectively. Inventories Our inventories are stated at the lower of cost or market. For the years ended December 31, 2017 and 2016 , approximately 12 percent and 13 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 5 , " 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 property, plant and equipment using the straight-line method with depreciable lives ranging from 20 to 40 years for buildings and 3 to 15 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 $467 million , $434 million and $419 million for the years ended December 31, 2017 , 2016 and 2015 , respectively. See NOTE 6 , " PROPERTY, PLANT AND EQUIPMENT ," for additional information. Impairment of 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. See NOTE 19 , " IMPAIRMENT OF LIGHT-DUTY DIESEL ASSETS ," for additional information. 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 reporting units which share similar economic characteristics and thus are aggregated into a single reporting unit for testing purposes. These two situations are described further below: • Within our Components segment, our emission solutions and filtration businesses have been aggregated into a single reporting unit. • 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. 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, 2017 , our recorded goodwill was $1,082 million , approximately 36 percent of which resided in the aggregated emission solutions and filtration reporting unit. For this reporting unit, the fair value exceeded its carrying value by a substantial margin. Approximately 50 percent and 4 percent of goodwill resides in our new automated transmissions reporting unit and our Brammo Inc. acquisition (not yet allocated to a segment), respectively. Since these businesses were just acquired in the second half of 2017, we did not perform an additional quantitative test as of the end of our third fiscal quarter. See NOTE 18 , " ACQUISITIONS ," for additional information on the acquisition related goodwill recorded at the respective acquisition dates. 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 7 , " GOODWILL AND OTHER INTANGIBLE ASSETS ," for additional information. Other Intangible Assets We capitalize other intangible assets, such as trademarks, patents, and customer relationships, that have been acquired either individually or with a group of other assets. These intangible assets are amortized on a straight-line basis over their estimated useful lives generally ranging from 3 to 25 years. Intangible 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. See NOTE 7 , " GOODWILL AND OTHER INTANGIBLE ASSETS ," for additional information. Software We capitalize software that is 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 7 , " 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 8 , " PRODUCT WARRANTY LIABILITY ," for additional information. Research and Development Our research and development program is focused on product improvements, product extensions, innovations and cost reductions for our customers. Research and development expenditures include salaries, contractor fees, building costs, utilities, testing, technical IT, 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 and government agencies 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 $734 million in 2017 , $616 million in 2016 and $718 million in 2015 . Contract reimbursements were $137 million in 2017 , $131 million in 2016 and $98 million in 2015 . 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 2018, the Financial Accounting Standards Board (FASB) amended its standard on comprehensive income to provide an option for an entity to reclassify the stranded tax effects of the Tax Cuts and Jobs Act (Tax Legislation) that was passed in December of 2017 from accumulated other comprehensive income (AOCI) directly to retained earnings. The stranded tax effects result from the remeasurement of deferred tax assets and liabilities which were originally recorded in comprehensive income but whose remeasurement is reflected in the income statement. This is a one-time amendment applicable only to the changes resulting from the Tax Legislation. The standard is effective for us on January 1, 2019, and may be reflected retroactively to any period in which the impacts of the Tax Legislation are recognized. The standard permits early adoption for any financial statements that have not been released as of the date of the revised standard. We elected to early adopt this standard in our 2017 financial statements using specific identification and as a result reclassified $126 million from AOCI to retained earnings which is reflected in the rollforward of AOCI. This reclassification relates only to the change in the statutory tax rate. See NOTE 14 , " ACCUMULATED OTHER COMPREHENSIVE LOSS ," for additional information. In March 2016, the FASB amended its standards related to accounting for stock compensation, which became effective for us beginning January 1, 2017. The amendment replaced the requirement to record excess tax benefits and certain tax deficiencies in additional paid-in capital by recording all excess tax benefits and tax deficiencies as income tax expense / benefit in the Consolidated Statements of Income and was adopted prospectively. In addition, the standard impacted our Consolidated Statements of Cash Flow retrospectively, as excess tax benefits are now required to be presented as an operating activity and the cash paid to tax authorities is required to be presented as a financing activity. This resulted in a net reclassification of $4 million and $6 million from operating to financing activities for the year ended December 31, 2016 and 2015, respectively. Finally, in accordance with the standard, we elected to continue our historical approach of estimating forfeitures during the award's vesting period and adjusting our estimate when it is no longer probable that the employee will fulfill the service condition. The adoption of the standard was not material to our Consolidated Financial Statements . Accounting Pronouncements Issued But Not Yet Effective In August 2017, the FASB amended its standards related to accounting for derivatives and hedging. These amendments allow the initial hedge effectiveness assessment to be performed by the end of the first quarter in which the hedge is designated rather than concurrently with entering into the hedge transaction. The changes also expand the use of a periodic qualitative hedge effectiveness assessment in lieu of an ongoing quantitative assessment performed throughout the life of the hedge. The revision removes the requirement to record ineffectiveness on cash flow hedges through the income statement when a hedge is considered highly effective, instead deferring all related hedge gains and losses in "Other comprehensive income" until the hedged item imp |
INCOME TAXES
INCOME TAXES | 12 Months Ended |
Dec. 31, 2017 | |
Income Tax Disclosure [Abstract] | |
INCOME TAXES | NOTE 2. INCOME TAXES The following table summarizes income before income taxes: Years ended December 31, In millions 2017 2016 2015 U.S. income $ 1,237 $ 995 $ 1,275 Foreign income 1,128 935 750 Income before income taxes $ 2,365 $ 1,930 $ 2,025 Income tax expense (benefit) consists of the following: Years ended December 31, In millions 2017 2016 2015 Current U.S. federal and state $ 355 $ 211 $ 516 Foreign 289 213 147 Impact of tax legislation 349 — — Total current 993 424 663 Deferred U.S. federal and state (42 ) 57 (151 ) Foreign (12 ) (7 ) 43 Impact of tax legislation 432 — — Total deferred 378 50 (108 ) Income tax expense $ 1,371 $ 474 $ 555 A reconciliation of the statutory U.S. federal income tax rate to the effective tax rate was as follows: Years ended December 31, 2017 2016 2015 Statutory U.S. federal income tax rate 35.0 % 35.0 % 35.0 % State income tax, net of federal effect 0.6 0.8 1.2 Differences in rates and taxability of foreign subsidiaries and joint ventures (6.4 ) (7.2 ) (6.6 ) Research tax credits (1.4 ) (1.7 ) (1.4 ) Impact of tax legislation 33.1 — — Other, net (2.9 ) (2.3 ) (0.8 ) Effective tax rate 58.0 % 24.6 % 27.4 % 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. On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (Tax Legislation) , which changed the U.S. statutory rate to 21 percent effective January 1, 2018 and requires companies to pay a one-time transition tax on certain previously undistributed earnings of certain foreign subsidiaries and foreign joint ventures that were tax deferred. Our effective tax rate for 2017 was 58.0 percent compared to 24.6 percent for 2016 . The impacts of the Tax Legislation resulted in additional tax expense of $781 million . The Securities and Exchange Commission (SEC) issued guidance which addressed the uncertainty in the application of GAAP to the Tax Legislation where certain income tax effects cannot be finalized at December 31, 2017. This guidance allows entities to record provisional amounts based on current estimates that are updated on a quarterly basis. As a result, our accounting for the effects of the Tax Legislation are not considered complete at this time. The final transition impacts of the Tax Legislation may differ from our estimates, possibly materially, due to, among other things, changes in interpretations of the Tax Legislation, any legislative action to address questions that arise because of the Tax Legislation, any changes in accounting standards for income taxes or related interpretations in response to the Tax Legislation, or any updates or changes to estimates the company has utilized to calculate the transition impacts. The SEC requires final calculations to be completed within the one year measurement period ending December 22, 2018, and reflect any additional guidance issued throughout the year. Any adjustments of provisional amounts will be reported in continuing operations in the period in which the estimates change. We have made provisional estimates of the effects of the Tax Legislation in three primary areas: (1) our existing deferred tax balances; (2) the one-time transition tax and (3) the withholding tax accrued on those earnings no longer considered permanently reinvested at December 31, 2017. Each of these items is described in more detail below. Deferred tax assets and liabilities We remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21 percent. We are still analyzing certain aspects of the Tax Legislation and refining our calculations, which could potentially affect the measurement of these balances. The provisional amount related to the remeasurement of our deferred tax balance is an incremental tax expense of $152 million . See NOTE 3 , " INVESTMENTS IN EQUITY INVESTEES ," for the impact to our equity investees. One-time transition tax The one-time transition tax is based on our total post-1986 unrepatriated earnings and profits not previously subject to U.S. income tax. The recorded provisional amount for our one-time transition tax is a tax expense of $298 million with a cash impact of $338 million . Withholding tax Withholding tax is an additional cost associated with the distribution of earnings from some jurisdictions. As a result of the Tax Legislation, we reconsidered previous assertions regarding earnings that were considered permanently reinvested, which requires us to record withholding taxes on earnings likely to be distributed in the foreseeable future. The assertion as to which earnings are permanently reinvested for purposes of calculating withholding tax is provisional as we refine the underlying calculations of the amount of earnings subject to the tax and the rate at which it will be taxed. The recorded provisional amount for the withholding tax resulted in an incremental tax expense of $331 million . See NOTE 3 , " INVESTMENTS IN EQUITY INVESTEES ," and NOTE 16 , " NONCONTROLLING INTERESTS ," for the impact of withholding taxes to our equity investees and noncontrolling interests. Carryforward tax benefits and the tax effect of temporary differences between financial and tax reporting that give rise to net deferred tax (liabilities) assets were as follows: December 31, In millions 2017 2016 Deferred tax assets U.S. state carryforward benefits $ 200 $ 159 Foreign carryforward benefits 159 154 Employee benefit plans 274 401 Warranty expenses 300 405 Accrued expenses 95 107 Other 70 64 Gross deferred tax assets 1,098 1,290 Valuation allowance (347 ) (307 ) Total deferred tax assets 751 983 Deferred tax liabilities Property, plant and equipment (250 ) (319 ) Unremitted income of foreign subsidiaries and joint ventures (331 ) (59 ) Employee benefit plans (224 ) (213 ) Other (31 ) (48 ) Total deferred tax liabilities (836 ) (639 ) Net deferred tax (liabilities) assets $ (85 ) $ 344 Our 2017 U.S. carryforward benefits include $200 million of state credit and net operating loss carryforward benefits that begin to expire in 2018. Our foreign carryforward benefits include $159 million of net operating loss carryforwards that begin to expire in 2018. 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 was $347 million and increased in 2017 by a net $40 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. Our Consolidated Balance Sheets contain the following tax related items: December 31, In millions 2017 2016 Prepaid and other current assets Refundable income taxes $ 152 $ 192 Other assets Deferred income tax assets 306 420 Long-term refundable income taxes 6 22 Accrued expenses Income tax payable 77 48 Other liabilities and deferred revenue Income tax payable 281 — Deferred income tax liabilities 391 76 A reconciliation of unrecognized tax benefits for the years ended December 31, 2017, 2016 and 2015 was as follows: December 31, In millions 2017 2016 2015 Balance at beginning of year $ 59 $ 135 $ 174 Additions to current year tax positions 11 10 8 Additions to prior years' tax positions 9 18 24 Reductions to prior years' tax positions (3 ) — — Reductions for tax positions due to settlements with taxing authorities (35 ) (104 ) (71 ) Balance at end of year $ 41 $ 59 $ 135 Included in the December 31, 2017, 2016 and 2015, balances are $32 million , $31 million and $78 million , respectively, 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 $4 million , $3 million and $8 million as of December 31, 2017, 2016 and 2015, respectively. We recognize potential accrued interest and penalties related to unrecognized tax benefits in income tax expense. For the years ended December 31, 2017, 2016 and 2015, we recognized $3 million , $2 million and $5 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. |
INVESTMENTS IN EQUITY INVESTEES
INVESTMENTS IN EQUITY INVESTEES | 12 Months Ended |
Dec. 31, 2017 | |
Equity Method Investments and Joint Ventures [Abstract] | |
INVESTMENTS IN EQUITY INVESTEES | NOTE 3. INVESTMENTS IN EQUITY INVESTEES Investments and advances related to equity method investees and our ownership percentage was as follows: December 31, In millions Ownership % 2017 2016 Beijing Foton Cummins Engine Co., Ltd. 50% $ 223 $ 163 Komatsu alliances 20-50% 219 197 Dongfeng Cummins Engine Company, Ltd. 50% 146 111 Cummins-Scania XPI Manufacturing, LLC 50% 87 82 Chongqing Cummins Engine Company, Ltd. 50% 84 73 Tata Cummins, Ltd. 50% 59 63 Other Various 338 257 Investments and advances related to equity method investees $ 1,156 $ 946 We have approximately $614 million in our investment account at December 31, 2017 , that represents cumulative undistributed income in our equity investees. Dividends received from our unconsolidated equity investees were $219 million , $212 million and $248 million in 2017 , 2016 and 2015 , respectively. Equity, royalty and interest income from investees, net of applicable taxes, was as follows: Years ended December 31, In millions 2017 2016 2015 Distribution entities Komatsu Cummins Chile, Ltda. $ 30 $ 34 $ 31 North American distributors — 21 33 All other distributors (1 ) — 3 Manufacturing entities Beijing Foton Cummins Engine Co., Ltd. 94 52 62 Dongfeng Cummins Engine Company, Ltd. 73 46 51 Chongqing Cummins Engine Company, Ltd. 41 38 41 Dongfeng Cummins Emission Solutions Co., Ltd. 13 9 6 Shanghai Fleetguard Filter Co., Ltd. 12 10 10 Cummins Westport, Inc. 9 (1) 11 18 All other manufacturers 37 (1) 39 18 Cummins share of net income 308 260 273 Royalty and interest income 49 41 42 Equity, royalty and interest income from investees $ 357 $ 301 $ 315 ___________________________________________________________ (1) U.S. tax legislation passed in December 2017 decreased our equity earnings at certain equity investees, including a $7 million unfavorable impact to Cummins Westport, Inc. due to the remeasurement of deferred taxes and a $32 million unfavorable impact to "All other manufacturers" due to withholding tax adjustments on foreign earnings. See Note 2 , " INCOME TAXES ," to our Consolidated Financial Statements for additional information . Distribution Entities We have an extensive worldwide distributor and dealer network through which we sell and distribute our products and services. Generally, our distributors are divided by geographic region with some of our distributors being wholly-owned by Cummins, some partially-owned and some independently owned. We consolidate all wholly-owned distributors and partially-owned distributors where we are the primary beneficiary and account for other partially-owned distributors using the equity method of accounting. • Komatsu Cummins Chile, Ltda. - Komatsu Cummins Chile, Ltda. is a joint venture with Komatsu America Corporation. The joint venture is a distributor that offers the full range of our products and services to customers and end-users in Chile and Peru. • North American Distributors - During 2016, we acquired the remaining interest in the final unconsolidated North American distributor joint venture. In certain cases where we own a partial interest in a distributor, we may be obligated to purchase the other equity holders' interests if certain events occur (such as the death or resignation of the distributor principal or a change in control of Cummins Inc.). The purchase consideration of the equity interests may be determined based on the fair vale of the distributor's assets. Repurchase obligations and practices vary by geographic region. All distributors that are partially-owned are considered to be related parties in our Consolidated Financial Statements . Manufacturing Entities Our manufacturing joint ventures have generally been formed with customers and generally are intended to allow us to increase our market penetration in geographic regions, reduce capital spending, streamline our supply chain management and develop technologies. Our largest manufacturing joint ventures are based in China and are included in the list below. Our engine manufacturing joint ventures are supplied by our Components segment in the same manner as it supplies our wholly-owned Engine segment and Power Systems segment manufacturing facilities. Our Components segment joint ventures and wholly owned entities provide fuel systems, filtration, aftertreatment systems, turbocharger products and transmissions that are used with our engines as well as some competitors' products. The results and investments in our joint ventures in which we have 50 percent or less ownership interest are included in “Equity, royalty and interest income from investees” and “Investments and advances related to equity method investees” in our Consolidated Statements of Income and Consolidated Balance Sheets , respectively. • Beijing Foton Cummins Engine Co., Ltd. - Beijing Foton Cummins Engine Co., Ltd. is a joint venture in China with Beiqi Foton Motor Co., Ltd., a commercial vehicle manufacturer, which consists of two distinct lines of business, a light-duty business and a heavy-duty business. The light-duty business produces our families of ISF 2.8 liter to 4.5 liter high performance light-duty diesel engines in Beijing. These engines are used in light-duty commercial trucks, pickup trucks, buses, multipurpose and sport utility vehicles with main markets in China, Brazil and Russia. Certain types of marine, small construction equipment and industrial applications are also served by these engine families. The heavy-duty business produces ISG 10.5 liter and ISG 11.8 liter families of our high performance heavy-duty diesel engines in Beijing. These engines are used in heavy-duty commercial trucks in China and will be used by Cummins either directly sourced from China and/or locally assembled in other markets. Certain types of construction equipment and industrial applications are also served by these engine families. • Dongfeng Cummins Engine Company, Ltd. - Dongfeng Cummins Engine Company, Ltd. (DCEC) is a joint venture in China with Dongfeng Automotive Co. Ltd., a subsidiary of Dongfeng Motor Corporation, one of the largest medium-duty and heavy-duty truck manufacturers in China. DCEC produces Cummins 3.9 to 13 -liter mechanical engines, full-electric diesel engines, with a power range from 80 to 680 horsepower, and natural gas engines. • Chongqing Cummins Engine Company, Ltd. - Chongqing Cummins Engine Company, Ltd. is a joint venture in China with Chongqing Machinery and Electric Co. Ltd. This joint venture manufactures several models of our heavy-duty and high-horsepower diesel engines, primarily serving the industrial and stationary power markets in China. • Dongfeng Cummins Emission Solutions Co., Ltd. - Dongfeng Cummins Emission Solutions Co. Ltd. is a joint venture in China with Dongfeng Industrial Company, a subsidiary of Dongfeng Motor Group Company Limited, a manufacturer of numerous on-highway vehicles. This joint venture produces, purchases and sells advanced diesel engine aftertreatment solutions to support the full line of Dongfeng's commercial vehicles. • Shanghai Fleetguard Filter Co., Ltd. - Shanghai Fleetguard Filter Co. Ltd. is a joint venture in China with Dongfeng Motor Co., Ltd., a manufacturer of numerous on-highway vehicles. This joint venture produces and sells filters and filter parts to support the full line of Dongfeng's commercial vehicles. • Cummins Westport, Inc. - Cummins Westport Inc. is a joint venture in Canada with Westport Innovations Inc. to market and sell automotive spark-ignited natural gas engines worldwide and to participate in joint technology projects on low-emission technologies. Equity Investee Financial Summary Summary financial information for our equity investees was as follows: For the years ended and at December 31, In millions 2017 2016 2015 Net sales $ 7,050 $ 5,654 $ 5,946 Gross margin 1,422 1,182 1,265 Net income 680 499 521 Cummins share of net income $ 308 $ 260 $ 273 Royalty and interest income 49 41 42 Total equity, royalty and interest from investees $ 357 $ 301 $ 315 Current assets $ 3,416 $ 2,602 Non-current assets 1,379 1,377 Current liabilities (2,567 ) (1,938 ) Non-current liabilities (237 ) (232 ) Net assets $ 1,991 $ 1,809 Cummins share of net assets $ 1,116 $ 927 Sale of Equity Investee In the fourth quarter of 2016, we sold our remaining 49 percent interest in Cummins Olayan Energy for $61 million and recognized a gain of $17 million . We received cash of $58 million |
MARKETABLE SECURITIES
MARKETABLE SECURITIES | 12 Months Ended |
Dec. 31, 2017 | |
Marketable Securities [Abstract] | |
MARKETABLE SECURITIES | NOTE 4. MARKETABLE SECURITIES A summary of marketable securities, all of which are classified as current, was as follows: December 31, 2017 2016 In millions Cost Gross unrealized Estimated Cost Gross unrealized Estimated Available-for-sale (1) Debt mutual funds $ 170 $ — $ 170 $ 132 $ — $ 132 Bank debentures — — — 114 — 114 Equity mutual funds 12 3 15 12 — 12 Certificates of deposit 12 — 12 — — — Government debt securities 1 — 1 2 — 2 Total marketable securities $ 195 $ 3 $ 198 $ 260 $ — $ 260 ______________________________________________________ (1) All marketable securities are classified as Level 2 securities. The fair value of Level 2 securities is estimated using actively quoted prices for similar instruments from brokers and observable inputs where available, including market transactions and third-party pricing services, or net asset values provided to investors. We do not currently have any Level 3 securities and there were no transfers between Level 2 or 3 during 2017 or 2016. A description of the valuation techniques and inputs used for our Level 2 fair value measures was as follows: • Debt mutual funds — The fair value measure for the vast majority of 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 contractual rate of return and generally range in maturity from three months to five years . The counterparties 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. • Equity mutual funds — The fair value measure for these investments is the net asset value published by the issuing brokerage. Daily quoted prices are available from reputable third party pricing services and are used on a test basis to corroborate this Level 2 input measure. • Government debt securities — The fair value measure for these securities is 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 available-for-sale (AFS) securities were as follows: Years ended December 31, In millions 2017 2016 2015 Proceeds from sales and maturities of marketable securities $ 266 $ 306 $ 270 Gross realized gains from the sale of available-for-sale securities (1) — — 1 ____________________________________________________ (1) Gross realized losses from the sale of available-for-sale securities were immaterial. At December 31, 2017 , the fair value of AFS 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 $ 182 1 - 5 years 1 Total $ 183 |
INVENTORIES
INVENTORIES | 12 Months Ended |
Dec. 31, 2017 | |
Inventory Disclosure [Abstract] | |
INVENTORIES | NOTE 5. INVENTORIES Inventories are stated at the lower of cost or market. Inventories included the following: December 31, In millions 2017 2016 Finished products $ 2,078 $ 1,779 Work-in-process and raw materials 1,216 1,005 Inventories at FIFO cost 3,294 2,784 Excess of FIFO over LIFO (128 ) (109 ) Total inventories $ 3,166 $ 2,675 |
PROPERTY, PLANT AND EQUIPMENT
PROPERTY, PLANT AND EQUIPMENT | 12 Months Ended |
Dec. 31, 2017 | |
Property, Plant and Equipment [Abstract] | |
PROPERTY, PLANT AND EQUIPMENT | NOTE 6. PROPERTY, PLANT AND EQUIPMENT Details of our property, plant and equipment balance were as follows: December 31, In millions 2017 2016 Land and buildings $ 2,332 $ 2,075 Machinery, equipment and fixtures 5,285 4,898 Construction in process 441 662 Property, plant and equipment, gross 8,058 7,635 Less: Accumulated depreciation (4,131 ) (3,835 ) Property, plant and equipment, net $ 3,927 $ 3,800 |
GOODWILL AND OTHER INTANGIBLE A
GOODWILL AND OTHER INTANGIBLE ASSETS | 12 Months Ended |
Dec. 31, 2017 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
GOODWILL AND OTHER INTANGIBLE ASSETS | NOTE 7. GOODWILL AND OTHER INTANGIBLE ASSETS The following table summarizes the changes in the carrying amount of goodwill for the years ended December 31, 2017 and 2016 : In millions Components Distribution Power Systems Engine Total Balance at December 31, 2015 $ 391 $ 75 $ 10 $ 6 $ 482 Acquisitions — 4 — — 4 Translation and other (5 ) — (1 ) — (6 ) Balance at December 31, 2016 386 79 9 6 480 Acquisitions 544 (1) — — — 544 Translation and other 10 — 1 — 11 Balance at December 31, 2017 $ 940 $ 79 $ 10 $ 6 $ 1,035 Goodwill not yet allocated to segments 47 (2) $ 1,082 ____________________________________________________ (1) Acquisition goodwill relates to Eaton Cummins Automated Transmission Technologies. See Note 18 , " ACQUISITIONS ," for additional information. (2) Goodwill associated with the Brammo Inc. acquisition was presented as a reconciling item as it had not yet been assigned to a reportable segment at December 31, 2017. Effective January 1, 2018, Brammo Inc. will be assigned to a new reportable segment called Electrified Power. See Note 18 , " ACQUISITIONS ," for additional information. 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 2017 2016 Software $ 718 $ 617 Less: Accumulated amortization (386 ) (330 ) Software, net 332 287 Trademarks, patents, customer relationships and other 786 164 Less: Accumulated amortization (145 ) (119 ) Trademarks, patents, customer relationships and other, net 641 45 Total other intangible assets, net $ 973 $ 332 Amortization expense for software and other intangibles totaled $112 million , $92 million and $90 million for the years ended December 31, 2017 , 2016 and 2015 , respectively. The projected amortization expense of our intangible assets, assuming no further acquisitions or dispositions, is as follows: In millions 2018 2019 2020 2021 2022 Projected amortization expense $ 130 $ 116 $ 101 $ 76 $ 55 |
PENSION AND OTHER POSTRETIREMEN
PENSION AND OTHER POSTRETIREMENT BENEFITS | 12 Months Ended |
Dec. 31, 2017 | |
Retirement Benefits [Abstract] | |
Pension and Other Postretirement Benefits Disclosure [Text Block] | NOTE 10. 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 at December 31 were as follows: Qualified and Non-Qualified Pension Plans U.S. Plans U.K. Plans In millions 2017 2016 2017 2016 Change in benefit obligation Benefit obligation at the beginning of the year $ 2,661 $ 2,533 $ 1,451 $ 1,390 Service cost 107 90 26 21 Interest cost 106 109 40 50 Actuarial loss 61 111 53 316 Benefits paid from fund (155 ) (175 ) (54 ) (55 ) Benefits paid directly by employer (15 ) (16 ) — — Plan amendments — 9 — — Exchange rate changes — — 146 (271 ) Benefit obligation at end of year $ 2,765 $ 2,661 $ 1,662 $ 1,451 Change in plan assets Fair value of plan assets at beginning of year $ 2,751 $ 2,636 $ 1,753 $ 1,712 Actual return on plan assets 351 200 78 402 Employer contributions 219 90 9 28 Benefits paid (155 ) (175 ) (54 ) (55 ) Exchange rate changes — — 174 (334 ) Fair value of plan assets at end of year $ 3,166 $ 2,751 $ 1,960 $ 1,753 Funded status (including underfunded and nonfunded plans) at end of year $ 401 $ 90 $ 298 $ 302 Amounts recognized in consolidated balance sheets Pension assets - long-term $ 745 $ 429 $ 298 $ 302 Accrued compensation, benefits and retirement costs - current liabilities (14 ) (13 ) — — Pensions - long-term liabilities (330 ) (326 ) — — Net amount recognized $ 401 $ 90 $ 298 $ 302 Amounts recognized in accumulated other comprehensive loss Net actuarial loss $ 649 $ 770 $ 207 $ 172 Prior service cost 8 9 — — Net amount recognized $ 657 $ 779 $ 207 $ 172 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 4 percent of our pension plan assets and obligations , respectively at December 31, 2017 . These plans are reflected in "Other liabilities and deferred revenue" on our Consolidated Balance Sheets . In 2017, we made $11 million of contributions to these 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 2017 2016 2017 2016 Total accumulated benefit obligation $ 2,745 $ 2,625 $ 1,569 $ 1,366 Plans with accumulated benefit obligation in excess of plan assets Accumulated benefit obligation 323 304 — — Plans with projected benefit obligation in excess of plan assets Projected benefit obligation 344 339 — — Components of Net Periodic Pension Cost The following table presents the net periodic pension cost under our plans for the years ended December 31: Qualified and Non-Qualified Pension Plans U.S. Plans U.K. Plans In millions 2017 2016 2015 2017 2016 2015 Service cost $ 107 $ 90 $ 80 $ 26 $ 21 $ 27 Interest cost 106 109 102 40 50 56 Expected return on plan assets (204 ) (201 ) (189 ) (70 ) (71 ) (91 ) Amortization of prior service cost — — (1 ) — — — Recognized net actuarial loss 37 29 45 40 15 34 Net periodic pension cost $ 46 $ 27 $ 37 $ 36 $ 15 $ 26 Other changes in benefit obligations and plan assets recognized in other comprehensive income for the years ended December 31 were as follows: In millions 2017 2016 2015 Amortization of prior service credit $ — $ — $ 1 Recognized net actuarial loss (77 ) (44 ) (79 ) Incurred actuarial (gain) loss (40 ) 107 105 Foreign exchange translation adjustments 30 (28 ) (7 ) Total recognized in other comprehensive income $ (87 ) $ 35 $ 20 Total recognized in net periodic pension cost and other comprehensive income $ (5 ) $ 77 $ 83 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 $62 million . Assumptions The table below presents various assumptions used in determining the PBO 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 2017 2016 2017 2016 Discount rate 3.66 % 4.12 % 2.55 % 2.70 % Compensation increase rate 2.99 % 4.87 % 3.75 % 3.75 % 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 2017 2016 2015 2017 2016 2015 Discount rate 4.12 % 4.47 % 4.07 % 2.70 % 3.95 % 3.80 % Expected return on plan assets 7.25 % 7.50 % 7.50 % 4.50 % 4.70 % 5.80 % Compensation increase rate 4.87 % 4.87 % 4.88 % 3.75 % 3.75 % 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 this 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 7.25 percent in 2017 . 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 in a rising interest rate environment, we have elected to reduce our assumption to 6.50 percent in 2018 . 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 10.0 % +2.0/-8.0% Non-U.S. equities 2.0 % +3.0/-2.0% Global equities 8.0 % +1.0/-5.0% Total equities 20.0 % Real estate 6.0 % +4.0/-6.0% Private equity/venture capital 4.0 % +6.0/-4.0% Opportunistic credit 2.0 % +8.0/-2.0% Fixed income 68.0 % +/-5.0% Total 100.0 % 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 100 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 68 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 4.5 percent in 2017 . 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 such as equities, real estate and liability matching assets such as group annuity insurance contracts and duration matched bonds. 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 23.0 % Real estate/private markets 5.0 % Re-insurance 8.0 % Corporate credit instruments 7.5 % Fixed income 56.5 % Total 100.0 % As part of our strategy in the U.K. we have not prohibited the use of any financial instrument, including derivatives. As in the U.S. plan, derivatives may be used to better match liability duration and are not used in a speculative way. The 56.5 percent fixed income component is structured in a way that covers approximately 79 percent of the plan's exposure to changes in its discount rate. Based on the above discussion, we have elected an assumption of 4.00 percent in 2018 . 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 at December 31, 2017 In millions Quoted prices in active Significant other Significant Total Equities U.S. $ 102 $ — $ — $ 102 Non-U.S. 56 — — 56 Fixed income Government debt — 691 — 691 Corporate debt U.S. — 590 — 590 Non-U.S. — 73 — 73 Asset/mortgaged backed securities — 78 — 78 Net cash equivalents (1) 50 25 — 75 Derivative instruments (2) — 3 — 3 Private equity and real estate (3) — — 246 246 Net plan assets subject to leveling $ 208 $ 1,460 $ 246 $ 1,914 Pending trade/purchases/sales (96 ) Accruals (4) 12 Investments measured at net asset value 1,336 Net plan assets $ 3,166 Fair Value Measurements at December 31, 2016 In millions Quoted prices in active Significant other Significant Total Equities U.S. $ 145 $ — $ — $ 145 Non-U.S. 125 — — 125 Fixed income Government debt — 570 — 570 Corporate debt U.S. — 497 — 497 Non-U.S. — 84 — 84 Asset/mortgaged backed securities — 58 — 58 Net cash equivalents (1) 18 20 — 38 Derivative instruments (2) — 9 — 9 Private equity and real estate (3) — — 212 212 Net plan assets subject to leveling $ 288 $ 1,238 $ 212 $ 1,738 Pending trade/purchases/sales (83 ) Accruals (4) 12 Investments measured at net asset value 1,084 Net plan assets $ 2,751 ____________________________________________________ (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, real estate and insurance 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 statements of the funds. (4) Accruals include interest or dividends that were not settled at December 31. Certain of our assets are valued based on their respective net asset value (NAV) (or its equivalent), as an alternative to estimated fair value due to the absence of readily available market prices. The fair value of each such investment category was as follows: • U.S. and Non-U.S. Equities ( $428 million and $511 million at December 31, 2017 and 2016 , respectively) - These commingled funds have observable NAVs provided to investors and provide for liquidity either immediately or within a couple of days. • Government Debt ( $347 million and $178 million at December 31, 2017 and 2016 , respectively) - These commingled funds have observable NAVs provided to investors and provide for liquidity either immediately or within a couple of days. • U.S. and Non-U.S. Corporate Debt ( $321 million and $265 million at December 31, 2017 and 2016 , respectively) - These commingled funds have observable NAVs provided to investors and provide for liquidity either immediately or within a couple of days. • Real Estate ( $137 million and $129 million at December 31, 2017 and 2016 , respectively) - This asset type represents different types of real estate including development property, industrial property, individual mortgages, office property, property investment companies, and retail property. These funds are valued using NAVs and allow quarterly or more frequent redemptions. • Asset/Mortgage Backed Securities ( $103 million and $1 million at December 31, 2017 and 2016 , respectively) - This asset type represents investments in fixed- and floating-rate loans. These funds are valued using NAVs and allow quarterly or more frequent redemptions. The reconciliation of Level 3 assets was as follows: Fair Value Measurements In millions Private Equity Real Estate Total Balance at December 31, 2015 $ 143 $ 60 $ 203 Actual return on plan assets Unrealized gains on assets still held at the reporting date 6 6 12 Purchases, sales and settlements, net (1 ) (2 ) (3 ) Balance at December 31, 2016 148 64 212 Actual return on plan assets Unrealized gains on assets still held at the reporting date 24 5 29 Purchases, sales and settlements, net 8 (3 ) 5 Balance at December 31, 2017 $ 180 $ 66 $ 246 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 and is included in the table below in Level 3 for years ended December 31, 2017 and 2016 at a value of $477 million and $439 million , respectively. The fair values of U.K. pension plan assets by asset category were as follows: Fair Value Measurements at December 31, 2017 In millions Quoted prices in active Significant other Significant Total Equities U.S. $ — $ 63 $ — $ 63 Non-U.S. — 91 — 91 Fixed income Net cash equivalents (1) 29 — — 29 Private equity, real estate and insurance (2) — — 671 671 Net plan assets subject to leveling $ 29 $ 154 $ 671 $ 854 Investments measured at net asset value 1,106 Net plan assets $ 1,960 Fair Value Measurements at December 31, 2016 In millions Quoted prices in active Significant other Significant Total Equities U.S. $ — $ 174 $ — $ 174 Non-U.S. — 193 — 193 Fixed income Net cash equivalents (1) 24 — — 24 Private equity, real estate and insurance (2) — — 613 613 Net plan assets subject to leveling $ 24 $ 367 $ 613 $ 1,004 Investments measured at net asset value 749 Net plan assets $ 1,753 _____________________________________________________ (1) Cash equivalents include commercial paper, short-term government/agency, mortgage and credit instruments. (2) The instruments in private equity, real estate and insurance 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. Certain of our assets are valued based on their respective NAV (or its equivalent), as an alternative to estimated fair value due to the absence of readily available market prices. The fair value of each such investment category was as follows: • U.S. and Non-U.S. Corporate Debt ( $822 million and $655 million at December 31, 2017 and 2016 , respectively) - These commingled funds have observable NAVs provided to investors and provide for liquidity either immediately or within a couple of days. • U.S. and Non-U.S. Equities ( $144 million and zero dollars at December 31, 2017 and 2016 , respectively) - These commingled funds have observable NAVs provided to investors and provide for liquidity either immediately or within a couple of days. • Re-insurance ( $86 million and $56 million at December 31, 2017 and 2016 , respectively) - This commingled fund has a NAV that is determined on a monthly basis and the investment may be sold at that value. • Managed Futures Funds ( $54 million and $38 million at December 31, 2017 and 2016 , respectively) - These commingled funds invest in commodities, fixed income and equity securities. They have observable NAVs provided to investors and provide for liquidity either immediately or within a couple of days. The reconciliation of Level 3 assets was as follows: Fair Value Measurements In millions Insurance Real Estate Private Equity Total Balance at December 31, 2015 $ 445 $ 57 $ 99 $ 601 Actual return on plan assets Unrealized (losses) gains on assets still held at the reporting date (6 ) (7 ) 15 2 Purchases, sales and settlements, net — 7 3 10 Balance at December 31, 2016 439 57 117 613 Actual return on plan assets Unrealized gains on assets still held at the reporting date 38 10 28 76 Purchases, sales and settlements, net — (8 ) (10 ) (18 ) Balance at December 31, 2017 $ 477 $ 59 $ 135 $ 671 Level 3 Assets The investments in an insurance contract, venture capital, private equity, opportunistic credit 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 $38 million to our defined benefit pension plans in 2018 . The table below presents expected future benefit payments under our pension plans: Qualified and Non-Qualified Pension Plans In millions 2018 2019 2020 2021 2022 2023 - 2027 Expected benefit payments $ 239 $ 237 $ 242 $ 248 $ 253 $ 1,320 Other Pension Plans We also sponsor defined contribution plans for certain hourly and salaried employees. Our contributions to these plans were $84 million , $68 million and $74 million for the years ended December 31, 2017 , 2016 and 2015 . 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 2017 2016 Change in benefit obligation Benefit obligation at the beginning of the year $ 364 $ 385 Interest cost 14 16 Plan participants' contributions 24 14 Actuarial (gain) loss (35 ) 9 Benefits paid directly by employer (49 ) (60 ) Benefit obligation at end of year $ 318 $ 364 Funded status at end of year $ (318 ) $ (364 ) Amounts recognized in consolidated balance sheets Accrued compensation, benefits and retirement costs - current liabilities $ (29 ) $ (35 ) Postretirement benefits other than pensions-long-term liabilities (289 ) (329 ) Net amount recognized $ (318 ) $ (364 ) Amounts recognized in accumulated other comprehensive loss: Net actuarial loss $ 27 $ 69 Prior service credit (4 ) (5 ) Net amount recognized $ 23 $ 64 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 approximately 6 percent and 5 percent of our postretirement obligations at December 31, 2017 and 2016 , respectively. 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: Years ended December 31, In millions 2017 2016 2015 Interest cost $ 14 $ 16 $ 15 Recognized net actuarial loss 6 5 5 Net periodic other postretirement benefit cost $ 20 $ 21 $ 20 Other changes in benefit obligations recognized in other comprehensive income for the years ended December 31 were as follows: Years ended December 31, In millions 2017 2016 2015 Recognized net actuarial loss $ (6 ) $ (6 ) $ (5 ) Incurred actuarial (gain) loss (35 ) 9 6 Total recognized in other comprehensive income $ (41 ) $ 3 $ 1 Total recognized in net periodic other postretirement benefit cost and other comprehensive income $ (21 ) $ 24 $ 21 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 approximately zero . 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: 2017 2016 Discount rate 3.55 % 4.00 % 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: 2017 2016 2015 Discount rate 4.00 % 4.35 % 3.90 % 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, an 8.00 percent annual rate of increase in the per capita cost of covered health care benefits was assumed in 2017 . The rate is assumed to decrease on a linear basis to 5.00 percent through 2026 and remain at that level thereafter. An increase in the health care cost trends of 1 percent would increase our APBO by $16 million at December 31, 2017 and the net periodic other postretirement benefit cost for 2018 by $1 million . A decrease in the health care cost trends of 1 percent would decrease our APBO by $14 million at December 31, 2017 and the net periodic other postretirement benefit cost for 2018 by $1 million . Estimated Benefit Payments The table below presents expected benefit payments under our other postretirement benefit plans: In millions 2018 2019 2020 2021 2022 2023 - 2027 Expected benefit payments $ 29 $ 28 $ 27 $ 26 $ 25 $ 108 |
DEBT
DEBT | 12 Months Ended |
Dec. 31, 2017 | |
Debt Disclosure [Abstract] | |
DEBT | NOTE 9. DEBT Loans Payable and Commercial Paper Loans payable at December 31, 2017 and 2016 were $57 million and $41 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 was as follows: 2017 2016 2015 Weighted-average interest rate 3.01 % 4.20 % 3.65 % We can issue up to $1.75 billion of unsecured short-term promissory notes ("commercial paper") pursuant to our board authorized commercial paper programs. The programs facilitate the private placement of unsecured short-term debt through third party brokers. We intend to use the net proceeds from the commercial paper borrowings for general corporate purposes. We had $298 million in outstanding borrowings under our commercial paper programs at December 31, 2017 , with a weighted-average interest rate of 1.56 percent . Revolving Credit Facilities On November 13, 2015, we entered into an amended and restated five-year revolving credit agreement with a syndicate of lenders, which provides us with a $1.75 billion senior unsecured revolving credit facility and expires on November 13, 2020 . Amounts payable under our revolving credit facility will rank pro rata with all of our unsecured, unsubordinated indebtedness. Up to $300 million under our credit facility is available for swingline loans. 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 0.75 percent per annum at December 31, 2017 . Advances under the facility may be prepaid without premium or penalty, subject to customary breakage costs. On September 5, 2017, we entered into a 364-day credit facility that allows us to borrow up to $1 billion of additional unsecured funds at any time through September 2018. These credit agreements include various covenants, including, among others, maintaining a leverage ratio of no more than 3.5 to 1.0. At December 31, 2017 , we were in compliance with the covenants. There were no outstanding borrowings under these facilities at December 31, 2017 . We intend to maintain credit facilities of a similar aggregate amount by renewing or replacing these facilities before expiration. Revolving credit facilities are maintained primarily to provide backup liquidity for our commercial paper borrowings, letters of credit and general corporate purposes. At December 31, 2017 , we had $298 million of commercial paper outstanding, which effectively reduced the $1.75 billion available capacity under our five-year revolving credit facility to $1.45 billion . At December 31, 2017, we also had $1 billion available under our 364-day facility. At December 31, 2017 , we also had $240 million available for borrowings under our international and other domestic credit facilities. Long-term Debt December 31, In millions 2017 2016 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 Other debt 76 51 Unamortized discount (54 ) (56 ) Fair value adjustments due to hedge on indebtedness 35 47 Capital leases 121 88 Total long-term debt 1,651 1,603 Less: Current maturities of long-term debt 63 35 Long-term debt $ 1,588 $ 1,568 Principal payments required on long-term debt during the next five years are as follows: In millions 2018 2019 2020 2021 2022 Principal payments $ 63 $ 50 $ 12 $ 6 $ 6 Interest on the $500 million aggregate principal amount of 3.65% senior unsecured notes due in 2023 and the $500 million aggregate principal amount of 4.875% senior unsecured notes due in 2043 pay interest semi-annually on April 1 and October 1 of each year. Interest on the 6.75% debentures is payable on February 15 and August 15 of 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 entity. In addition, we are subject to a maximum debt-to-EBITDA ratio financial covenant. At December 31, 2017 , we were in compliance with all of the covenants under our borrowing agreements. Shelf Registration As a well-known seasoned issuer, we filed an automatic shelf registration for an undetermined amount of debt and equity securities with the SEC on February 16, 2016. 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. Interest For the years ended December 31, 2017 , 2016 and 2015 , total interest incurred was $85 million , $75 million and $68 million , respectively, and interest capitalized was $4 million , $6 million and $3 million , respectively. 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. We have 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 2017 2016 2015 Income Statement Classification Gain/(Loss) on Swaps Gain/(Loss) on Borrowings Gain/(Loss) on Swaps Gain/(Loss) on Borrowings Gain/(Loss) on Gain/(Loss) on Interest expense (1) $ (7 ) $ 8 $ (8 ) $ 12 $ 6 $ (2 ) ___________________________________________ (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 values and carrying values of total debt, including current maturities, were as follows: December 31, In millions 2017 2016 Fair values of total debt (1) $ 2,301 $ 2,077 Carrying values of total debt 2,006 1,856 ___________________________________________ (1) The fair value of debt is derived from Level 2 inputs. |
PRODUCT WARRANTY LIABILITY
PRODUCT WARRANTY LIABILITY | 12 Months Ended |
Dec. 31, 2017 | |
Product Warranties Disclosures [Abstract] | |
PRODUCT WARRANTY LIABILITY | NOTE 8. 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 2017 2016 2015 Balance, beginning of year $ 1,414 $ 1,404 $ 1,283 Provision for warranties issued 557 334 391 Deferred revenue on extended warranty contracts sold 240 231 290 Payments (398 ) (385 ) (389 ) Amortization of deferred revenue on extended warranty contracts (219 ) (201 ) (179 ) Changes in estimates for pre-existing warranties 85 44 20 Foreign currency translation 8 (13 ) (12 ) Balance, end of year $ 1,687 $ 1,414 $ 1,404 Warranty related deferred revenues and the long-term portion of the warranty liabilities on our Consolidated Balance Sheets were as follows: December 31, In millions 2017 2016 Balance Sheet Location Deferred revenue related to extended coverage programs Current portion $ 231 $ 218 Current portion of deferred revenue Long-term portion 536 527 Other liabilities and deferred revenue Total $ 767 $ 745 Long-term portion of warranty liability $ 466 $ 336 Other liabilities and deferred revenue |
OTHER LIABILITIES AND DEFERRED
OTHER LIABILITIES AND DEFERRED REVENUE | 12 Months Ended |
Dec. 31, 2017 | |
Other Liabilities Disclosure [Abstract] | |
OTHER LIABILITIES AND DEFERRED REVENUE | NOTE 11. OTHER LIABILITIES AND DEFERRED REVENUE Other liabilities and deferred revenue included the following: December 31, In millions 2017 2016 Deferred revenue $ 604 $ 589 Accrued warranty 466 336 Deferred income taxes 391 76 Income tax payable (1) 281 — Accrued compensation 151 151 Other long-term liabilities 134 137 Other liabilities and deferred revenue $ 2,027 $ 1,289 ____________________________________________________ (1) Long-term income taxes payable are the result of Tax Legislation and relate to the non-current portion of the one-time transition tax on accumulated foreign earnings. See Note 2 , " INCOME TAXES ," to our Consolidated Financial Statements for additional information |
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES | 12 Months Ended |
Dec. 31, 2017 | |
Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENTS AND CONTINGENCIES | NOTE 12. 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; product recalls; 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 pursuant to GAAP 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. Loss Contingencies Third Party Aftertreatment Engine systems sold in the U.S. must be certified to comply with the Environmental Protection Agency (EPA) and California Air Resources Board (CARB) emission standards. EPA and CARB regulations require that in-use testing be performed on vehicles by the emission certificate holder and reported to the EPA and CARB in order to ensure ongoing compliance with these emission standards. We are the holder of this emission certificate for our engines, including engines installed in certain vehicles with one customer for which we did not also manufacture or sell the emission aftertreatment system. During 2015, a quality issue in certain of these third party aftertreatment systems caused some of our inter-related engines to fail in-use emission testing. In the fourth quarter of 2015, the vehicle manufacturer made a request that we assist in the design and bear the financial cost of a field campaign (Campaign) to address the technical issue purportedly causing some vehicles to fail the in-use testing. As the certificate holder, we recorded a charge of $60 million in 2015 for the expected cost of the proposed voluntary Campaign. The Campaign design was finalized with our original equipment manufacturer (OEM) customer, reviewed with the EPA and submitted for final approval in 2016. We concluded based upon additional in-use emission testing performed in 2016 that the Campaign should be expanded to include a larger population of vehicles manufactured by this one OEM. We recorded additional charges of $138 million in 2016 to reflect the estimated cost of our overall participation in the Campaign. In late 2016, litigation arose with our OEM customer regarding cost allocation for this Campaign. In January 2018, a settlement was reached with our customer to fully resolve this matter, which resulted in an incremental charge of $5 million recorded in the fourth quarter of 2017. These charges are reflected in a separate line item on our Consolidated Statements of Income . Engine System During 2017, the CARB and U.S. EPA selected certain of our pre-2013 model year engine systems for additional emissions testing. Some of these engine systems failed CARB and EPA's tests as a result of degradation of an aftertreatment component. We have not been issued an official notice from the CARB or EPA regarding these particular engine systems. We are working with the agencies and will meet with them beginning in the first quarter of 2018, to develop a resolution of these matters. We are developing and testing a variety of solutions to address the technical issues, which could include a combination of calibration changes, service practices and hardware changes. We recorded a charge of $29 million to "cost of sales" in our Consolidated Statements of Income in the third quarter of 2017 for the expected cost of field campaigns to repair some of these engine systems. In addition, we continue to evaluate other engine systems for model years 2010 through 2015 that could potentially be subject to similar aftertreatment component degradation issues. At the close of 2017, we had not yet determined the impact to other model years or engine systems or the percentage of the engine system populations that could be affected. Since there are many unresolved variables with respect to these degradation issues, we are not yet able to estimate the financial impact of these matters. It is possible that they could have a material impact on our results of operations in the periods in which these degradation issues are resolved and a solution is determined. We do not currently expect any fines or penalties from the EPA or CARB related to this matter. Guarantees and Commitments Periodically, we enter into guarantee arrangements, including guarantees of non-U.S. distributor financings, residual value guarantees on equipment under operating leases and other miscellaneous guarantees of joint ventures or third-party obligations. At December 31, 2017, the maximum potential loss related to these guarantees was $51 million . We have arrangements with certain suppliers that require us to purchase minimum volumes or be subject to monetary penalties. At December 31, 2017, if we were to stop purchasing from each of these suppliers, the aggregate amount of the penalty would be approximately $84 million , of which $23 million relates to a contract with a components supplier that extends to 2018 and $19 million relates to a contract with a power systems supplier that extends to 2019. Most of these arrangements enable us to secure critical components. We do not currently anticipate paying any penalties under these contracts. We enter into physical forward contracts with suppliers of platinum, palladium and copper to purchase minimum volumes of the commodities at contractually stated prices for various periods, not to exceed two years . At December 31, 2017, the total commitments under these contracts were $17 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 $102 million at December 31, 2017 . 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 counterparty 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 2017 2016 2015 Rent expense $ 215 $ 210 $ 205 The following is a summary of the leased property under capital leases by major classes: December 31, In millions 2017 2016 Building $ 158 $ 113 Equipment 94 109 Land 16 15 Less: Accumulated depreciation (137 ) (133 ) Total $ 131 $ 104 Following is a summary of the future minimum lease payments due under capital and operating leases with terms of more than one year at December 31, 2017 , together with the net present value of the minimum payments due under capital leases: In millions Capital Leases Operating Leases 2018 $ 30 $ 140 2019 26 108 2020 14 80 2021 9 60 2022 9 44 After 2022 75 70 Total minimum lease payments $ 163 $ 502 Interest (42 ) Present value of net minimum lease payments $ 121 |
SHAREHOLDERS' EQUITY
SHAREHOLDERS' EQUITY | 12 Months Ended |
Dec. 31, 2017 | |
Equity [Abstract] | |
SHAREHOLDERS' EQUITY | NOTE 13. 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, 2017 , 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 were as follows: In millions Common Treasury Common Stock Balance at December 31, 2014 222.3 40.1 1.1 Shares acquired — 7.2 — Shares issued 0.1 (0.1 ) (0.2 ) Balance at December 31, 2015 222.4 47.2 0.9 Shares acquired — 7.3 — Shares issued — (0.3 ) (0.2 ) Balance at December 31, 2016 222.4 54.2 0.7 Shares acquired — 2.9 — Shares issued — (0.4 ) (0.2 ) Balance at December 31, 2017 222.4 56.7 0.5 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, 2017 , consisting of shares issued and repurchased is presented in our Consolidated Statements of Changes in Equity . In December 2016, our Board of Directors authorized the acquisition of up to $1 billion of additional common stock upon completion of the 2015 repurchase plan. In 2017 , we made the following purchases under the 2015 purchase programs: In millions (except per share amounts) For each quarter ended 2017 Shares Purchased Average Cost Per Share Total Cost of Repurchases Remaining Authorized Capacity (1) April 2 0.3 $ 151.32 $ 51 $ 445 July 2 0.5 153.95 69 376 October 1 1.7 155.05 271 105 December 31 0.4 166.00 60 46 Total 2.9 $ 155.81 $ 451 ___________________________________________ (1) The remaining authorized capacity under the 2015 plan was calculated based on the cost to purchase the shares but excludes commission expenses in accordance with the authorized plan. In 2016, we entered into an accelerated share repurchase agreement with a third party financial institution to repurchase $500 million of our common stock under our previously announced share repurchase plans and received 4.7 million shares at an average purchase price of $105.50 per share. We repurchased $451 million , $778 million and $900 million of our common stock in the years ended December 31, 2017 , 2016 and 2015 respectively. Quarterly Dividends Total dividends paid to common shareholders in 2017 , 2016 and 2015 were $701 million , $676 million and $622 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 2017 , the Board of Directors authorized an increase to our quarterly dividend of 5.4 percent from $1.025 per share to $1.08 . In July 2016 , the Board of Directors authorized a 5.1 percent increase to our quarterly cash dividend on our common stock from $0.975 per share to $1.025 per share. In July 2015 , the Board of Directors approved a 25 percent increase to our quarterly dividend on our common stock from $0.780 per share to $0.975 per share. Cash dividends per share paid to common shareholders for the last three years were as follows: Quarterly Dividends 2017 2016 2015 First quarter $ 1.025 $ 0.975 $ 0.78 Second quarter 1.025 0.975 0.78 Third quarter 1.08 1.025 0.975 Fourth quarter 1.08 1.025 0.975 Total $ 4.21 $ 4.00 $ 3.51 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, 2017 , 2016 and 2015 were $17 million , $23 million and $25 million |
OTHER COMPREHENSIVE INCOME (LOS
OTHER COMPREHENSIVE INCOME (LOSS) | 12 Months Ended |
Dec. 31, 2017 | |
Equity [Abstract] | |
OTHER COMPREHENSIVE INCOME (LOSS) | NOTE 14. ACCUMULATED OTHER COMPREHENSIVE LOSS Following are the changes in accumulated other comprehensive income (loss) by component: In millions Change in pensions and other postretirement defined benefit plans Foreign currency translation adjustment Unrealized gain (loss) on marketable securities Unrealized gain (loss) on derivatives Total attributable to Cummins Inc. Noncontrolling interests Total Balance at December 31, 2014 $ (669 ) $ (406 ) $ (1 ) $ (2 ) $ (1,078 ) Other comprehensive income before reclassifications Before tax amount (81 ) (366 ) — 17 (430 ) $ (15 ) $ (445 ) Tax (expense) benefit 35 76 — (1 ) 110 — 110 After tax amount (46 ) (290 ) — 16 (320 ) (15 ) (335 ) Amounts reclassified from accumulated other comprehensive income (1)(2) 61 — (1 ) (10 ) 50 — 50 Net current period other comprehensive income (loss) 15 (290 ) (1 ) 6 (270 ) $ (15 ) $ (285 ) Balance at December 31, 2015 $ (654 ) $ (696 ) $ (2 ) $ 4 $ (1,348 ) Other comprehensive income before reclassifications Before tax amount (111 ) (469 ) 1 (38 ) (617 ) $ (17 ) $ (634 ) Tax benefit (expense) 44 38 — 6 88 — 88 After tax amount (67 ) (431 ) 1 (32 ) (529 ) (17 ) (546 ) Amounts reclassified from accumulated other comprehensive income (1)(2) 36 — — 20 56 — 56 Net current period other comprehensive income (loss) (31 ) (431 ) 1 (12 ) (473 ) $ (17 ) $ (490 ) Balance at December 31, 2016 $ (685 ) $ (1,127 ) $ (1 ) $ (8 ) $ (1,821 ) Other comprehensive income before reclassifications Before tax amount 73 335 2 (12 ) 398 $ 20 $ 418 Tax benefit (expense) (36 ) (20 ) — 5 (51 ) — (51 ) After tax amount 37 315 2 (7 ) 347 20 367 Amounts reclassified from accumulated other comprehensive income (1)(2) 62 — — 12 74 — 74 Impact of tax legislation (Note 2) (103 ) (3) — — — (103 ) — (103 ) Net current period other comprehensive income (loss) (4 ) 315 2 5 318 $ 20 $ 338 Balance at December 31, 2017 $ (689 ) $ (812 ) $ 1 $ (3 ) $ (1,503 ) _______________________________________________________________________ (1) Amounts are net of tax. (2) Reclassifications out of accumulated other comprehensive income (loss) and the related tax effects are immaterial for separate disclosure. (3) Impact of tax legislation includes $(126) million related to one-time cumulative adjustments and $23 million related to 2017. See Note 2 , " INCOME TAXES ," to our Consolidated Financial Statements for additional information . |
STOCK INCENTIVE AND STOCK OPTIO
STOCK INCENTIVE AND STOCK OPTION PLANS | 12 Months Ended |
Dec. 31, 2017 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
STOCK INCENTIVE AND STOCK OPTION PLANS | NOTE 15. STOCK INCENTIVE AND STOCK OPTION PLANS In May of 2017 the Board of Directors approved an amendment to the shareholder approved stock incentive plan (the Plan) to increase the number of available shares. The revised Plan allows for the granting of up to 8.5 million total shares of equity awards 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 have a three-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 at 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. 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 restriction period on a straight-line basis. Employee compensation expense (net of estimated forfeitures) related to our share-based plans for the years ended December 31, 2017, 2016 and 2015, was approximately $39 million , $31 million and $22 million , respectively. In addition, non-employee director share-based compensation expense for the years ended December 31, 2017 , 2016 and 2015 , was approximately $2 million , $1 million and $2 million , respectively. Shares granted to non-employee directors vest immediately and have no restrictions or performance conditions. The excess tax benefit associated with our employee share-based plans for the years ended December 31, 2017 , 2016 and 2015 , was $2 million , $1 million and $1 million , respectively. The total unrecognized compensation expense (net of estimated forfeitures) related to nonvested awards for our employee share-based plans was approximately $41 million at December 31, 2017 , and is expected to be recognized over a weighted-average period of less than two years . The tables below summarize the employee share-based activity in the Plan: Options Weighted-average Exercise Price Weighted-average Remaining Contractual Life (in years) Aggregate Intrinsic Value (in millions) Balance at December 31, 2014 1,626,724 $ 108.30 Granted 476,205 135.21 Exercised (53,545 ) 82.89 Forfeited (19,698 ) 135.89 Balance at December 31, 2015 2,029,686 115.02 Granted 984,430 109.24 Exercised (215,890 ) 87.27 Forfeited (63,462 ) 119.56 Balance at December 31, 2016 2,734,764 115.02 Granted 648,900 149.98 Exercised (355,479 ) 105.91 Forfeited (126,816 ) 125.65 Balance at December 31, 2017 2,901,369 $ 123.49 7.1 $ 156 Exercisable, December 31, 2015 1,318,101 $ 100.55 5.7 $ 13 Exercisable, December 31, 2016 1,149,549 $ 104.19 4.8 $ 38 Exercisable, December 31, 2017 1,063,889 $ 115.26 4.7 $ 66 The weighted-average grant date fair value of options granted during the years ended December 31, 2017 , 2016 and 2015 , was $36.86 , $25.28 and $35.25 , respectively. The total intrinsic value of options exercised during the years ended December 31, 2017 , 2016 and 2015 , was approximately $19 million , $9 million and $3 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 Balance at December 31, 2014 466,693 $ 119.78 11,275 $ 110.94 Granted 133,975 128.48 — — Vested (112,901 ) 115.48 (7,021 ) 110.66 Forfeited (67,398 ) 118.71 — — Balance at December 31, 2015 420,369 123.88 4,254 111.40 Granted 169,150 98.26 8,089 117.69 Vested (115,680 ) 106.55 (2,502 ) 114.57 Forfeited (69,345 ) 110.52 — — Balance at December 31, 2016 404,494 120.41 9,841 115.76 Granted 150,225 138.23 — — Vested (85,020 ) 141.50 (1,752 ) 106.89 Forfeited (58,460 ) 132.52 — — Balance at December 31, 2017 411,239 $ 120.84 8,089 $ 117.68 The total vesting date fair value of performance shares vested during the years ended December 31, 2017 , 2016 and 2015 was $13 million , $12 million and $11 million , respectively. The total fair value of restricted shares vested was less than $1 million , $1 million and $1 million for the years ended December 31, 2017 , 2016 and 2015 , 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: 2017 2016 2015 Expected life (years) 6 5 5 Risk-free interest rate 2.08 % 1.34 % 1.41 % Expected volatility 29.97 % 30.96 % 33.06 % Dividend yield 2.28 % 2.10 % 1.69 % 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 |
NONCONTROLLING INTERESTS
NONCONTROLLING INTERESTS | 12 Months Ended |
Dec. 31, 2017 | |
Noncontrolling Interest [Abstract] | |
NONCONTROLLING INTERESTS | NOTE 16 . NONCONTROLLING INTERESTS Net (loss) income attributable to noncontrolling interests included a $43 million increase to income related to withholding taxes on foreign earnings as a result of tax legislation. Noncontrolling interests in the equity of consolidated subsidiaries were as follows: December 31, In millions 2017 2016 Eaton Cummins Automated Transmission Technologies (1) $ 609 $ — Cummins India Ltd. 280 (2) 285 Other 16 14 Total $ 905 $ 299 ____________________________________________________ (1) See Note 18 , " ACQUISITIONS ," for additional information. (2) Noncontrolling interest for Cummins India Ltd. was reduced by $43 million related to withholding taxes on foreign earnings as a result of tax legislation. See Note 2 , " INCOME TAXES ," to our Consolidated Financial Statements for additional information . |
EARNINGS PER SHARE
EARNINGS PER SHARE | 12 Months Ended |
Dec. 31, 2017 | |
Earnings Per Share [Abstract] | |
EARNINGS PER SHARE | NOTE 17. 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 Employee Benefits Trust (EBT) (see Note 13 , " SHAREHOLDERS' EQUITY ") from the calculation of the weighted-average common shares outstanding until those shares are distributed from the EBT to the Retirement Savings Plan. Following are the computations for basic and diluted earnings per share: Years ended December 31, Dollars in millions, except per share amounts 2017 2016 2015 Net income attributable to Cummins Inc. $ 999 $ 1,394 $ 1,399 Weighted-average common shares outstanding Basic 166,625,320 169,038,410 178,037,581 Dilutive effect of stock compensation awards 645,545 298,206 369,247 Diluted 167,270,865 169,336,616 178,406,828 Earnings per common share attributable to Cummins Inc. Basic $ 5.99 $ 8.25 $ 7.86 Diluted 5.97 8.23 7.84 The weighted-average diluted common shares outstanding excludes the anti-dilutive effect of certain stock options since such options had an exercise price in excess of the monthly average market value of our common stock. The options excluded from diluted earnings per share were as follows: Years ended December 31, 2017 2016 2015 Options excluded 31,991 1,091,799 866,262 |
ACQUISITIONS
ACQUISITIONS | 12 Months Ended |
Dec. 31, 2017 | |
Business Combinations [Abstract] | |
Acquisitions | Acquisitions for the years ended December 31, 2017, 2016 and 2015 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 2017 Brammo Inc. 11/01/17 100% $ 62 $ — $ 68 (3) COMB $ — $ 47 $ 23 $ 4 Eaton Cummins Automated Transmission Technologies 07/31/17 50% 600 (4) — 600 COMB — 544 596 — (4) 2016 Wuxi Cummins Turbo Technologies Co. Ltd 12/05/16 45% $ 86 $ — $ 86 EQUITY $ — $ — $ — $ — Cummins Pacific LLC 10/04/16 50% 32 67 99 COMB 15 4 8 391 (5 ) Cummins Northeast LLC 01/01/16 35% 12 — 12 EQUITY — — — — 2015 Cummins Crosspoint LLC 08/03/15 50% $ 29 $ 36 $ 65 COMB $ 10 $ 7 $ 2 $ 258 (5 ) Cummins Atlantic LLC 08/03/15 51% 21 28 49 COMB 8 5 6 245 (5 ) Cummins Central Power LLC 06/29/15 20.01% 8 — 8 EQUITY — — — — ____________________________________________________ (1) All results from acquired entities (excluding Brammo Inc.) were included in 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, net . The Brammo Inc. acquisition had not yet been assigned to a reportable segment at December 31, 2017. (2) Intangible assets acquired in business combinations were mostly customer and technology related, the majority of which will be amortized over a period of`up to 25 years from the date of the acquisition. (3) The "Total Purchase Consideration" represents the total amount that will or is estimated to be paid to complete the acquisition. A portion of the Brammo Inc. acquisition payment has not yet been made and will be paid in future periods in accordance with the purchase contract. The Brammo Inc. acquisition contains an earnout based on future results of the acquired business and could result in a maximum contingent consideration payment of $100 million (fair value of $5 million) to the former owners. (4) This transaction created a newly formed joint venture that we consolidated. See additional information below. (5) In April 2017, we entered into an agreement to form a joint venture with Eaton Corporation PLC (Eaton), which closed on July 31, 2017 (the acquisition date). We purchased a 50 percent interest in the new venture named Eaton Cummins Automated Transmission Technologies (ECJV) for $600 million in cash. In addition, each partner contributed $20 million for working capital. The joint venture will design, assemble, sell and support medium-duty and heavy-duty automated transmissions for the commercial vehicle market, including new product launches. The new generation products (Procision and Endurant) were launched in 2016 and 2017, respectively, and are owned by the joint venture. Eaton will continue to manufacture and sell the old generation products to the joint venture which will be marked up and sold to end customers. Eaton will also sell certain transmission components to the joint venture at prices approximating market rates. In addition, Eaton will provide certain manufacturing and administrative services to the joint venture, including but not limited to manufacturing labor in Mexico, information technology services, accounting services and purchasing services, at prices approximating market rates. Pro forma financial information was not provided as historical activity related to the products contributed to the joint venture was not material. We consolidated the results of the joint venture in our Components segment as we have a majority voting interest in the venture by virtue of a tie-breaking vote on the joint venture's board of directors. The joint venture had an enterprise value at inception of $1.2 billion . Due to the structure of the joint venture and equal sharing of economic benefits, we did not apply a discount for lack of control to the noncontrolling interests. The final purchase price allocation was as follows: In millions Inventory $ 3 Fixed assets 58 Intangible assets Customer relationships 424 Technology 172 Goodwill 544 Liabilities (1 ) Total business valuation 1,200 Less: Noncontrolling interest 600 Total purchase consideration $ 600 Customer relationship assets represent the value of the long-term strategic relationship the business has with its significant customers, which we are amortizing over 25 years. The assets were valued using an income approach, specifically the "multi-period excess earnings" method, which identifies an estimated stream of revenues and expenses for a particular group of assets from which deductions of portions of the projected economic benefits, attributable to assets other than the subject asset (contributory assets), are deducted in order to isolate the prospective earnings of the subject asset. This value is considered a level 3 measurement under the GAAP fair value hierarchy. Key assumptions used in the valuation of customer relationships include: (1) a rate of return of 10 percent and (2) an attrition rate of 3 percent . Technology assets primarily represent the associated patents and know how related to the Endurant and Procision next generation automated transmissions, which we are amortizing over 15 years. These assets were valued using the "relief-from-royalty" method, which is a combination of both the income approach and market approach that values a subject asset based on an estimate of the "relief" from the royalty expense that would be incurred if the subject asset were licensed from a third party. Key assumptions impacting this value include: (1) a market royalty rate of 5 percent , (2) a rate of return of 10 percent and (3) an economic depreciation rate of 7.5 percent . This value is considered a level 3 measurement under the GAAP fair value hierarchy. Annual amortization of the intangible assets for the next 5 years is expected to approximate $28 million . Goodwill was determined based on the residual difference between the fair value of consideration transferred and the value assigned to tangible and intangible assets and liabilities. Approximately $31 million of the goodwill is deductible for tax purposes. Among the factors contributing to a purchase price resulting in the recognition of goodwill is the ability to integrate and optimize the engine and transmission development to deliver the world’s best power train, to realize synergies in service and aftermarket growth and to utilize our strength in international markets where automated transmission adoption rates are very low. Included in our 2017 results were revenues of $164 million and a net loss of $11 million |
IMPAIRMENTS
IMPAIRMENTS | 12 Months Ended |
Dec. 31, 2017 | |
Asset Impairment Charges [Abstract] | |
Asset Impairment Charges | We began development of a new North American light-duty diesel engine (LDD) platform in July of 2006 for use in a variety of on and off-highway applications. At December 31, 2015, we had capitalized investments of approximately $279 million , with a net book value prior to the impairment of $246 million ( $235 million of which was in our Engine segment and $11 million of which was in our Components segment). Market uncertainty due to the global recession in 2008/2009 resulted in some customers delaying or canceling their vehicle programs, while others remained active. We announced an agreement with Nissan Motor Co. Ltd. in 2013 to supply our light-duty diesel engine and began commercial shipment in 2015. In the fourth quarter of 2015, we learned that we were not successful in our bid to supply this product for an additional customer. In addition, the deterioration in global economic conditions and excess manufacturing capacity in other markets made it unlikely that we would manufacture additional products on the LDD line to utilize its excess capacity during the asset recovery period. As a result, we concluded that the combination of these events presented a triggering event requiring an assessment of the recoverability of these assets in the fourth quarter of 2015. The assessment indicated that the projected undiscounted cash flows related to this asset group were not sufficient to recover its carrying value. Consequently, we were required to write down the LDD asset group to fair value. Our 2015 fourth quarter results included an impairment charge of $211 million ( $133 million after-tax), of which $202 million was in the Engine segment and $9 million was in the Components segment, to reflect the assets at fair value. We remain committed to servicing existing contracts and are not exiting this product line. The fair value of the asset group was estimated to be $35 million ( $33 million for the Engine segment and $2 million for the Components segment) at December 31, 2015 and was calculated primarily using a cost approach with consideration of a market approach where secondary market information was available for the type and age of these assets. In the application of the market approach, we determined that the liquidation value in-place reflected the best estimate of fair value. In the application of the cost approach we considered the current cost of replacing the assets with a reduction for physical deterioration given the age of the assets and a reduction for functional and economic obsolescence in the form of a discount reflecting the current and projected under-utilization of the assets. The fair value of these assets are considered Level 3 under the fair value hierarchy as they are either derived from unobservable inputs or have significant adjustments to the observable inputs. |
RESTRUCTURING AND OTHER CHARGES
RESTRUCTURING AND OTHER CHARGES | 12 Months Ended |
Dec. 31, 2017 | |
Restructuring and Related Activities [Abstract] | |
Restructuring, Impairment, and Other Activities Disclosure | NOTE 20. RESTRUCTURING ACTIONS AND OTHER CHARGES We executed restructuring actions primarily in the form of professional voluntary and involuntary employee separation programs in the fourth quarter of 2015. These actions were in response to the continued deterioration in our global markets in the second half of 2015, as well as expected reductions in orders in most U.S. and global markets in 2016. We reduced our worldwide workforce by approximately 1,900 employees , including approximately 370 employees accepting voluntary retirement packages with the remainder of the reductions being involuntary. We incurred a charge of $90 million ( $61 million after-tax) in the fourth quarter of 2015, of which $86 million related to severance costs for both voluntary and involuntary terminations and $4 million for asset impairments and other charges. At December 31, 2017, all terminations were completed. |
OPERATING SEGMENTS
OPERATING SEGMENTS | 12 Months Ended |
Dec. 31, 2017 | |
Segment Reporting [Abstract] | |
OPERATING SEGMENTS | NOTE 21. 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 (CODM), or decision-making group, in deciding how to allocate resources and in assessing performance. Our CODM is the President and Chief Operating Officer. Our reportable operating segments consist of Engine, Distribution, Components and Power Systems. This reporting structure is organized according to the products and markets each segment serves . The Engine segment produces engines (15 liters and less in size) and associated parts for sale to customers in on-highway and various off-highway markets. Our engines are used in trucks of all sizes, buses and recreational vehicles, as well as in various industrial applications, including construction, agriculture, power generation systems and other off-highway applications. 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, fuel systems and transmissions. The Power Systems segment is an integrated power provider, which designs, manufactures and sells engines (16 liters and larger) for industrial applications (including mining, oil and gas, marine and rail), standby and prime power generator sets, alternators and other power components. We use EBIT (defined as earnings before interest expense, income 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 allocate 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, finance and supply chain management. We 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. 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 (1) Power Systems Total Segment Intersegment Eliminations (2) Total 2017 External sales $ 6,661 $ 7,029 $ 4,363 $ 2,375 $ 20,428 $ — $ 20,428 Intersegment sales 2,292 29 1,526 1,683 5,530 (5,530 ) — Total sales 8,953 7,058 5,889 4,058 25,958 (5,530 ) 20,428 Depreciation and amortization (3) 184 116 163 117 580 — 580 Research, development and engineering expenses 279 19 240 214 752 — 752 Equity, royalty and interest income from investees (4) 219 44 40 54 357 — 357 Interest income 6 6 3 3 18 — 18 Loss contingency charge (5) 5 — — — 5 — 5 Segment EBIT 959 384 754 294 2,391 55 2,446 Net assets 1,290 2,700 3,028 3,124 10,142 — 10,142 Investments and advances to equity investees 531 267 194 164 1,156 — 1,156 Capital expenditures 188 101 127 90 506 — 506 2016 External sales $ 5,774 $ 6,157 $ 3,514 $ 2,064 $ 17,509 $ — $ 17,509 Intersegment sales 2,030 24 1,322 1,453 4,829 (4,829 ) — Total sales 7,804 6,181 4,836 3,517 22,338 (4,829 ) 17,509 Depreciation and amortization (3) 163 116 133 115 527 — 527 Research, development and engineering expenses 226 13 208 189 636 — 636 Equity, royalty and interest income from investees 148 70 41 42 301 — 301 Interest income 10 4 4 5 23 — 23 Loss contingency charge (5) 138 — — — 138 — 138 Segment EBIT 686 392 (6) 641 263 (7) 1,982 17 1,999 Net assets 1,620 2,604 1,868 2,629 8,721 — 8,721 Investments and advances to equity investees 427 204 176 139 946 — 946 Capital expenditures 200 96 143 92 531 — 531 2015 External sales $ 6,733 $ 6,198 $ 3,745 $ 2,434 $ 19,110 $ — $ 19,110 Intersegment sales 1,937 31 1,427 1,633 5,028 (5,028 ) — Total sales 8,670 6,229 5,172 4,067 24,138 (5,028 ) 19,110 Depreciation and amortization (3) 187 105 109 110 511 — 511 Research, development and engineering expenses 263 10 236 226 735 — 735 Equity, royalty and interest income from investees 146 78 35 56 315 — 315 Interest income 11 4 4 5 24 — 24 Loss contingency charge (5) 60 — — — 60 — 60 Impairment of light-duty diesel assets (8) 202 — 9 — 211 — 211 Restructuring actions and other charges (9) 17 23 13 26 79 11 90 Segment EBIT 636 412 (6) 727 335 2,110 (20 ) 2,090 Net assets 2,107 2,330 1,891 2,736 9,064 — 9,064 Investments and advances to equity investees 445 192 150 188 975 — 975 Capital expenditures 345 125 137 137 744 — 744 ____________________________________________________ (1) Includes Eaton Cummins Automated Transmission Technologies joint venture results consolidated during the third quarter of 2017. See Note 18 , " ACQUISITIONS ," for additional information. (2) Includes intersegment sales, intersegment profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the years ended December 31, 2017, 2016 and 2015, respectively. (3) 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 , $3 million and $3 million for the years ended December 31, 2017, 2016 and 2015, respectively. (4) U.S. tax legislation passed in December 2017 decreased our equity earnings at certain equity investees, negatively impacting our equity, royalty and interest income from investees by $23 million , $4 million and $12 million for the Engine, Distribution and Components segments, respectively. See Note 2 , " INCOME TAXES ," for additional information. (5) See Note 12 , " COMMITMENTS AND CONTINGENCIES ," for additional information. (6) Distribution segment EBIT included gains on the fair value adjustment resulting from the acquisition of controlling interests in North American distributors of $15 million and $18 million for the years ended December 31, 2016 and 2015 , respectively. See Note 18 , " ACQUISITIONS ," for additional information. (7) Power Systems segment EBIT included a $17 million gain on the sale of an equity investee for the year ended December 31, 2016. See Note 3 , " INVESTMENTS IN EQUITY INVESTEES ," for additional information. (8) See Note 19 , " IMPAIRMENT OF LIGHT-DUTY DIESEL ASSETS ," for additional information. (9) See Note 20 , " RESTRUCTURING ACTIONS AND OTHER CHARGES ," 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 2017 2016 2015 Total EBIT $ 2,446 $ 1,999 $ 2,090 Less: Interest expense 81 69 65 Income before income taxes $ 2,365 $ 1,930 $ 2,025 December 31, In millions 2017 2016 2015 Net assets for operating segments $ 10,142 $ 8,721 $ 9,064 Brammo Inc. assets 72 (1) — — Liabilities deducted in arriving at net assets 7,397 6,152 5,920 Pension and other postretirement benefit adjustments excluded from net assets 156 (284 ) (242 ) Deferred tax assets not allocated to segments 306 420 390 Deferred debt costs not allocated to segments 2 2 2 Total assets $ 18,075 $ 15,011 $ 15,134 ____________________________________________________ (1) Assets associated with the Brammo Inc. acquisition were presented as a reconciling item as Brammo Inc. had not yet been assigned to a reportable segment at December 31, 2017. See Note 18 , " ACQUISITIONS ," for additional information. The tables below present certain segment information by geographic area. Net sales attributed to geographic areas were based on the location of the customer. In millions Years ended December 31, Net Sales 2017 2016 2015 United States $ 11,010 $ 9,476 $ 10,757 China 2,137 1,544 1,451 Other International 7,281 6,489 6,902 Total net sales $ 20,428 $ 17,509 $ 19,110 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 December 31, Long-lived assets 2017 2016 2015 United States $ 3,157 $ 3,092 $ 2,968 China 795 652 668 India 563 475 450 United Kingdom 339 254 349 Netherlands 221 197 172 Brazil 149 149 124 Mexico 136 131 108 Canada 116 132 133 Other international countries 293 236 261 Total long-lived assets $ 5,769 $ 5,318 $ 5,233 Our largest customer is PACCAR Inc. Worldwide sales to this customer were $2,893 million in 2017 , $2,359 million in 2016 and $2,949 million in 2015 , representing 14 percent , 13 percent and 15 percent |
QUARTERLY FINANCIAL INFORMATION
QUARTERLY FINANCIAL INFORMATION DISCLOSURE (unaudited) | 12 Months Ended |
Dec. 31, 2017 | |
Quarterly Financial Information Disclosure [Abstract] | |
QUARTERLY FINANCIAL INFORMATION | SELECTED QUARTERLY FINANCIAL DATA UNAUDITED First Quarter Second Quarter Third Quarter Fourth Quarter In millions, except per share amounts 2017 Net sales $ 4,589 $ 5,078 $ 5,285 $ 5,476 Gross margin 1,128 1,249 1,339 1,374 Net income attributable to Cummins Inc. 396 424 453 (274 ) (1) Earnings per common share attributable to Cummins Inc.—basic (2) $ 2.36 $ 2.53 $ 2.72 $ (1.66 ) (1) Earnings per common share attributable to Cummins Inc.—diluted (2) 2.36 2.53 2.71 (1.65 ) (1) Cash dividends per share 1.025 1.025 1.08 1.08 Stock price per share High $ 155.51 $ 164.23 $ 170.68 $ 181.79 Low 134.06 143.83 150.25 158.75 2016 Net sales $ 4,291 $ 4,528 $ 4,187 $ 4,503 Gross margin 1,056 1,197 1,079 1,120 Net income attributable to Cummins Inc. 321 406 (3) 289 (3) 378 Earnings per common share attributable to Cummins Inc.—basic (2) $ 1.87 $ 2.41 (3) $ 1.72 (3) $ 2.26 Earnings per common share attributable to Cummins Inc.—diluted (2) 1.87 2.40 (3) 1.72 (3) 2.25 Cash dividends per share 0.975 0.975 1.025 1.025 Stock price per share High $ 111.29 $ 120.00 $ 128.60 $ 147.10 Low 79.88 104.30 107.51 121.22 ___________________________________________________ (1) Net income attributable to Cummins Inc. and earnings per share were negatively impacted by a $777 million tax adjustment related to The Tax Cuts and Jobs Act passed in December of 2017. For the fourth quarter of 2017, results for basic and diluted earnings per share were reduced by $4.70 per share and $4.68 per share, respectively, due to tax reform. (2) Earnings per share in each quarter is computed using the weighted-average number of shares outstanding during that quarter while earnings per share for the full year is computed using the weighted-average number of shares outstanding during the year. Thus, the sum of the four quarters earnings per share may not equal the full year earnings per share. (3) The second quarter of 2016 included a $39 million loss contingency charge ( $24 million after-tax). The third quarter of 2016 included an additional $99 million loss contingency charge ( $50 million net of favorable compensation impact and after-tax). At December 31, 2017 , there were approximately 3,362 |
SUMMARY OF SIGNIFICANT ACCOUN30
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 12 Months Ended |
Dec. 31, 2017 | |
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 (loss) income attributable to noncontrolling interests" in our Consolidated Statements of Income . |
Reclassification | Reclassifications Certain amounts for 2016 and 2015 |
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 |
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 rate and other assumptions for pension and other postretirement benefit 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 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 . We classify shipping and handling billed to customers as sales in our Consolidated Statements of Income . Substantially all shipping and handling costs are included in "Cost of sales." |
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 loss (AOCL) 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 , $12 million and $18 million for the years ended December 31, 2017 , 2016 and 2015 |
Fair Value Measurement | Fair Value Measurements A three-level valuation hierarchy, based upon the observable and unobservable inputs, is used for fair value measurements. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions based on the best evidence available. These two types of inputs create the following fair value hierarchy: • Level 1 - Quoted prices for identical instruments in active markets; • Level 2 - Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations whose significant inputs are observable; and • Level 3 - Instruments whose significant inputs are unobservable |
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 physical forward contracts, options 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 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 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. To minimize the income volatility resulting from the remeasurement of net monetary assets and payables denominated in a currency other than the functional currency, we enter into foreign currency forward contracts, which are considered economic hedges. The objective is to offset the gain or loss from remeasurement with the gain or loss from the fair market valuation of the forward contract. These derivative instruments are not designated as hedges under GAAP. 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 physical forward contracts and zero-cost collar contracts with designated banks and other counterparties to fix the cost of certain raw material purchases with the objective of minimizing changes in inventory cost due to market price fluctuations. The physical forward contracts qualify for the normal purchases scope exceptions and are treated as purchase commitments. The commodity zero-cost collar contracts that represent an economic hedge, but are not designated for hedge accounting, are marked to market through earnings. |
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 net operating 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 provisions 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 net operating loss and credit carryforwards is disclosed in NOTE 2 , " 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 |
Schedule of Cash Flow, Supplemental Disclosures | Years ended December 31, In millions 2017 2016 2015 Cash payments for income taxes, net of refunds $ 622 $ 430 $ 732 Cash payments for interest, net of capitalized interest 82 68 65 |
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, 2017 and 2016 , 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 4 , " 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, 2017 and 2016 were $16 million and $16 million |
Inventories | Inventories Our inventories are stated at the lower of cost or market. For the years ended December 31, 2017 and 2016 , approximately 12 percent and 13 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 5 , " INVENTORIES |
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 property, plant and equipment using the straight-line method with depreciable lives ranging from 20 to 40 years for buildings and 3 to 15 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 $467 million , $434 million and $419 million for the years ended December 31, 2017 , 2016 and 2015 , respectively. See NOTE 6 , " PROPERTY, PLANT AND EQUIPMENT |
Impairment of Long-Lived Assets | Impairment of 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. See NOTE 19 , " IMPAIRMENT OF LIGHT-DUTY DIESEL ASSETS |
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 reporting units which share similar economic characteristics and thus are aggregated into a single reporting unit for testing purposes. These two situations are described further below: • Within our Components segment, our emission solutions and filtration businesses have been aggregated into a single reporting unit. • 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. 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, 2017 , our recorded goodwill was $1,082 million , approximately 36 percent of which resided in the aggregated emission solutions and filtration reporting unit. For this reporting unit, the fair value exceeded its carrying value by a substantial margin. Approximately 50 percent and 4 percent of goodwill resides in our new automated transmissions reporting unit and our Brammo Inc. acquisition (not yet allocated to a segment), respectively. Since these businesses were just acquired in the second half of 2017, we did not perform an additional quantitative test as of the end of our third fiscal quarter. See NOTE 18 , " ACQUISITIONS ," for additional information on the acquisition related goodwill recorded at the respective acquisition dates. 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 7 , " GOODWILL AND OTHER INTANGIBLE ASSETS |
Intangible Assets, Finite-Lived | Other Intangible Assets We capitalize other intangible assets, such as trademarks, patents, and customer relationships, that have been acquired either individually or with a group of other assets. These intangible assets are amortized on a straight-line basis over their estimated useful lives generally ranging from 3 to 25 years. Intangible 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. See NOTE 7 , " GOODWILL AND OTHER INTANGIBLE ASSETS |
Software | Software We capitalize software that is 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 7 , " GOODWILL AND OTHER INTANGIBLE ASSETS |
Warranty | WarrantyWe 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. |
Extended Warranty, | 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 8 , " PRODUCT WARRANTY LIABILITY |
Research and Development | Research and Development Our research and development program is focused on product improvements, product extensions, innovations and cost reductions for our customers. Research and development expenditures include salaries, contractor fees, building costs, utilities, testing, technical IT, 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 and government agencies 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 $734 million in 2017 , $616 million in 2016 and $718 million in 2015 . Contract reimbursements were $137 million in 2017 , $131 million in 2016 and $98 million in 2015 |
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 |
INCOME TAXES (Tables)
INCOME TAXES (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Income Tax Disclosure [Abstract] | |
Schedule of Income before Income Tax, Domestic and Foreign [Table Text Block] | The following table summarizes income before income taxes: Years ended December 31, In millions 2017 2016 2015 U.S. income $ 1,237 $ 995 $ 1,275 Foreign income 1,128 935 750 Income before income taxes $ 2,365 $ 1,930 $ 2,025 |
Schedule of Components of Income Tax Expense (Benefit) [Table Text Block] | Income tax expense (benefit) consists of the following: Years ended December 31, In millions 2017 2016 2015 Current U.S. federal and state $ 355 $ 211 $ 516 Foreign 289 213 147 Impact of tax legislation 349 — — Total current 993 424 663 Deferred U.S. federal and state (42 ) 57 (151 ) Foreign (12 ) (7 ) 43 Impact of tax legislation 432 — — Total deferred 378 50 (108 ) Income tax expense $ 1,371 $ 474 $ 555 |
Schedule of Effective Income Tax Rate Reconciliation [Table Text Block] | Years ended December 31, 2017 2016 2015 Statutory U.S. federal income tax rate 35.0 % 35.0 % 35.0 % State income tax, net of federal effect 0.6 0.8 1.2 Differences in rates and taxability of foreign subsidiaries and joint ventures (6.4 ) (7.2 ) (6.6 ) Research tax credits (1.4 ) (1.7 ) (1.4 ) Impact of tax legislation 33.1 — — Other, net (2.9 ) (2.3 ) (0.8 ) Effective tax rate 58.0 % 24.6 % 27.4 % |
Schedule of Deferred Tax Assets and Liabilities [Table Text Block] | Carryforward tax benefits and the tax effect of temporary differences between financial and tax reporting that give rise to net deferred tax (liabilities) assets were as follows: December 31, In millions 2017 2016 Deferred tax assets U.S. state carryforward benefits $ 200 $ 159 Foreign carryforward benefits 159 154 Employee benefit plans 274 401 Warranty expenses 300 405 Accrued expenses 95 107 Other 70 64 Gross deferred tax assets 1,098 1,290 Valuation allowance (347 ) (307 ) Total deferred tax assets 751 983 Deferred tax liabilities Property, plant and equipment (250 ) (319 ) Unremitted income of foreign subsidiaries and joint ventures (331 ) (59 ) Employee benefit plans (224 ) (213 ) Other (31 ) (48 ) Total deferred tax liabilities (836 ) (639 ) Net deferred tax (liabilities) assets $ (85 ) $ 344 |
Tax Related Line Items on the Consolidated Balance Sheets [Table Text Block] | Our Consolidated Balance Sheets contain the following tax related items: December 31, In millions 2017 2016 Prepaid and other current assets Refundable income taxes $ 152 $ 192 Other assets Deferred income tax assets 306 420 Long-term refundable income taxes 6 22 Accrued expenses Income tax payable 77 48 Other liabilities and deferred revenue Income tax payable 281 — Deferred income tax liabilities 391 76 |
Schedule of Unrecognized Tax Benefits Roll Forward [Table Text Block] | A reconciliation of unrecognized tax benefits for the years ended December 31, 2017, 2016 and 2015 was as follows: December 31, In millions 2017 2016 2015 Balance at beginning of year $ 59 $ 135 $ 174 Additions to current year tax positions 11 10 8 Additions to prior years' tax positions 9 18 24 Reductions to prior years' tax positions (3 ) — — Reductions for tax positions due to settlements with taxing authorities (35 ) (104 ) (71 ) Balance at end of year $ 41 $ 59 $ 135 |
INVESTMENTS IN EQUITY INVESTE32
INVESTMENTS IN EQUITY INVESTEES (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Equity Method Investments and Joint Ventures [Abstract] | |
Summary of investments in and advances to equity investees and our ownership percentage | Investments and advances related to equity method investees and our ownership percentage was as follows: December 31, In millions Ownership % 2017 2016 Beijing Foton Cummins Engine Co., Ltd. 50% $ 223 $ 163 Komatsu alliances 20-50% 219 197 Dongfeng Cummins Engine Company, Ltd. 50% 146 111 Cummins-Scania XPI Manufacturing, LLC 50% 87 82 Chongqing Cummins Engine Company, Ltd. 50% 84 73 Tata Cummins, Ltd. 50% 59 63 Other Various 338 257 Investments and advances related to equity method investees $ 1,156 $ 946 |
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 2017 2016 2015 Distribution entities Komatsu Cummins Chile, Ltda. $ 30 $ 34 $ 31 North American distributors — 21 33 All other distributors (1 ) — 3 Manufacturing entities Beijing Foton Cummins Engine Co., Ltd. 94 52 62 Dongfeng Cummins Engine Company, Ltd. 73 46 51 Chongqing Cummins Engine Company, Ltd. 41 38 41 Dongfeng Cummins Emission Solutions Co., Ltd. 13 9 6 Shanghai Fleetguard Filter Co., Ltd. 12 10 10 Cummins Westport, Inc. 9 (1) 11 18 All other manufacturers 37 (1) 39 18 Cummins share of net income 308 260 273 Royalty and interest income 49 41 42 Equity, royalty and interest income from investees $ 357 $ 301 $ 315 |
Summary of financial information for equity investees | Summary financial information for our equity investees was as follows: For the years ended and at December 31, In millions 2017 2016 2015 Net sales $ 7,050 $ 5,654 $ 5,946 Gross margin 1,422 1,182 1,265 Net income 680 499 521 Cummins share of net income $ 308 $ 260 $ 273 Royalty and interest income 49 41 42 Total equity, royalty and interest from investees $ 357 $ 301 $ 315 Current assets $ 3,416 $ 2,602 Non-current assets 1,379 1,377 Current liabilities (2,567 ) (1,938 ) Non-current liabilities (237 ) (232 ) Net assets $ 1,991 $ 1,809 Cummins share of net assets $ 1,116 $ 927 |
MARKETABLE SECURITIES (Tables)
MARKETABLE SECURITIES (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Marketable Securities [Abstract] | |
Summary of marketable securities | A summary of marketable securities, all of which are classified as current, was as follows: December 31, 2017 2016 In millions Cost Gross unrealized Estimated Cost Gross unrealized Estimated Available-for-sale (1) Debt mutual funds $ 170 $ — $ 170 $ 132 $ — $ 132 Bank debentures — — — 114 — 114 Equity mutual funds 12 3 15 12 — 12 Certificates of deposit 12 — 12 — — — Government debt securities 1 — 1 2 — 2 Total marketable securities $ 195 $ 3 $ 198 $ 260 $ — $ 260 ______________________________________________________ (1) All marketable securities are classified as Level 2 securities. The fair value of Level 2 securities is estimated using actively quoted prices for similar instruments from brokers and observable inputs where available, including market transactions and third-party pricing services, or net asset values provided to investors. We do not currently have any Level 3 securities and there were no transfers between Level 2 or 3 during 2017 or 2016. |
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 available-for-sale (AFS) securities were as follows: Years ended December 31, In millions 2017 2016 2015 Proceeds from sales and maturities of marketable securities $ 266 $ 306 $ 270 Gross realized gains from the sale of available-for-sale securities (1) — — 1 ____________________________________________________ (1) |
Summary of fair value of AFS investments in debt securities by contractual maturity | At December 31, 2017 , the fair value of AFS 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 $ 182 1 - 5 years 1 Total $ 183 |
INVENTORIES (Tables)
INVENTORIES (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Inventory Disclosure [Abstract] | |
Inventories | Inventories included the following: December 31, In millions 2017 2016 Finished products $ 2,078 $ 1,779 Work-in-process and raw materials 1,216 1,005 Inventories at FIFO cost 3,294 2,784 Excess of FIFO over LIFO (128 ) (109 ) Total inventories $ 3,166 $ 2,675 |
PROPERTY, PLANT AND EQUIPMENT (
PROPERTY, PLANT AND EQUIPMENT (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
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 2017 2016 Land and buildings $ 2,332 $ 2,075 Machinery, equipment and fixtures 5,285 4,898 Construction in process 441 662 Property, plant and equipment, gross 8,058 7,635 Less: Accumulated depreciation (4,131 ) (3,835 ) Property, plant and equipment, net $ 3,927 $ 3,800 |
GOODWILL AND OTHER INTANGIBLE36
GOODWILL AND OTHER INTANGIBLE ASSETS (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
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, 2017 and 2016 : In millions Components Distribution Power Systems Engine Total Balance at December 31, 2015 $ 391 $ 75 $ 10 $ 6 $ 482 Acquisitions — 4 — — 4 Translation and other (5 ) — (1 ) — (6 ) Balance at December 31, 2016 386 79 9 6 480 Acquisitions 544 (1) — — — 544 Translation and other 10 — 1 — 11 Balance at December 31, 2017 $ 940 $ 79 $ 10 $ 6 $ 1,035 Goodwill not yet allocated to segments 47 (2) $ 1,082 ____________________________________________________ (1) Acquisition goodwill relates to Eaton Cummins Automated Transmission Technologies. See Note 18 , " ACQUISITIONS ," for additional information. (2) Goodwill associated with the Brammo Inc. acquisition was presented as a reconciling item as it had not yet been assigned to a reportable segment at December 31, 2017. Effective January 1, 2018, Brammo Inc. will be assigned to a new reportable segment called Electrified Power. See Note 18 , " ACQUISITIONS |
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 2017 2016 Software $ 718 $ 617 Less: Accumulated amortization (386 ) (330 ) Software, net 332 287 Trademarks, patents, customer relationships and other 786 164 Less: Accumulated amortization (145 ) (119 ) Trademarks, patents, customer relationships and other, net 641 45 Total other intangible assets, net $ 973 $ 332 |
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 2018 2019 2020 2021 2022 Projected amortization expense $ 130 $ 116 $ 101 $ 76 $ 55 |
PENSION AND OTHER POSTRETIREM37
PENSION AND OTHER POSTRETIREMENT BENEFITS (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Pension and other postretirement benefits | |
Schedule of Benefit Obligations in Excess of Fair Value of Plan Assets | 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 2017 2016 2017 2016 Total accumulated benefit obligation $ 2,745 $ 2,625 $ 1,569 $ 1,366 Plans with accumulated benefit obligation in excess of plan assets Accumulated benefit obligation 323 304 — — Plans with projected benefit obligation in excess of plan assets Projected benefit obligation 344 339 — — |
Pension Plan | |
Pension and other postretirement benefits | |
Schedule of Net Funded Status | 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 at December 31 were as follows: Qualified and Non-Qualified Pension Plans U.S. Plans U.K. Plans In millions 2017 2016 2017 2016 Change in benefit obligation Benefit obligation at the beginning of the year $ 2,661 $ 2,533 $ 1,451 $ 1,390 Service cost 107 90 26 21 Interest cost 106 109 40 50 Actuarial loss 61 111 53 316 Benefits paid from fund (155 ) (175 ) (54 ) (55 ) Benefits paid directly by employer (15 ) (16 ) — — Plan amendments — 9 — — Exchange rate changes — — 146 (271 ) Benefit obligation at end of year $ 2,765 $ 2,661 $ 1,662 $ 1,451 Change in plan assets Fair value of plan assets at beginning of year $ 2,751 $ 2,636 $ 1,753 $ 1,712 Actual return on plan assets 351 200 78 402 Employer contributions 219 90 9 28 Benefits paid (155 ) (175 ) (54 ) (55 ) Exchange rate changes — — 174 (334 ) Fair value of plan assets at end of year $ 3,166 $ 2,751 $ 1,960 $ 1,753 Funded status (including underfunded and nonfunded plans) at end of year $ 401 $ 90 $ 298 $ 302 Amounts recognized in consolidated balance sheets Pension assets - long-term $ 745 $ 429 $ 298 $ 302 Accrued compensation, benefits and retirement costs - current liabilities (14 ) (13 ) — — Pensions - long-term liabilities (330 ) (326 ) — — Net amount recognized $ 401 $ 90 $ 298 $ 302 Amounts recognized in accumulated other comprehensive loss Net actuarial loss $ 649 $ 770 $ 207 $ 172 Prior service cost 8 9 — — Net amount recognized $ 657 $ 779 $ 207 $ 172 |
Schedule of Net Benefit Costs | The following table presents the net periodic pension cost under our plans for the years ended December 31: Qualified and Non-Qualified Pension Plans U.S. Plans U.K. Plans In millions 2017 2016 2015 2017 2016 2015 Service cost $ 107 $ 90 $ 80 $ 26 $ 21 $ 27 Interest cost 106 109 102 40 50 56 Expected return on plan assets (204 ) (201 ) (189 ) (70 ) (71 ) (91 ) Amortization of prior service cost — — (1 ) — — — Recognized net actuarial loss 37 29 45 40 15 34 Net periodic pension cost $ 46 $ 27 $ 37 $ 36 $ 15 $ 26 |
Schedule of Amounts Recognized in Other Comprehensive Income (Loss) | Other changes in benefit obligations and plan assets recognized in other comprehensive income for the years ended December 31 were as follows: In millions 2017 2016 2015 Amortization of prior service credit $ — $ — $ 1 Recognized net actuarial loss (77 ) (44 ) (79 ) Incurred actuarial (gain) loss (40 ) 107 105 Foreign exchange translation adjustments 30 (28 ) (7 ) Total recognized in other comprehensive income $ (87 ) $ 35 $ 20 Total recognized in net periodic pension cost and other comprehensive income $ (5 ) $ 77 $ 83 |
Schedule of Assumptions Used | The table below presents various assumptions used in determining the PBO 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 2017 2016 2017 2016 Discount rate 3.66 % 4.12 % 2.55 % 2.70 % Compensation increase rate 2.99 % 4.87 % 3.75 % 3.75 % Qualified and Non-Qualified Pension Plans U.S. Plans U.K. Plans 2017 2016 2015 2017 2016 2015 Discount rate 4.12 % 4.47 % 4.07 % 2.70 % 3.95 % 3.80 % Expected return on plan assets 7.25 % 7.50 % 7.50 % 4.50 % 4.70 % 5.80 % Compensation increase rate 4.87 % 4.87 % 4.88 % 3.75 % 3.75 % 4.25 % |
Schedule of Expected Benefit Payments | The table below presents expected future benefit payments under our pension plans: Qualified and Non-Qualified Pension Plans In millions 2018 2019 2020 2021 2022 2023 - 2027 Expected benefit payments $ 239 $ 237 $ 242 $ 248 $ 253 $ 1,320 |
Other Postretirement Benefit Plan | |
Pension and other postretirement benefits | |
Schedule of Net Funded Status | 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 2017 2016 Change in benefit obligation Benefit obligation at the beginning of the year $ 364 $ 385 Interest cost 14 16 Plan participants' contributions 24 14 Actuarial (gain) loss (35 ) 9 Benefits paid directly by employer (49 ) (60 ) Benefit obligation at end of year $ 318 $ 364 Funded status at end of year $ (318 ) $ (364 ) Amounts recognized in consolidated balance sheets Accrued compensation, benefits and retirement costs - current liabilities $ (29 ) $ (35 ) Postretirement benefits other than pensions-long-term liabilities (289 ) (329 ) Net amount recognized $ (318 ) $ (364 ) Amounts recognized in accumulated other comprehensive loss: Net actuarial loss $ 27 $ 69 Prior service credit (4 ) (5 ) Net amount recognized $ 23 $ 64 |
Schedule of Net Benefit Costs | The following table presents the net periodic other postretirement benefits cost under our plans: Years ended December 31, In millions 2017 2016 2015 Interest cost $ 14 $ 16 $ 15 Recognized net actuarial loss 6 5 5 Net periodic other postretirement benefit cost $ 20 $ 21 $ 20 |
Schedule of Amounts Recognized in Other Comprehensive Income (Loss) | Other changes in benefit obligations recognized in other comprehensive income for the years ended December 31 were as follows: Years ended December 31, In millions 2017 2016 2015 Recognized net actuarial loss $ (6 ) $ (6 ) $ (5 ) Incurred actuarial (gain) loss (35 ) 9 6 Total recognized in other comprehensive income $ (41 ) $ 3 $ 1 Total recognized in net periodic other postretirement benefit cost and other comprehensive income $ (21 ) $ 24 $ 21 |
Schedule of Assumptions Used | 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: 2017 2016 Discount rate 3.55 % 4.00 % 2017 2016 2015 Discount rate 4.00 % 4.35 % 3.90 % |
Schedule of Expected Benefit Payments | The table below presents expected benefit payments under our other postretirement benefit plans: In millions 2018 2019 2020 2021 2022 2023 - 2027 Expected benefit payments $ 29 $ 28 $ 27 $ 26 $ 25 $ 108 |
UNITED STATES | |
Pension and other postretirement benefits | |
Schedule of Allocation of 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 10.0 % +2.0/-8.0% Non-U.S. equities 2.0 % +3.0/-2.0% Global equities 8.0 % +1.0/-5.0% Total equities 20.0 % Real estate 6.0 % +4.0/-6.0% Private equity/venture capital 4.0 % +6.0/-4.0% Opportunistic credit 2.0 % +8.0/-2.0% Fixed income 68.0 % +/-5.0% Total 100.0 % |
Fair Value, Assets Measured on Recurring Basis | The fair values of U.S. pension plan assets by asset category were as follows: Fair Value Measurements at December 31, 2017 In millions Quoted prices in active Significant other Significant Total Equities U.S. $ 102 $ — $ — $ 102 Non-U.S. 56 — — 56 Fixed income Government debt — 691 — 691 Corporate debt U.S. — 590 — 590 Non-U.S. — 73 — 73 Asset/mortgaged backed securities — 78 — 78 Net cash equivalents (1) 50 25 — 75 Derivative instruments (2) — 3 — 3 Private equity and real estate (3) — — 246 246 Net plan assets subject to leveling $ 208 $ 1,460 $ 246 $ 1,914 Pending trade/purchases/sales (96 ) Accruals (4) 12 Investments measured at net asset value 1,336 Net plan assets $ 3,166 Fair Value Measurements at December 31, 2016 In millions Quoted prices in active Significant other Significant Total Equities U.S. $ 145 $ — $ — $ 145 Non-U.S. 125 — — 125 Fixed income Government debt — 570 — 570 Corporate debt U.S. — 497 — 497 Non-U.S. — 84 — 84 Asset/mortgaged backed securities — 58 — 58 Net cash equivalents (1) 18 20 — 38 Derivative instruments (2) — 9 — 9 Private equity and real estate (3) — — 212 212 Net plan assets subject to leveling $ 288 $ 1,238 $ 212 $ 1,738 Pending trade/purchases/sales (83 ) Accruals (4) 12 Investments measured at net asset value 1,084 Net plan assets $ 2,751 ____________________________________________________ (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, real estate and insurance 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 statements of the funds. (4) Accruals include interest or dividends that were not settled at December 31. |
Schedule of Effect of Significant Unobservable Inputs, Changes in Plan Assets | The reconciliation of Level 3 assets was as follows: Fair Value Measurements In millions Private Equity Real Estate Total Balance at December 31, 2015 $ 143 $ 60 $ 203 Actual return on plan assets Unrealized gains on assets still held at the reporting date 6 6 12 Purchases, sales and settlements, net (1 ) (2 ) (3 ) Balance at December 31, 2016 148 64 212 Actual return on plan assets Unrealized gains on assets still held at the reporting date 24 5 29 Purchases, sales and settlements, net 8 (3 ) 5 Balance at December 31, 2017 $ 180 $ 66 $ 246 |
UNITED KINGDOM | |
Pension and other postretirement benefits | |
Schedule of Allocation of Plan Assets | To achieve these objectives we have established the following targets: Asset Class Target Global equities 23.0 % Real estate/private markets 5.0 % Re-insurance 8.0 % Corporate credit instruments 7.5 % Fixed income 56.5 % Total 100.0 % |
Fair Value, Assets Measured on Recurring Basis | The fair values of U.K. pension plan assets by asset category were as follows: Fair Value Measurements at December 31, 2017 In millions Quoted prices in active Significant other Significant Total Equities U.S. $ — $ 63 $ — $ 63 Non-U.S. — 91 — 91 Fixed income Net cash equivalents (1) 29 — — 29 Private equity, real estate and insurance (2) — — 671 671 Net plan assets subject to leveling $ 29 $ 154 $ 671 $ 854 Investments measured at net asset value 1,106 Net plan assets $ 1,960 Fair Value Measurements at December 31, 2016 In millions Quoted prices in active Significant other Significant Total Equities U.S. $ — $ 174 $ — $ 174 Non-U.S. — 193 — 193 Fixed income Net cash equivalents (1) 24 — — 24 Private equity, real estate and insurance (2) — — 613 613 Net plan assets subject to leveling $ 24 $ 367 $ 613 $ 1,004 Investments measured at net asset value 749 Net plan assets $ 1,753 _____________________________________________________ (1) Cash equivalents include commercial paper, short-term government/agency, mortgage and credit instruments. (2) The instruments in private equity, real estate and insurance 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. |
Schedule of Effect of Significant Unobservable Inputs, Changes in Plan Assets | The reconciliation of Level 3 assets was as follows: Fair Value Measurements In millions Insurance Real Estate Private Equity Total Balance at December 31, 2015 $ 445 $ 57 $ 99 $ 601 Actual return on plan assets Unrealized (losses) gains on assets still held at the reporting date (6 ) (7 ) 15 2 Purchases, sales and settlements, net — 7 3 10 Balance at December 31, 2016 439 57 117 613 Actual return on plan assets Unrealized gains on assets still held at the reporting date 38 10 28 76 Purchases, sales and settlements, net — (8 ) (10 ) (18 ) Balance at December 31, 2017 $ 477 $ 59 $ 135 $ 671 |
DEBT (Tables)
DEBT (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
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 was as follows: 2017 2016 2015 Weighted-average interest rate 3.01 % 4.20 % 3.65 % |
Summary of long-term debt | December 31, In millions 2017 2016 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 Other debt 76 51 Unamortized discount (54 ) (56 ) Fair value adjustments due to hedge on indebtedness 35 47 Capital leases 121 88 Total long-term debt 1,651 1,603 Less: Current maturities of long-term debt 63 35 Long-term debt $ 1,588 $ 1,568 |
Principal repayments on long-term debt | Principal payments required on long-term debt during the next five years are as follows: In millions 2018 2019 2020 2021 2022 Principal payments $ 63 $ 50 $ 12 $ 6 $ 6 |
Schedule of Interest Rate Derivatives | The following table summarizes these gains and losses for the years presented below: Years ended December 31, In millions 2017 2016 2015 Income Statement Classification Gain/(Loss) on Swaps Gain/(Loss) on Borrowings Gain/(Loss) on Swaps Gain/(Loss) on Borrowings Gain/(Loss) on Gain/(Loss) on Interest expense (1) $ (7 ) $ 8 $ (8 ) $ 12 $ 6 $ (2 ) ___________________________________________ (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 values and carrying values of total debt, including current maturities, were as follows: December 31, In millions 2017 2016 Fair values of total debt (1) $ 2,301 $ 2,077 Carrying values of total debt 2,006 1,856 ___________________________________________ (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, 2017 | |
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 2017 2016 2015 Balance, beginning of year $ 1,414 $ 1,404 $ 1,283 Provision for warranties issued 557 334 391 Deferred revenue on extended warranty contracts sold 240 231 290 Payments (398 ) (385 ) (389 ) Amortization of deferred revenue on extended warranty contracts (219 ) (201 ) (179 ) Changes in estimates for pre-existing warranties 85 44 20 Foreign currency translation 8 (13 ) (12 ) Balance, end of year $ 1,687 $ 1,414 $ 1,404 |
Warranty related deferred revenue, supplier recovery receivables and the long-term portion of the warranty liability | Warranty related deferred revenues and the long-term portion of the warranty liabilities on our Consolidated Balance Sheets were as follows: December 31, In millions 2017 2016 Balance Sheet Location Deferred revenue related to extended coverage programs Current portion $ 231 $ 218 Current portion of deferred revenue Long-term portion 536 527 Other liabilities and deferred revenue Total $ 767 $ 745 Long-term portion of warranty liability $ 466 $ 336 Other liabilities and deferred revenue |
OTHER LIABILITIES AND DEFERRE40
OTHER LIABILITIES AND DEFERRED REVENUE (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Other Liabilities Disclosure [Abstract] | |
Other Noncurrent Liabilities [Table Text Block] | Other liabilities and deferred revenue included the following: December 31, In millions 2017 2016 Deferred revenue $ 604 $ 589 Accrued warranty 466 336 Deferred income taxes 391 76 Income tax payable (1) 281 — Accrued compensation 151 151 Other long-term liabilities 134 137 Other liabilities and deferred revenue $ 2,027 $ 1,289 |
COMMITMENTS AND CONTINGENCIES (
COMMITMENTS AND CONTINGENCIES (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Commitments and Contingencies Disclosure [Abstract] | |
Rent expense under these leases | Rent expense under these leases was as follows: Years ended December 31, In millions 2017 2016 2015 Rent expense $ 215 $ 210 $ 205 |
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 2017 2016 Building $ 158 $ 113 Equipment 94 109 Land 16 15 Less: Accumulated depreciation (137 ) (133 ) Total $ 131 $ 104 |
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 with terms of more than one year at December 31, 2017 , together with the net present value of the minimum payments due under capital leases: In millions Capital Leases Operating Leases 2018 $ 30 $ 140 2019 26 108 2020 14 80 2021 9 60 2022 9 44 After 2022 75 70 Total minimum lease payments $ 163 $ 502 Interest (42 ) Present value of net minimum lease payments $ 121 |
SHAREHOLDERS' EQUITY (Tables)
SHAREHOLDERS' EQUITY (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
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 were as follows: In millions Common Treasury Common Stock Balance at December 31, 2014 222.3 40.1 1.1 Shares acquired — 7.2 — Shares issued 0.1 (0.1 ) (0.2 ) Balance at December 31, 2015 222.4 47.2 0.9 Shares acquired — 7.3 — Shares issued — (0.3 ) (0.2 ) Balance at December 31, 2016 222.4 54.2 0.7 Shares acquired — 2.9 — Shares issued — (0.4 ) (0.2 ) Balance at December 31, 2017 222.4 56.7 0.5 |
Repurchases of common stock | In 2017 , we made the following purchases under the 2015 purchase programs: In millions (except per share amounts) For each quarter ended 2017 Shares Purchased Average Cost Per Share Total Cost of Repurchases Remaining Authorized Capacity (1) April 2 0.3 $ 151.32 $ 51 $ 445 July 2 0.5 153.95 69 376 October 1 1.7 155.05 271 105 December 31 0.4 166.00 60 46 Total 2.9 $ 155.81 $ 451 ___________________________________________ (1) The remaining authorized capacity under the 2015 plan was calculated based on the cost to purchase the shares but excludes commission expenses in accordance with the authorized plan. |
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 2017 2016 2015 First quarter $ 1.025 $ 0.975 $ 0.78 Second quarter 1.025 0.975 0.78 Third quarter 1.08 1.025 0.975 Fourth quarter 1.08 1.025 0.975 Total $ 4.21 $ 4.00 $ 3.51 |
OTHER COMPREHENSIVE INCOME (L43
OTHER COMPREHENSIVE INCOME (LOSS) (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
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 pensions and other postretirement defined benefit plans Foreign currency translation adjustment Unrealized gain (loss) on marketable securities Unrealized gain (loss) on derivatives Total attributable to Cummins Inc. Noncontrolling interests Total Balance at December 31, 2014 $ (669 ) $ (406 ) $ (1 ) $ (2 ) $ (1,078 ) Other comprehensive income before reclassifications Before tax amount (81 ) (366 ) — 17 (430 ) $ (15 ) $ (445 ) Tax (expense) benefit 35 76 — (1 ) 110 — 110 After tax amount (46 ) (290 ) — 16 (320 ) (15 ) (335 ) Amounts reclassified from accumulated other comprehensive income (1)(2) 61 — (1 ) (10 ) 50 — 50 Net current period other comprehensive income (loss) 15 (290 ) (1 ) 6 (270 ) $ (15 ) $ (285 ) Balance at December 31, 2015 $ (654 ) $ (696 ) $ (2 ) $ 4 $ (1,348 ) Other comprehensive income before reclassifications Before tax amount (111 ) (469 ) 1 (38 ) (617 ) $ (17 ) $ (634 ) Tax benefit (expense) 44 38 — 6 88 — 88 After tax amount (67 ) (431 ) 1 (32 ) (529 ) (17 ) (546 ) Amounts reclassified from accumulated other comprehensive income (1)(2) 36 — — 20 56 — 56 Net current period other comprehensive income (loss) (31 ) (431 ) 1 (12 ) (473 ) $ (17 ) $ (490 ) Balance at December 31, 2016 $ (685 ) $ (1,127 ) $ (1 ) $ (8 ) $ (1,821 ) Other comprehensive income before reclassifications Before tax amount 73 335 2 (12 ) 398 $ 20 $ 418 Tax benefit (expense) (36 ) (20 ) — 5 (51 ) — (51 ) After tax amount 37 315 2 (7 ) 347 20 367 Amounts reclassified from accumulated other comprehensive income (1)(2) 62 — — 12 74 — 74 Impact of tax legislation (Note 2) (103 ) (3) — — — (103 ) — (103 ) Net current period other comprehensive income (loss) (4 ) 315 2 5 318 $ 20 $ 338 Balance at December 31, 2017 $ (689 ) $ (812 ) $ 1 $ (3 ) $ (1,503 ) _______________________________________________________________________ (1) Amounts are net of tax. (2) Reclassifications out of accumulated other comprehensive income (loss) and the related tax effects are immaterial for separate disclosure. (3) Impact of tax legislation includes $(126) million related to one-time cumulative adjustments and $23 million related to 2017. See Note 2 , " INCOME TAXES ," to our Consolidated Financial Statements for additional information . |
STOCK INCENTIVE AND STOCK OPT44
STOCK INCENTIVE AND STOCK OPTION PLANS (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Activity in stock option plans | The tables below summarize the employee share-based activity in the Plan: Options Weighted-average Exercise Price Weighted-average Remaining Contractual Life (in years) Aggregate Intrinsic Value (in millions) Balance at December 31, 2014 1,626,724 $ 108.30 Granted 476,205 135.21 Exercised (53,545 ) 82.89 Forfeited (19,698 ) 135.89 Balance at December 31, 2015 2,029,686 115.02 Granted 984,430 109.24 Exercised (215,890 ) 87.27 Forfeited (63,462 ) 119.56 Balance at December 31, 2016 2,734,764 115.02 Granted 648,900 149.98 Exercised (355,479 ) 105.91 Forfeited (126,816 ) 125.65 Balance at December 31, 2017 2,901,369 $ 123.49 7.1 $ 156 Exercisable, December 31, 2015 1,318,101 $ 100.55 5.7 $ 13 Exercisable, December 31, 2016 1,149,549 $ 104.19 4.8 $ 38 Exercisable, December 31, 2017 1,063,889 $ 115.26 4.7 $ 66 |
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 Balance at December 31, 2014 466,693 $ 119.78 11,275 $ 110.94 Granted 133,975 128.48 — — Vested (112,901 ) 115.48 (7,021 ) 110.66 Forfeited (67,398 ) 118.71 — — Balance at December 31, 2015 420,369 123.88 4,254 111.40 Granted 169,150 98.26 8,089 117.69 Vested (115,680 ) 106.55 (2,502 ) 114.57 Forfeited (69,345 ) 110.52 — — Balance at December 31, 2016 404,494 120.41 9,841 115.76 Granted 150,225 138.23 — — Vested (85,020 ) 141.50 (1,752 ) 106.89 Forfeited (58,460 ) 132.52 — — Balance at December 31, 2017 411,239 $ 120.84 8,089 $ 117.68 |
Schedule of Share-based Payment Award, Stock Options, Valuation 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: 2017 2016 2015 Expected life (years) 6 5 5 Risk-free interest rate 2.08 % 1.34 % 1.41 % Expected volatility 29.97 % 30.96 % 33.06 % Dividend yield 2.28 % 2.10 % 1.69 % |
NONCONTROLLING INTERESTS (Table
NONCONTROLLING INTERESTS (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
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 2017 2016 Eaton Cummins Automated Transmission Technologies (1) $ 609 $ — Cummins India Ltd. 280 (2) 285 Other 16 14 Total $ 905 $ 299 ____________________________________________________ (1) See Note 18 , " ACQUISITIONS ," for additional information. (2) Noncontrolling interest for Cummins India Ltd. was reduced by $43 million related to withholding taxes on foreign earnings as a result of tax legislation. See Note 2 , " INCOME TAXES ," to our Consolidated Financial Statements for additional information . |
EARNINGS PER SHARE (Tables)
EARNINGS PER SHARE (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
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 2017 2016 2015 Net income attributable to Cummins Inc. $ 999 $ 1,394 $ 1,399 Weighted-average common shares outstanding Basic 166,625,320 169,038,410 178,037,581 Dilutive effect of stock compensation awards 645,545 298,206 369,247 Diluted 167,270,865 169,336,616 178,406,828 Earnings per common share attributable to Cummins Inc. Basic $ 5.99 $ 8.25 $ 7.86 Diluted 5.97 8.23 7.84 |
Options excluded from diluted earnings per share | The options excluded from diluted earnings per share were as follows: Years ended December 31, 2017 2016 2015 Options excluded 31,991 1,091,799 866,262 |
ACQUISITIONS (Tables)
ACQUISITIONS (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Business Combinations [Abstract] | |
Schedule of Business Acquisitions, by Acquisition | Acquisitions for the years ended December 31, 2017, 2016 and 2015 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 2017 Brammo Inc. 11/01/17 100% $ 62 $ — $ 68 (3) COMB $ — $ 47 $ 23 $ 4 Eaton Cummins Automated Transmission Technologies 07/31/17 50% 600 (4) — 600 COMB — 544 596 — (4) 2016 Wuxi Cummins Turbo Technologies Co. Ltd 12/05/16 45% $ 86 $ — $ 86 EQUITY $ — $ — $ — $ — Cummins Pacific LLC 10/04/16 50% 32 67 99 COMB 15 4 8 391 (5 ) Cummins Northeast LLC 01/01/16 35% 12 — 12 EQUITY — — — — 2015 Cummins Crosspoint LLC 08/03/15 50% $ 29 $ 36 $ 65 COMB $ 10 $ 7 $ 2 $ 258 (5 ) Cummins Atlantic LLC 08/03/15 51% 21 28 49 COMB 8 5 6 245 (5 ) Cummins Central Power LLC 06/29/15 20.01% 8 — 8 EQUITY — — — — ____________________________________________________ (1) All results from acquired entities (excluding Brammo Inc.) were included in 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, net . The Brammo Inc. acquisition had not yet been assigned to a reportable segment at December 31, 2017. (2) Intangible assets acquired in business combinations were mostly customer and technology related, the majority of which will be amortized over a period of`up to 25 years from the date of the acquisition. (3) The "Total Purchase Consideration" represents the total amount that will or is estimated to be paid to complete the acquisition. A portion of the Brammo Inc. acquisition payment has not yet been made and will be paid in future periods in accordance with the purchase contract. The Brammo Inc. acquisition contains an earnout based on future results of the acquired business and could result in a maximum contingent consideration payment of $100 million (fair value of $5 million) to the former owners. (4) This transaction created a newly formed joint venture that we consolidated. See additional information below. (5) 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. |
Schedule of Recognized Identified Assets Acquired and Liabilities Assumed [Table Text Block] | The final purchase price allocation was as follows: In millions Inventory $ 3 Fixed assets 58 Intangible assets Customer relationships 424 Technology 172 Goodwill 544 Liabilities (1 ) Total business valuation 1,200 Less: Noncontrolling interest 600 Total purchase consideration $ 600 |
OPERATING SEGMENTS (Tables)
OPERATING SEGMENTS (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
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 (1) Power Systems Total Segment Intersegment Eliminations (2) Total 2017 External sales $ 6,661 $ 7,029 $ 4,363 $ 2,375 $ 20,428 $ — $ 20,428 Intersegment sales 2,292 29 1,526 1,683 5,530 (5,530 ) — Total sales 8,953 7,058 5,889 4,058 25,958 (5,530 ) 20,428 Depreciation and amortization (3) 184 116 163 117 580 — 580 Research, development and engineering expenses 279 19 240 214 752 — 752 Equity, royalty and interest income from investees (4) 219 44 40 54 357 — 357 Interest income 6 6 3 3 18 — 18 Loss contingency charge (5) 5 — — — 5 — 5 Segment EBIT 959 384 754 294 2,391 55 2,446 Net assets 1,290 2,700 3,028 3,124 10,142 — 10,142 Investments and advances to equity investees 531 267 194 164 1,156 — 1,156 Capital expenditures 188 101 127 90 506 — 506 2016 External sales $ 5,774 $ 6,157 $ 3,514 $ 2,064 $ 17,509 $ — $ 17,509 Intersegment sales 2,030 24 1,322 1,453 4,829 (4,829 ) — Total sales 7,804 6,181 4,836 3,517 22,338 (4,829 ) 17,509 Depreciation and amortization (3) 163 116 133 115 527 — 527 Research, development and engineering expenses 226 13 208 189 636 — 636 Equity, royalty and interest income from investees 148 70 41 42 301 — 301 Interest income 10 4 4 5 23 — 23 Loss contingency charge (5) 138 — — — 138 — 138 Segment EBIT 686 392 (6) 641 263 (7) 1,982 17 1,999 Net assets 1,620 2,604 1,868 2,629 8,721 — 8,721 Investments and advances to equity investees 427 204 176 139 946 — 946 Capital expenditures 200 96 143 92 531 — 531 2015 External sales $ 6,733 $ 6,198 $ 3,745 $ 2,434 $ 19,110 $ — $ 19,110 Intersegment sales 1,937 31 1,427 1,633 5,028 (5,028 ) — Total sales 8,670 6,229 5,172 4,067 24,138 (5,028 ) 19,110 Depreciation and amortization (3) 187 105 109 110 511 — 511 Research, development and engineering expenses 263 10 236 226 735 — 735 Equity, royalty and interest income from investees 146 78 35 56 315 — 315 Interest income 11 4 4 5 24 — 24 Loss contingency charge (5) 60 — — — 60 — 60 Impairment of light-duty diesel assets (8) 202 — 9 — 211 — 211 Restructuring actions and other charges (9) 17 23 13 26 79 11 90 Segment EBIT 636 412 (6) 727 335 2,110 (20 ) 2,090 Net assets 2,107 2,330 1,891 2,736 9,064 — 9,064 Investments and advances to equity investees 445 192 150 188 975 — 975 Capital expenditures 345 125 137 137 744 — 744 ____________________________________________________ (1) Includes Eaton Cummins Automated Transmission Technologies joint venture results consolidated during the third quarter of 2017. See Note 18 , " ACQUISITIONS ," for additional information. (2) Includes intersegment sales, intersegment profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the years ended December 31, 2017, 2016 and 2015, respectively. (3) 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 , $3 million and $3 million for the years ended December 31, 2017, 2016 and 2015, respectively. (4) U.S. tax legislation passed in December 2017 decreased our equity earnings at certain equity investees, negatively impacting our equity, royalty and interest income from investees by $23 million , $4 million and $12 million for the Engine, Distribution and Components segments, respectively. See Note 2 , " INCOME TAXES ," for additional information. (5) See Note 12 , " COMMITMENTS AND CONTINGENCIES ," for additional information. (6) Distribution segment EBIT included gains on the fair value adjustment resulting from the acquisition of controlling interests in North American distributors of $15 million and $18 million for the years ended December 31, 2016 and 2015 , respectively. See Note 18 , " ACQUISITIONS ," for additional information. (7) Power Systems segment EBIT included a $17 million gain on the sale of an equity investee for the year ended December 31, 2016. See Note 3 , " INVESTMENTS IN EQUITY INVESTEES ," for additional information. (8) See Note 19 , " IMPAIRMENT OF LIGHT-DUTY DIESEL ASSETS ," for additional information. (9) See Note 20 , " RESTRUCTURING ACTIONS AND OTHER CHARGES ," 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 2017 2016 2015 Total EBIT $ 2,446 $ 1,999 $ 2,090 Less: Interest expense 81 69 65 Income before income taxes $ 2,365 $ 1,930 $ 2,025 |
Reconciliation of segment information from net assets to total assets | December 31, In millions 2017 2016 2015 Net assets for operating segments $ 10,142 $ 8,721 $ 9,064 Brammo Inc. assets 72 (1) — — Liabilities deducted in arriving at net assets 7,397 6,152 5,920 Pension and other postretirement benefit adjustments excluded from net assets 156 (284 ) (242 ) Deferred tax assets not allocated to segments 306 420 390 Deferred debt costs not allocated to segments 2 2 2 Total assets $ 18,075 $ 15,011 $ 15,134 |
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. In millions Years ended December 31, Net Sales 2017 2016 2015 United States $ 11,010 $ 9,476 $ 10,757 China 2,137 1,544 1,451 Other International 7,281 6,489 6,902 Total net sales $ 20,428 $ 17,509 $ 19,110 |
Long-lived assets attributed to geographic areas | 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 December 31, Long-lived assets 2017 2016 2015 United States $ 3,157 $ 3,092 $ 2,968 China 795 652 668 India 563 475 450 United Kingdom 339 254 349 Netherlands 221 197 172 Brazil 149 149 124 Mexico 136 131 108 Canada 116 132 133 Other international countries 293 236 261 Total long-lived assets $ 5,769 $ 5,318 $ 5,233 |
QUARTERLY FINANCIAL INFORMATI49
QUARTERLY FINANCIAL INFORMATION DISCLOSURE (unaudited) (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Quarterly Financial Information Disclosure [Abstract] | |
Quarterly Financial Information | First Quarter Second Quarter Third Quarter Fourth Quarter In millions, except per share amounts 2017 Net sales $ 4,589 $ 5,078 $ 5,285 $ 5,476 Gross margin 1,128 1,249 1,339 1,374 Net income attributable to Cummins Inc. 396 424 453 (274 ) (1) Earnings per common share attributable to Cummins Inc.—basic (2) $ 2.36 $ 2.53 $ 2.72 $ (1.66 ) (1) Earnings per common share attributable to Cummins Inc.—diluted (2) 2.36 2.53 2.71 (1.65 ) (1) Cash dividends per share 1.025 1.025 1.08 1.08 Stock price per share High $ 155.51 $ 164.23 $ 170.68 $ 181.79 Low 134.06 143.83 150.25 158.75 2016 Net sales $ 4,291 $ 4,528 $ 4,187 $ 4,503 Gross margin 1,056 1,197 1,079 1,120 Net income attributable to Cummins Inc. 321 406 (3) 289 (3) 378 Earnings per common share attributable to Cummins Inc.—basic (2) $ 1.87 $ 2.41 (3) $ 1.72 (3) $ 2.26 Earnings per common share attributable to Cummins Inc.—diluted (2) 1.87 2.40 (3) 1.72 (3) 2.25 Cash dividends per share 0.975 0.975 1.025 1.025 Stock price per share High $ 111.29 $ 120.00 $ 128.60 $ 147.10 Low 79.88 104.30 107.51 121.22 ___________________________________________________ (1) Net income attributable to Cummins Inc. and earnings per share were negatively impacted by a $777 million tax adjustment related to The Tax Cuts and Jobs Act passed in December of 2017. For the fourth quarter of 2017, results for basic and diluted earnings per share were reduced by $4.70 per share and $4.68 per share, respectively, due to tax reform. (2) Earnings per share in each quarter is computed using the weighted-average number of shares outstanding during that quarter while earnings per share for the full year is computed using the weighted-average number of shares outstanding during the year. Thus, the sum of the four quarters earnings per share may not equal the full year earnings per share. (3) The second quarter of 2016 included a $39 million loss contingency charge ( $24 million after-tax). The third quarter of 2016 included an additional $99 million loss contingency charge ( $50 million net of favorable compensation impact and after-tax). |
SUMMARY OF SIGNIFICANT ACCOUN50
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) $ in Millions | 12 Months Ended | ||
Dec. 31, 2017USD ($)countrylocation | Dec. 31, 2016USD ($) | Dec. 31, 2015USD ($) | |
Nature of Operations | |||
Company owned and independent distributor locations | location | 500 | ||
Dealer locations | location | 7,500 | ||
Countries and territories located in | country | 190 | ||
Foreign Currency Translation | |||
Foreign Currency Transaction Gain (Loss), before Tax | $ (6) | $ (12) | $ (18) |
Supplemental Cash Flow Information | |||
Cash payments for income taxes, net of refunds | 622 | 430 | 732 |
Cash payments for interest, net of capitalized interest | 82 | 68 | $ 65 |
Activity in allowance for doubtful accounts | |||
Allowance for doubtful accounts receivable | $ 16 | $ 16 | |
Inventory Disclosure | |||
Percentage of total inventory values using LIFO | 12.00% | 13.00% | |
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 ACCOUN51
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 2) - USD ($) $ in Millions | 12 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | |
Property, Plant and Equipment | |||
Depreciation expense on property, plant and equipment | $ 467 | $ 434 | $ 419 |
Minimum | Buildings | |||
Property, Plant and Equipment | |||
Property, Plant and Equipment, Useful Life | 20 years | ||
Minimum | Machinery, equipment and fixtures | |||
Property, Plant and Equipment | |||
Property, Plant and Equipment, Useful Life | 3 years | ||
Maximum | Buildings | |||
Property, Plant and Equipment | |||
Property, Plant and Equipment, Useful Life | 40 years | ||
Maximum | Machinery, equipment and fixtures | |||
Property, Plant and Equipment | |||
Property, Plant and Equipment, Useful Life | 15 years |
SUMMARY OF SIGNIFICANT ACCOUN52
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 3) - USD ($) $ in Millions | 12 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | |
Goodwill Disclosure | |||
Goodwill | $ 1,082 | $ 480 | $ 482 |
Percentage of total goodwill by a single reporting unit | 36.00% | ||
Percentage of Acquisition Goodwill to Total Goodwill, Eaton Cummins Automated Transmission Technologies | 50.00% | ||
Percentage of Acquisition Goodwill to Total Goodwill, Brammo Inc. | 4.00% | ||
Research and Development | |||
Research and development expenses, net of contract reimbursements | $ 734 | 616 | 718 |
Research and Development Arrangement, Contract to Perform for Others, Compensation Earned | $ 137 | $ 131 | $ 98 |
Minimum | Other Intangible Assets | |||
Finite Lived Intangible Assets | |||
Finite-Lived Intangible Asset, Useful Life | 3 years | ||
Minimum | Software | |||
Finite Lived Intangible Assets | |||
Finite-Lived Intangible Asset, Useful Life | 3 years | ||
Maximum | Other Intangible Assets | |||
Finite Lived Intangible Assets | |||
Finite-Lived Intangible Asset, Useful Life | 25 years | ||
Maximum | Software | |||
Finite Lived Intangible Assets | |||
Finite-Lived Intangible Asset, Useful Life | 12 years |
SUMMARY OF SIGNIFICANT ACCOUN53
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES RECENTLY ISSUED AND RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS (Details 4) - USD ($) $ in Millions | Jan. 01, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 |
ASU 2018-01 - Stranded Tax Effect of Tax Cuts and Jobs Act | ||||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||||
New Accounting Pronouncement or Change in Accounting Principle, Description | In February 2018, the Financial Accounting Standards Board (FASB) amended its standard on comprehensive income to provide an option for an entity to reclassify the stranded tax effects of the Tax Cuts and Jobs Act (Tax Legislation) that was passed in December of 2017 from accumulated other comprehensive income (AOCI) directly to retained earnings. The stranded tax effects result from the remeasurement of deferred tax assets and liabilities which were originally recorded in comprehensive income but whose remeasurement is reflected in the income statement. This is a one-time amendment applicable only to the changes resulting from the Tax Legislation. The standard is effective for us on January 1, 2019, and may be reflected retroactively to any period in which the impacts of the Tax Legislation are recognized. The standard permits early adoption for any financial statements that have not been released as of the date of the revised standard. We elected to early adopt this standard in our 2017 financial statements using specific identification and as a result reclassified $126 million from AOCI to retained earnings which is reflected in the rollforward of AOCI. This reclassification relates only to the change in the statutory tax rate. See NOTE 14, "ACCUMULATED OTHER COMPREHENSIVE LOSS," for additional information. | |||
New Accounting Pronouncement or Change in Accounting Principle, Effect of Adoption, Quantification | $ 126 | |||
ASU 2016-09 - Stock Compensation | ||||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||||
New Accounting Pronouncement or Change in Accounting Principle, Description | In March 2016, the FASB amended its standards related to accounting for stock compensation, which became effective for us beginning January 1, 2017. The amendment replaced the requirement to record excess tax benefits and certain tax deficiencies in additional paid-in capital by recording all excess tax benefits and tax deficiencies as income tax expense / benefit in the Consolidated Statements of Income and was adopted prospectively. In addition, the standard impacted our Consolidated Statements of Cash Flow retrospectively, as excess tax benefits are now required to be presented as an operating activity and the cash paid to tax authorities is required to be presented as a financing activity. This resulted in a net reclassification of $4 million and $6 million from operating to financing activities for the year ended December 31, 2016 and 2015, respectively. Finally, in accordance with the standard, we elected to continue our historical approach of estimating forfeitures during the award's vesting period and adjusting our estimate when it is no longer probable that the employee will fulfill the service condition. The adoption of the standard was not material to our | |||
New Accounting Pronouncement or Change in Accounting Principle, Effect of Adoption, Quantification | $ 4 | $ 6 | ||
ASU 2017-12 - Derivatives and Hedging | ||||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||||
New Accounting Pronouncement or Change in Accounting Principle, Description | In August 2017, the FASB amended its standards related to accounting for derivatives and hedging. These amendments allow the initial hedge effectiveness assessment to be performed by the end of the first quarter in which the hedge is designated rather than concurrently with entering into the hedge transaction. The changes also expand the use of a periodic qualitative hedge effectiveness assessment in lieu of an ongoing quantitative assessment performed throughout the life of the hedge. The revision removes the requirement to record ineffectiveness on cash flow hedges through the income statement when a hedge is considered highly effective, instead deferring all related hedge gains and losses in "Other comprehensive income" until the hedged item impacts earnings. The modifications permit hedging the contractually-specified price of a component of a commodity purchase and revises certain disclosure requirements. The amendments are effective January 1, 2019 and early adoption is permitted in any interim period or fiscal year prior to the effective date. The revised standard is required to be adopted on a modified retrospective basis for any cash flow or net investment hedge relationships that exist on the date of adoption and prospectively for disclosures. We do not expect the amendments to have a material effect on our Consolidated Financial Statements and are still evaluating early adoption. | |||
ASU 2017-07 - Presentation of Net Periodic Pension and Post-retirement Benefit Costs | ||||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||||
New Accounting Pronouncement or Change in Accounting Principle, Description | In March 2017, the FASB amended its standards related to the presentation of pension and other postretirement benefit costs in the financial statements beginning January 1, 2018. Under the new standard, we will be required to separate service costs from all other elements of pension costs and reflect the other elements of pension costs outside of operating income in our Consolidated Statements of Income. In addition, the standard will limit the amount eligible for capitalization (into inventory or self-constructed assets) to the amount of service cost. This portion of the standard will be applied on a prospective basis. The remainder of the new standard is effective for us on a retrospective basis. The retroactive adoption of this standard will result in a reduction in operating income and a corresponding increase in other income (primarily related to the return on pension assets) of $31 million and $48 million for the years ended December 31, 2017 and 2016, respectively. | |||
New Accounting Pronouncement or Change in Accounting Principle, Effect of Adoption, Quantification | $ 31 | $ 48 | ||
ASU 2016-15 - Classification of Cash Receipts and Cash Payments | ||||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||||
New Accounting Pronouncement or Change in Accounting Principle, Description | In August 2016, the FASB amended its standards related to the classification of certain cash receipts and cash payments. The new standard will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. The standard is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. The new standard will require adoption on a retrospective basis unless it is impracticable to apply, in which case it would be required to apply the amendments prospectively as of the earliest date practicable. We do not expect adoption of this standard to have a material impact on our Consolidated Statements of Cash Flows. | |||
ASU 2016-13 - Measurement of Credit Losses on Financial Instruments | ||||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||||
New Accounting Pronouncement or Change in Accounting Principle, Description | In June 2016, the FASB amended its standards related to accounting for credit losses on financial instruments. This amendment introduces new guidance for accounting for credit losses on instruments including trade receivables and held-to-maturity debt securities. The new rules are effective for annual and interim periods beginning after December 15, 2019. Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We do not expect adoption of this standard to have a material impact on our Consolidated Financial Statements. | |||
ASU 2016-02 - Leases | ||||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||||
New Accounting Pronouncement or Change in Accounting Principle, Description | In February 2016, the FASB amended its standards related to the accounting for leases. Under the new standard, lessees will now be required to recognize substantially all leases on the balance sheet as both a right-of-use-asset and a liability. The standard will continue to have two types of leases for income statement recognition purposes: operating leases and finance leases. Operating leases will result in the recognition of a single lease expense on a straight-line basis over the lease term similar to the treatment for operating leases under today's standards. Finance leases will result in an accelerated expense similar to the accounting for capital leases under today's standards. The determination of a lease classification as operating or finance will occur in a manner similar to today's standard. The new standard also contains amended guidance regarding the identification of embedded leases in service contracts and the identification of lease and non-lease components of an arrangement. The new standard is effective on January 1, 2019, with early adoption permitted. We are still evaluating the impact the standard could have on our Consolidated Financial Statements, including our internal controls over financial reporting. While we have not yet quantified the amount, we do expect the standard will have a material impact on our Consolidated Balance Sheets due to the recognition of additional assets and liabilities for operating leases. | |||
ASU 2016-01 - Recognition and Measurement of Financial Assets and Liabilities | ||||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||||
New Accounting Pronouncement or Change in Accounting Principle, Description | In January 2016, the FASB amended its standards related to the accounting for certain financial instruments. This amendment addresses certain aspects of recognition, measurement, presentation and disclosure. The new rules will become effective for annual and interim periods beginning after December 15, 2017. Early adoption is not permitted. We do not expect the standard to have a material impact on our Consolidated Financial Statements. | |||
ASU 2014-09 - Revenue Recognition | ||||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||||
New Accounting Pronouncement or Change in Accounting Principle, Description | In May 2014, the FASB amended its standards related to revenue recognition which replaces all existing revenue recognition guidance and provides a single, comprehensive model for all contracts with customers. The revised standard contains principles to determine the measurement of revenue and timing of when it is recognized. The underlying principle is that we will recognize revenue to depict 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 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 the time value of money in the transaction price and allowing estimation 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 those judgments as well as assets recognized from costs incurred to fulfill these contracts. The standard allows either full or modified retrospective adoption effective for annual and interim periods beginning January 1, 2018. We will adopt the standard using the modified retrospective approach.We identified a change in the manner in which we will account for certain license income. We license certain technology to our unconsolidated joint ventures that meet the definition of functional under the standard, which requires that revenue be recognized at a point in time rather than the current requirement of recognizing it over the license term. Using the modified retrospective adoption method, we will record an adjustment to our opening equity balance at January 1, 2018, to account for the differences between existing revenue recorded and what would have been recorded under the new standard for contracts for which we started recognizing revenue prior to the adoption date. We expect to record a credit to equity of approximately $30 million before taxes. We do not expect a material impact on any individual year from this change. We also identified transactions where revenue recognition is currently limited to the amount of billings not contingent on our future performance. With the allocation provisions of the new model, we expect to accelerate the timing of revenue recognition for amounts related to satisfied performance obligations that would be delayed under the current guidance. We do not expect the impact of this change to be material. On an ongoing basis, we do not expect this amendment to have a material impact on our Consolidated Financial Statements, including our internal controls over financial reporting. The revenue recognition disclosures will significantly expand under the new standard, specifically around the quantitative and qualitative information about performance obligations, changes in contract assets and liabilities and disaggregation of revenue. | |||
ASU 2014-09 - Revenue Recognition | Scenario, Forecast | ||||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||||
New Accounting Pronouncement or Change in Accounting Principle, Effect of Adoption, Quantification | $ 30 |
INCOME TAXES (Details)
INCOME TAXES (Details) - USD ($) $ in Millions | 12 Months Ended | |||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | ||
Income Tax Disclosure [Abstract] | ||||
Taxes Payable, Current | $ 77 | $ 48 | ||
Taxes Payable | 281 | [1] | 0 | |
Income before income taxes: | ||||
U.S. income | 1,237 | 995 | $ 1,275 | |
Foreign income | 1,128 | 935 | 750 | |
INCOME BEFORE INCOME TAXES | 2,365 | 1,930 | 2,025 | |
Current: | ||||
U.S. federal and state | 355 | 211 | 516 | |
Foreign | 289 | 213 | 147 | |
Current Tax Cuts and Jobs Act of 2017, Incomplete Accounting, Provisional Income Tax Expense | 349 | 0 | 0 | |
Total current | 993 | 424 | 663 | |
Deferred: | ||||
U.S. federal and state | (42) | 57 | (151) | |
Foreign | (12) | (7) | 43 | |
Deferred Tax Cuts and Jobs Act 2017, Incomplete Accounting, Provisional Income Tax Expense | 432 | 0 | 0 | |
Total deferred | 378 | 50 | (108) | |
Income tax expense | $ 1,371 | $ 474 | $ 555 | |
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 | 0.60% | 0.80% | 1.20% | |
Differences in rates and taxability of foreign subsidiaries and joint ventures | (6.40%) | (7.20%) | (6.60%) | |
Research tax credits | (1.40%) | (1.70%) | (1.40%) | |
Effective Income Tax Rate Reconciliation, Change in Enacted Tax Rate, Percent | 33.10% | 0.00% | 0.00% | |
Other, net | (2.90%) | (2.30%) | (0.80%) | |
Effective Income Tax Rate Reconciliation, Percent | 58.00% | 24.60% | 27.40% | |
Tax Cuts and Jobs Act of 2017, Provisional Income Tax Expense | $ 781 | |||
Tax Cuts and Jobs Act of 2017, Change in Tax Rate (applied to deferred tax balances), Provisional Income Tax Expense (Benefit) | 152 | |||
Tax Cuts and Jobs Act of 2017, Transition Tax for Accumulated Foreign Earnings, Provisional Income Tax Expense | 298 | |||
Tax Cuts and Jobs Act of 2017, Transition Tax for Accumulated Foreign Earnings, Provisional Cash Impact | 338 | |||
Tax Cuts and Jobs Act of 2017, Withholding Taxes on Earnings for Possible Future Distribution, Provisional Income Tax Expense | $ 331 | |||
[1] | Long-term income taxes payable are the result of Tax Legislation and relate to the non-current portion of the one-time transition tax on accumulated foreign earnings. See Note 2 , " INCOME TAXES ," to our Consolidated Financial Statements for additional information |
INCOME TAXES (Details 2)
INCOME TAXES (Details 2) - USD ($) $ in Millions | 12 Months Ended | |||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | ||
Deferred tax assets: | ||||
U.S. state carryforward benefits | $ 200 | $ 159 | ||
Foreign carryforward benefits | 159 | 154 | ||
Employee benefit plans | 274 | 401 | ||
Warranty expenses | 300 | 405 | ||
Accrued expenses | 95 | 107 | ||
Other | 70 | 64 | ||
Gross deferred tax assets | 1,098 | 1,290 | ||
Valuation allowance | (347) | (307) | ||
Total deferred tax assets | 751 | 983 | ||
Deferred tax liabilities: | ||||
Property, plant and equipment | (250) | (319) | ||
Unremitted income of foreign subsidiaries and joint ventures | (331) | (59) | ||
Employee benefit plans | (224) | (213) | ||
Other | (31) | (48) | ||
Deferred Tax Liabilities, Gross | 836 | 639 | ||
Net deferred tax liabilities | (85) | |||
Net deferred tax assets | 344 | |||
Net increase (decrease) in valuation allowance | 40 | |||
Balance Sheet Related Disclosures | ||||
Refundable income taxes | 152 | 192 | ||
Other assets | 306 | 420 | ||
Long-term refundable income taxes | 6 | 22 | ||
Taxes Payable, Current | 77 | 48 | ||
Taxes Payable | 281 | [1] | 0 | |
Deferred tax liabilities | 391 | 76 | ||
Reconciliation of unrecognized tax benefits | ||||
Beginning balance | 59 | 135 | $ 174 | |
Additions to current year tax positions | 11 | 10 | 8 | |
Additions to prior years' tax positions | 9 | 18 | 24 | |
Reductions to prior years' tax positions | (3) | 0 | 0 | |
Reductions for tax positions due to settlements with taxing authorities | (35) | (104) | (71) | |
Ending balance | 41 | 59 | 135 | |
Unrecognized tax benefits that would impact effective tax rate | 32 | 31 | 78 | |
Unrecognized tax benefits, interest accrued | 4 | 3 | 8 | |
Net interest expense recognized | $ 3 | $ 2 | $ 5 | |
[1] | Long-term income taxes payable are the result of Tax Legislation and relate to the non-current portion of the one-time transition tax on accumulated foreign earnings. See Note 2 , " INCOME TAXES ," to our Consolidated Financial Statements for additional information |
INVESTMENTS IN EQUITY INVESTE56
INVESTMENTS IN EQUITY INVESTEES (Details) $ in Millions | 12 Months Ended | |||
Dec. 31, 2017USD ($)hpl | Dec. 31, 2016USD ($) | Dec. 31, 2015USD ($) | ||
Equity, royalty and interest income from investees | ||||
Investments and advances to equity method investees | $ 1,156 | $ 946 | $ 975 | |
Investment account representing cumulative undistributed income in equity investees | 614 | |||
Dividends from the unconsolidated equity investees | 219 | 212 | 248 | |
Equity Method Investment, Summarized Financial Information, Net Income (Loss) | 308 | 260 | 273 | |
Royalty and interest income | 49 | 41 | 42 | |
Equity, royalty and interest income from investees | 357 | 301 | 315 | |
Tax Cuts and Jobs Act of 2017, Change in Tax Rate (applied to deferred tax balances), Provisional Income Tax Expense (Benefit) | 152 | |||
Proceeds from Sale of Equity Method Investments | $ 0 | 60 | 0 | |
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 - Komatsu Cummins Chile, Ltda. | ||||
Equity, royalty and interest income from investees | ||||
Equity Method Investment, Summarized Financial Information, Net Income (Loss) | $ 30 | 34 | 31 | |
Distribution - North American distributors | ||||
Equity, royalty and interest income from investees | ||||
Equity Method Investment, Summarized Financial Information, Net Income (Loss) | 0 | 21 | 33 | |
Distribution - All other distributors | ||||
Equity, royalty and interest income from investees | ||||
Equity Method Investment, Summarized Financial Information, Net Income (Loss) | $ (1) | 0 | 3 | |
Manufacturing Entities | Maximum | ||||
Equity, royalty and interest income from investees | ||||
Ownership percentage | 50.00% | |||
Manufacturing - Beijing Foton Cummins Engine Co., Ltd. | ||||
Equity, royalty and interest income from investees | ||||
Ownership percentage | 50.00% | |||
Investments and advances to equity method investees | $ 223 | 163 | ||
Equity Method Investment, Summarized Financial Information, Net Income (Loss) | $ 94 | 52 | 62 | |
Manufacturing - Beijing Foton Cummins Engine Company (Light-Duty) | Minimum | ||||
Equity, royalty and interest income from investees | ||||
Capacity of mechanical engines (in liters) | l | 2.8 | |||
Manufacturing - Beijing Foton Cummins Engine Company (Light-Duty) | Maximum | ||||
Equity, royalty and interest income from investees | ||||
Capacity of mechanical engines (in liters) | l | 4.5 | |||
Manufacturing - Beijing Foton Cummins Engine Company (Heavy-Duty) | Minimum | ||||
Equity, royalty and interest income from investees | ||||
Capacity of mechanical engines (in liters) | l | 10.5 | |||
Manufacturing - Beijing Foton Cummins Engine Company (Heavy-Duty) | Maximum | ||||
Equity, royalty and interest income from investees | ||||
Capacity of mechanical engines (in liters) | l | 11.8 | |||
Komatsu Manufacturing Alliances | ||||
Equity, royalty and interest income from investees | ||||
Investments and advances to equity method investees | $ 219 | 197 | ||
Komatsu Manufacturing Alliances | Minimum | ||||
Equity, royalty and interest income from investees | ||||
Ownership percentage | 20.00% | |||
Komatsu Manufacturing Alliances | 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 to equity method investees | $ 146 | 111 | ||
Equity Method Investment, Summarized Financial Information, Net Income (Loss) | $ 73 | 46 | 51 | |
Manufacturing - Dongfeng Cummins Engine Company, Ltd. | Minimum | ||||
Equity, royalty and interest income from investees | ||||
Capacity of mechanical engines (in liters) | l | 3.9 | |||
Power of mechanical engines (in horsepower) | hp | 80 | |||
Manufacturing - Dongfeng Cummins Engine Company, Ltd. | Maximum | ||||
Equity, royalty and interest income from investees | ||||
Capacity of mechanical engines (in liters) | l | 13 | |||
Power of mechanical engines (in horsepower) | hp | 680 | |||
Manufacturing - Cummins-Scania XPI Manufacturing, LLC | ||||
Equity, royalty and interest income from investees | ||||
Ownership percentage | 50.00% | |||
Investments and advances to equity method investees | $ 87 | 82 | ||
Manufacturing - Chongqing Cummins Engine Company, Ltd. | ||||
Equity, royalty and interest income from investees | ||||
Ownership percentage | 50.00% | |||
Investments and advances to equity method investees | $ 84 | 73 | ||
Equity Method Investment, Summarized Financial Information, Net Income (Loss) | 41 | 38 | 41 | |
Manufacturing - Dongfeng Cummins Emission Solutions Co. Ltd. | ||||
Equity, royalty and interest income from investees | ||||
Equity Method Investment, Summarized Financial Information, Net Income (Loss) | $ 13 | 9 | 6 | |
Manufacturing - Tata Cummins, Ltd. | ||||
Equity, royalty and interest income from investees | ||||
Ownership percentage | 50.00% | |||
Investments and advances to equity method investees | $ 59 | 63 | ||
Manufacturing - Shanghai Fleetguard Filter Co., Ltd. | ||||
Equity, royalty and interest income from investees | ||||
Equity Method Investment, Summarized Financial Information, Net Income (Loss) | 12 | 10 | 10 | |
Manufacturing - Cummins Westport, Inc. | ||||
Equity, royalty and interest income from investees | ||||
Equity Method Investment, Summarized Financial Information, Net Income (Loss) | 9 | [1] | 11 | 18 |
Manufacturing - All other manufacturers | ||||
Equity, royalty and interest income from investees | ||||
Equity Method Investment, Summarized Financial Information, Net Income (Loss) | 37 | [1] | 39 | 18 |
Other Distributors and Manufacturers | ||||
Equity, royalty and interest income from investees | ||||
Investments and advances to equity method investees | 338 | 257 | ||
Power Systems | ||||
Equity, royalty and interest income from investees | ||||
Investments and advances to equity method investees | 164 | 139 | 188 | |
Equity, royalty and interest income from investees | $ 54 | $ 42 | $ 56 | |
Power Systems | Minimum | ||||
Equity, royalty and interest income from investees | ||||
Capacity of mechanical engines (in liters) | l | 16 | |||
Power Systems | Cummins Olayan Energy | ||||
Equity, royalty and interest income from investees | ||||
Ownership percentage | 49.00% | |||
Equity Method Investment, Amount Sold | $ 61 | |||
Gain (Loss) on Sale of Equity Investments | 17 | |||
Proceeds from Sale of Equity Method Investments | $ 58 | |||
Tax Cuts and Jobs Act of 2017 Impact | Manufacturing - Cummins Westport, Inc. | ||||
Equity, royalty and interest income from investees | ||||
Tax Cuts and Jobs Act of 2017, Change in Tax Rate (applied to deferred tax balances), Provisional Income Tax Expense (Benefit) | $ 7 | |||
Tax Cuts and Jobs Act of 2017 Impact | Manufacturing - All other manufacturers | ||||
Equity, royalty and interest income from investees | ||||
Tax Cuts and Jobs Act of 2017, Change in Tax Rate (applied to deferred tax balances), Provisional Income Tax Expense (Benefit) | $ 32 | |||
[1] | U.S. tax legislation passed in December 2017 decreased our equity earnings at certain equity investees, including a $7 million unfavorable impact to Cummins Westport, Inc. due to the remeasurement of deferred taxes and a $32 million unfavorable impact to "All other manufacturers" due to withholding tax adjustments on foreign earnings. See Note 2 , " INCOME TAXES ," to our Consolidated Financial Statements for additional information . |
INVESTMENTS IN EQUITY INVESTE57
INVESTMENTS IN EQUITY INVESTEES (Details 2) - USD ($) $ in Millions | 12 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | |
Equity Method Investments and Joint Ventures [Abstract] | |||
Net sales | $ 7,050 | $ 5,654 | $ 5,946 |
Gross margin | 1,422 | 1,182 | 1,265 |
Net income | 680 | 499 | 521 |
Cummins share of net income | 308 | 260 | 273 |
Royalty and interest income | 49 | 41 | 42 |
Equity, royalty and interest income from investees | 357 | 301 | $ 315 |
Current assets | 3,416 | 2,602 | |
Non-current assets | 1,379 | 1,377 | |
Current liabilities | (2,567) | (1,938) | |
Non-current liabilities | (237) | (232) | |
Net assets | 1,991 | 1,809 | |
Cummins share of net assets | $ 1,116 | $ 927 |
MARKETABLE SECURITIES (Details)
MARKETABLE SECURITIES (Details) - USD ($) $ in Millions | 12 Months Ended | |||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | ||
Schedule of Available-for-sale Securities | ||||
Cost | $ 195 | $ 260 | ||
Gross unrealized gains/(losses) | 3 | |||
Estimated fair value | 198 | 260 | ||
Proceeds from sales and maturities of marketable securities | 266 | 306 | $ 270 | |
Gross realized gains from the sale of available-for-sale securities | [1] | 0 | 0 | $ 1 |
Available-for-sale Securities, Debt Maturities, Fair Value, Fiscal Year Maturity [Abstract] | ||||
1 year or less | 182 | |||
1-5 years | 1 | |||
Total | 183 | |||
Debt mutual funds | ||||
Schedule of Available-for-sale Securities | ||||
Cost | 170 | 132 | ||
Gross unrealized gains/(losses) | 0 | 0 | ||
Bank debentures | ||||
Schedule of Available-for-sale Securities | ||||
Cost | 0 | 114 | ||
Gross unrealized gains/(losses) | 0 | 0 | ||
Equity Mutual Funds | ||||
Schedule of Available-for-sale Securities | ||||
Cost | 12 | 12 | ||
Gross unrealized gains/(losses) | 3 | 0 | ||
Certificates of Deposit | ||||
Schedule of Available-for-sale Securities | ||||
Cost | 12 | 0 | ||
Gross unrealized gains/(losses) | 0 | 0 | ||
Government debt securities-non-U.S. | ||||
Schedule of Available-for-sale Securities | ||||
Cost | 1 | 2 | ||
Gross unrealized gains/(losses) | 0 | 0 | ||
Significant other observable inputs Level 2 | Debt mutual funds | ||||
Schedule of Available-for-sale Securities | ||||
Estimated fair value | [2] | 170 | 132 | |
Significant other observable inputs Level 2 | Bank debentures | ||||
Schedule of Available-for-sale Securities | ||||
Estimated fair value | [2] | 0 | 114 | |
Significant other observable inputs Level 2 | Equity Mutual Funds | ||||
Schedule of Available-for-sale Securities | ||||
Estimated fair value | [2] | 15 | 12 | |
Significant other observable inputs Level 2 | Certificates of Deposit | ||||
Schedule of Available-for-sale Securities | ||||
Estimated fair value | [2] | 12 | 0 | |
Significant other observable inputs Level 2 | Government debt securities-non-U.S. | ||||
Schedule of Available-for-sale Securities | ||||
Estimated fair value | [2] | $ 1 | $ 2 | |
Minimum | Bank debentures | ||||
Schedule of Available-for-sale Securities | ||||
Maturities of Time Deposits, Description | P3M | |||
Maximum | Bank debentures | ||||
Schedule of Available-for-sale Securities | ||||
Maturities of Time Deposits, Description | P5Y | |||
[1] | Gross realized losses from the sale of available-for-sale securities were immaterial. | |||
[2] | All marketable securities are classified as Level 2 securities. The fair value of Level 2 securities is estimated using actively quoted prices for similar instruments from brokers and observable inputs where available, including market transactions and third-party pricing services, or net asset values provided to investors. We do not currently have any Level 3 securities and there were no transfers between Level 2 or 3 during 2017 or 2016. |
INVENTORIES (Details)
INVENTORIES (Details) - USD ($) $ in Millions | Dec. 31, 2017 | Dec. 31, 2016 |
Inventory Disclosure [Abstract] | ||
Finished products | $ 2,078 | $ 1,779 |
Work-in-process and raw materials | 1,216 | 1,005 |
Inventories at FIFO cost | 3,294 | 2,784 |
Excess of FIFO over LIFO | (128) | (109) |
Total inventories | $ 3,166 | $ 2,675 |
PROPERTY, PLANT AND EQUIPMENT60
PROPERTY, PLANT AND EQUIPMENT (Details) - USD ($) $ in Millions | Dec. 31, 2017 | Dec. 31, 2016 |
Property, Plant and Equipment | ||
Property, plant and equipment, gross | $ 8,058 | $ 7,635 |
Accumulated depreciation | (4,131) | (3,835) |
Property, plant and equipment, net | 3,927 | 3,800 |
Land and buildings | ||
Property, Plant and Equipment | ||
Property, plant and equipment, gross | 2,332 | 2,075 |
Machinery, equipment and fixtures | ||
Property, Plant and Equipment | ||
Property, plant and equipment, gross | 5,285 | 4,898 |
Construction in process | ||
Property, Plant and Equipment | ||
Property, plant and equipment, gross | $ 441 | $ 662 |
GOODWILL AND OTHER INTANGIBLE61
GOODWILL AND OTHER INTANGIBLE ASSETS (Details) - USD ($) $ in Millions | 12 Months Ended | |||
Dec. 31, 2017 | Dec. 31, 2016 | |||
Changes in the carrying amount of goodwill | ||||
Balance at beginning of period | $ 480 | $ 482 | ||
Acquisitions | 544 | 4 | ||
Translation and other | 11 | (6) | ||
Goodwill, allocated to segments subtotal | 1,035 | |||
Balance at end of period | 1,082 | 480 | ||
Components | ||||
Changes in the carrying amount of goodwill | ||||
Balance at beginning of period | 386 | 391 | ||
Acquisitions | 544 | [1] | 0 | |
Translation and other | 10 | (5) | ||
Balance at end of period | 940 | 386 | ||
Distribution | ||||
Changes in the carrying amount of goodwill | ||||
Balance at beginning of period | 79 | 75 | ||
Acquisitions | 0 | 4 | ||
Translation and other | 0 | 0 | ||
Balance at end of period | 79 | 79 | ||
Power Systems | ||||
Changes in the carrying amount of goodwill | ||||
Balance at beginning of period | 9 | 10 | ||
Acquisitions | 0 | 0 | ||
Translation and other | 1 | (1) | ||
Balance at end of period | 10 | 9 | ||
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 | ||
Brammo Inc. | ||||
Changes in the carrying amount of goodwill | ||||
Acquisitions | [2] | $ 47 | ||
[1] | Acquisition goodwill relates to Eaton Cummins Automated Transmission Technologies. See Note 18 , " ACQUISITIONS | |||
[2] | Goodwill associated with the Brammo Inc. acquisition was presented as a reconciling item as it had not yet been assigned to a reportable segment at December 31, 2017. Effective January 1, 2018, Brammo Inc. will be assigned to a new reportable segment called Electrified Power. See Note 18 , " ACQUISITIONS |
GOODWILL AND OTHER INTANGIBLE62
GOODWILL AND OTHER INTANGIBLE ASSETS (Details 2) - USD ($) $ in Millions | 12 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | |
Finite Lived Intangible Assets | |||
Intangible asset, Net | $ 973 | $ 332 | |
Amortization expense for software and other intangibles | 112 | 92 | $ 90 |
Projected amortization expense | |||
2,018 | 130 | ||
2,019 | 116 | ||
2,020 | 101 | ||
2,021 | 76 | ||
2,022 | 55 | ||
Software | |||
Finite Lived Intangible Assets | |||
Intangible asset, Gross | 718 | 617 | |
Less: Accumulated amortization | (386) | (330) | |
Intangible asset, Net | 332 | 287 | |
Other Intangible Assets | |||
Finite Lived Intangible Assets | |||
Intangible asset, Gross | 786 | 164 | |
Less: Accumulated amortization | (145) | (119) | |
Intangible asset, Net | $ 641 | $ 45 |
PENSION AND OTHER POSTRETIREM63
PENSION AND OTHER POSTRETIREMENT BENEFITS - OBLIGATIONS, ASSETS AND FUNDED STATUS(Details) $ in Millions | 12 Months Ended | ||
Dec. 31, 2017USD ($)country | Dec. 31, 2016USD ($) | Dec. 31, 2015USD ($) | |
Amounts recognized in consolidated balance sheets | |||
Pension assets - long-term | $ 1,043 | $ 731 | |
Pensions - long-term liabilities | (330) | (326) | |
Postretirement benefits other than pensions-long-term liabilities | (289) | (329) | |
Pension Plan | |||
Change in plan assets | |||
Exchange rate changes | (30) | 28 | $ 7 |
Other Pension Plan | |||
Change in plan assets | |||
Employer contributions | $ 11 | ||
Less Significant Defined Benefit Plans Applicable to Number of Countries | country | 14 | ||
Maximum Percentage of Defined Benefit Plans Assets Included in Other Liabilities and Deferred Revenue | 3.00% | ||
Maximum Percentage of Defined Benefit Plans, Obligations Included in Other Liabilities and Deferred Revenue | 4.00% | ||
Other Postretirement Benefit Plan | |||
Change in benefit obligation | |||
Benefit obligation at the beginning of the year | $ 364 | 385 | |
Interest cost | 14 | 16 | 15 |
Plan participants' contributions | 24 | 14 | |
Actuarial (gain) loss | (35) | 9 | |
Benefits paid directly by employer or from fund | (49) | (60) | |
Benefit obligation at the end of the year | $ 318 | $ 364 | 385 |
Change in plan assets | |||
Less Significant Postretirement Benefit Plans Applicable To Number of Countries | country | 4 | ||
Maximum Percentage of Defined Benefit Plans, Obligations Included in Other Liabilities and Deferred Revenue | 6.00% | 5.00% | |
Funded status | |||
Funded status at end of year | $ (318) | $ (364) | |
Amounts recognized in consolidated balance sheets | |||
Accrued compensation, benefits and retirement costs - current liabilities | (29) | (35) | |
Postretirement benefits other than pensions-long-term liabilities | (289) | (329) | |
Net amount recognized | (318) | (364) | |
Amounts recognized in accumulated other comprehensive loss consist of: | |||
Net actuarial loss | 27 | 69 | |
Prior service cost | (4) | (5) | |
Net amount recognized | 23 | 64 | |
UNITED STATES | |||
Change in plan assets | |||
Fair value of plan assets at the beginning of the year | 2,751 | ||
Fair value of plan assets at the end of the year | 3,166 | 2,751 | |
UNITED STATES | Pension Plan | |||
Change in benefit obligation | |||
Benefit obligation at the beginning of the year | 2,661 | 2,533 | |
Service cost | 107 | 90 | 80 |
Interest cost | 106 | 109 | 102 |
Actuarial (gain) loss | 61 | 111 | |
Benefits paid directly by employer or from fund | (155) | (175) | |
Plan amendments | 0 | 9 | |
Benefit obligation at the end of the year | 2,765 | 2,661 | 2,533 |
Change in plan assets | |||
Fair value of plan assets at the beginning of the year | 2,751 | 2,636 | |
Actual return on plan assets | 351 | 200 | |
Employer contributions | 219 | 90 | |
Benefits paid from Fund | (155) | (175) | |
Exchange rate changes | 0 | 0 | |
Fair value of plan assets at the end of the year | 3,166 | 2,751 | 2,636 |
Funded status | |||
Funded status at end of year | 401 | 90 | |
Amounts recognized in consolidated balance sheets | |||
Pension assets - long-term | 745 | 429 | |
Accrued compensation, benefits and retirement costs - current liabilities | (14) | (13) | |
Pensions - long-term liabilities | (330) | (326) | |
Net amount recognized | 401 | 90 | |
Amounts recognized in accumulated other comprehensive loss consist of: | |||
Net actuarial loss | 649 | 770 | |
Prior service cost | 8 | 9 | |
Net amount recognized | 657 | 779 | |
UNITED KINGDOM | |||
Change in plan assets | |||
Fair value of plan assets at the beginning of the year | 1,753 | ||
Fair value of plan assets at the end of the year | 1,960 | 1,753 | |
UNITED KINGDOM | Pension Plan | |||
Change in benefit obligation | |||
Benefit obligation at the beginning of the year | 1,451 | 1,390 | |
Service cost | 26 | 21 | 27 |
Interest cost | 40 | 50 | 56 |
Actuarial (gain) loss | 53 | 316 | |
Benefits paid directly by employer or from fund | (54) | (55) | |
Exchange rate changes | 146 | (271) | |
Benefit obligation at the end of the year | 1,662 | 1,451 | 1,390 |
Change in plan assets | |||
Fair value of plan assets at the beginning of the year | 1,753 | 1,712 | |
Actual return on plan assets | 78 | 402 | |
Employer contributions | 9 | 28 | |
Benefits paid from Fund | (54) | (55) | |
Exchange rate changes | 174 | (334) | |
Fair value of plan assets at the end of the year | 1,960 | 1,753 | $ 1,712 |
Funded status | |||
Funded status at end of year | 298 | 302 | |
Amounts recognized in consolidated balance sheets | |||
Pension assets - long-term | 298 | 302 | |
Net amount recognized | 298 | 302 | |
Amounts recognized in accumulated other comprehensive loss consist of: | |||
Net actuarial loss | 207 | 172 | |
Net amount recognized | 207 | 172 | |
Nonqualified Plan | UNITED STATES | Pension Plan | |||
Change in benefit obligation | |||
Benefits paid directly by employer or from fund | $ (15) | $ (16) |
PENSION AND OTHER POSTRETIREM64
PENSION AND OTHER POSTRETIREMENT BENEFITS - COMPONENTS OF NET PERIODIC PENSION COST (Details 2) - USD ($) $ in Millions | 12 Months Ended | |||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | Jan. 01, 2018 | |
Pension Plan | ||||
Changes in benefit obligations and plan assets recognized in other comprehensive income | ||||
Amortization of prior service credit | $ 0 | $ 0 | $ 1 | |
Recognized net actuarial loss | (77) | (44) | (79) | |
Incurred actuarial (gain) loss | (40) | 107 | 105 | |
Foreign exchange translation adjustments | 30 | (28) | (7) | |
Total recognized in other comprehensive income | (87) | 35 | 20 | |
Total recognized in net periodic pension cost and other comprehensive income | (5) | 77 | 83 | |
Defined Benefit Plan, Expected Amortization of Gain (Loss), Next Fiscal Year | $ 62 | |||
Other Postretirement Benefit Plan | ||||
Components of Net Periodic Benefit Cost | ||||
Interest cost | 14 | 16 | 15 | |
Recognized net actuarial loss | 6 | 5 | 5 | |
Net periodic pension cost | 20 | 21 | 20 | |
Changes in benefit obligations and plan assets recognized in other comprehensive income | ||||
Recognized net actuarial loss | (6) | (6) | (5) | |
Incurred actuarial (gain) loss | (35) | 9 | 6 | |
Total recognized in other comprehensive income | (41) | 3 | 1 | |
Total recognized in net periodic pension cost and other comprehensive income | (21) | 24 | 21 | |
UNITED STATES | ||||
Pension and other postretirement benefits | ||||
Defined Benefit Plan, Accumulated Benefit Obligation | 2,745 | 2,625 | ||
Plans with accumulated benefit obligation in excess of plan assets: | ||||
Accumulated benefit obligation | 323 | 304 | ||
Plans with projected benefit obligation in excess of plan assets: | ||||
Projected benefit obligation | 344 | 339 | ||
UNITED STATES | Pension Plan | ||||
Components of Net Periodic Benefit Cost | ||||
Service cost | 107 | 90 | 80 | |
Interest cost | 106 | 109 | 102 | |
Expected return on plan assets | (204) | (201) | (189) | |
Amortization of prior service cost | 0 | 0 | (1) | |
Recognized net actuarial loss | 37 | 29 | 45 | |
Net periodic pension cost | 46 | 27 | 37 | |
Changes in benefit obligations and plan assets recognized in other comprehensive income | ||||
Foreign exchange translation adjustments | 0 | 0 | ||
UNITED KINGDOM | ||||
Pension and other postretirement benefits | ||||
Defined Benefit Plan, Accumulated Benefit Obligation | 1,569 | 1,366 | ||
UNITED KINGDOM | Pension Plan | ||||
Components of Net Periodic Benefit Cost | ||||
Service cost | 26 | 21 | 27 | |
Interest cost | 40 | 50 | 56 | |
Expected return on plan assets | (70) | (71) | (91) | |
Amortization of prior service cost | 0 | 0 | 0 | |
Recognized net actuarial loss | 40 | 15 | 34 | |
Net periodic pension cost | 36 | 15 | $ 26 | |
Changes in benefit obligations and plan assets recognized in other comprehensive income | ||||
Foreign exchange translation adjustments | $ (174) | $ 334 | ||
Scenario, Forecast | Other Postretirement Benefit Plan | ||||
Changes in benefit obligations and plan assets recognized in other comprehensive income | ||||
Defined Benefit Plan, Expected Amortization of Gain (Loss), Next Fiscal Year | $ 0 |
PENSION AND OTHER POSTRETIREM65
PENSION AND OTHER POSTRETIREMENT BENEFITS - ASSUMPTIONS AND PLAN ASSET TARGETS (Details 3) - USD ($) $ in Millions | Jan. 01, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 |
Other Postretirement Benefit Plan | ||||
Assumptions Used in Determining the Pension Benefit Obligation | ||||
Discount rate PBO (as a percent) | 3.55% | 4.00% | ||
Assumptions Used in Determining the Net Periodic Pension Cost and OPEB | ||||
Discount rate net periodic benefit cost (as a percent) | 4.00% | 4.35% | 3.90% | |
Defined Benefit Plan, Assumed Health Care Cost Trend Rates [Abstract] | ||||
Annual rate of increase in the per capita cost of covered health care benefits | 8.00% | |||
Ultimate per capita trend rate for health care costs | 5.00% | |||
Increase in APBO due to increase of one percent | $ 16 | |||
Increase in net periodic other postretirement benet expense due to incease in health care cost trend rates of one percent | 1 | |||
Decrease in APBO due to decrease in health care cost rends of one percent | 14 | |||
Decrease in net periodic other postretirement benefit expense due to decrease in health care cost trends of one percent | $ 1 | |||
UNITED STATES | ||||
Assumptions Used in Determining the Pension Benefit Obligation | ||||
Discount rate PBO (as a percent) | 3.66% | 4.12% | ||
Compensation increase rate (as a percent) | 2.99% | 4.87% | ||
Assumptions Used in Determining the Net Periodic Pension Cost and OPEB | ||||
Discount rate net periodic benefit cost (as a percent) | 4.12% | 4.47% | 4.07% | |
Expected return on plan assets (as a percent) | 7.25% | 7.50% | 7.50% | |
Compensation increase rate (as a percent) | 4.87% | 4.87% | 4.88% | |
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 100.00% | |||
UNITED STATES | U.S. Equity | ||||
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 10.00% | |||
UNITED STATES | Non-U.S. Equity | ||||
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 2.00% | |||
UNITED STATES | Global Equities | ||||
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 8.00% | |||
UNITED STATES | Equity Securities | ||||
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 20.00% | |||
UNITED STATES | Real estate | ||||
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 6.00% | |||
UNITED STATES | Private equity / venture capital | ||||
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 4.00% | |||
UNITED STATES | Opportunistic credit | ||||
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 2.00% | |||
UNITED STATES | Fixed Income Funds | ||||
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 68.00% | |||
Asset allocation covers exposure to changes in portion of discount rate (as a percent) | 100.00% | |||
UNITED KINGDOM | ||||
Assumptions Used in Determining the Pension Benefit Obligation | ||||
Discount rate PBO (as a percent) | 2.55% | 2.70% | ||
Compensation increase rate (as a percent) | 3.75% | 3.75% | ||
Assumptions Used in Determining the Net Periodic Pension Cost and OPEB | ||||
Discount rate net periodic benefit cost (as a percent) | 2.70% | 3.95% | 3.80% | |
Expected return on plan assets (as a percent) | 4.50% | 4.70% | 5.80% | |
Compensation increase rate (as a percent) | 3.75% | 3.75% | 4.25% | |
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 100.00% | |||
UNITED KINGDOM | Global Equities | ||||
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 23.00% | |||
UNITED KINGDOM | Real estate | ||||
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 5.00% | |||
UNITED KINGDOM | Reinsurance | ||||
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 8.00% | |||
UNITED KINGDOM | Corporate Credit Instruments | ||||
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 7.50% | |||
UNITED KINGDOM | Fixed Income Funds | ||||
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 56.50% | |||
Asset allocation covers exposure to changes in portion of discount rate (as a percent) | 79.00% | |||
Maximum | UNITED STATES | U.S. Equity | ||||
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 12.00% | |||
Maximum | UNITED STATES | Non-U.S. Equity | ||||
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 5.00% | |||
Maximum | UNITED STATES | Global Equities | ||||
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 9.00% | |||
Maximum | UNITED STATES | Real estate | ||||
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 10.00% | |||
Maximum | UNITED STATES | Private equity / venture capital | ||||
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 10.00% | |||
Maximum | UNITED STATES | Opportunistic credit | ||||
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 10.00% | |||
Maximum | UNITED STATES | Fixed Income Funds | ||||
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 73.00% | |||
Minimum | UNITED STATES | U.S. Equity | ||||
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 2.00% | |||
Minimum | UNITED STATES | Non-U.S. Equity | ||||
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 0.00% | |||
Minimum | UNITED STATES | Global Equities | ||||
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 3.00% | |||
Minimum | UNITED STATES | Real estate | ||||
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 0.00% | |||
Minimum | UNITED STATES | Private equity / venture capital | ||||
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 0.00% | |||
Minimum | UNITED STATES | Opportunistic credit | ||||
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 0.00% | |||
Minimum | UNITED STATES | Fixed Income Funds | ||||
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 63.00% | |||
Scenario, Forecast | UNITED STATES | ||||
Assumptions Used in Determining the Net Periodic Pension Cost and OPEB | ||||
Expected return on plan assets (as a percent) | 6.50% | |||
Scenario, Forecast | UNITED KINGDOM | ||||
Assumptions Used in Determining the Net Periodic Pension Cost and OPEB | ||||
Expected return on plan assets (as a percent) | 4.00% |
PENSION AND OTHER POSTRETIREM66
PENSION AND OTHER POSTRETIREMENT BENEFITS - FAIR VALUE OF PLAN ASSETS (Details 4) - USD ($) $ in Millions | 1 Months Ended | ||||
Jul. 31, 2012 | Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | ||
UNITED STATES | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | $ 3,166 | $ 2,751 | |||
Total Fair Value of Defined Benefit Plan assets subject to leveling | 1,914 | 1,738 | |||
Pending Trade Purchases, Sales | (96) | (83) | |||
Accrued Investment Income Receivable | [1] | 12 | 12 | ||
Investments Net Asset Value | 1,336 | 1,084 | |||
UNITED STATES | U.S. Equity | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 102 | 145 | |||
UNITED STATES | Non-U.S. Equity | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 56 | 125 | |||
UNITED STATES | Global Equities | |||||
Pension and other postretirement benefits | |||||
Investments Net Asset Value | 428 | 511 | |||
UNITED STATES | US Treasury and Government | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 691 | 570 | |||
Investments Net Asset Value | 347 | 178 | |||
UNITED STATES | Domestic Corporate Debt Securities | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 590 | 497 | |||
UNITED STATES | Foreign Corporate Debt Securities | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 73 | 84 | |||
UNITED STATES | U.S. and non-U.S. corporate debt | |||||
Pension and other postretirement benefits | |||||
Investments Net Asset Value | 321 | 265 | |||
UNITED STATES | Real estate | |||||
Pension and other postretirement benefits | |||||
Investments Net Asset Value | 137 | 129 | |||
UNITED STATES | Asset-backed Securities | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 78 | 58 | |||
Investments Net Asset Value | 103 | 1 | |||
UNITED STATES | Cash Equivalents | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | [2] | 75 | 38 | ||
UNITED STATES | Derivative | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | [3] | 3 | 9 | ||
UNITED STATES | Private Equity and Real Estate | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | [4] | 246 | 212 | ||
UNITED STATES | Fair Value, Inputs, Level 1 | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 208 | 288 | |||
UNITED STATES | Fair Value, Inputs, Level 1 | U.S. Equity | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 102 | 145 | |||
UNITED STATES | Fair Value, Inputs, Level 1 | Non-U.S. Equity | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 56 | 125 | |||
UNITED STATES | Fair Value, Inputs, Level 1 | Cash Equivalents | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | [2] | 50 | 18 | ||
UNITED STATES | Significant other observable inputs Level 2 | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 1,460 | 1,238 | |||
UNITED STATES | Significant other observable inputs Level 2 | US Treasury and Government | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 691 | 570 | |||
UNITED STATES | Significant other observable inputs Level 2 | Domestic Corporate Debt Securities | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 590 | 497 | |||
UNITED STATES | Significant other observable inputs Level 2 | Foreign Corporate Debt Securities | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 73 | 84 | |||
UNITED STATES | Significant other observable inputs Level 2 | Asset-backed Securities | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 78 | 58 | |||
UNITED STATES | Significant other observable inputs Level 2 | Cash Equivalents | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | [2] | 25 | 20 | ||
UNITED STATES | Significant other observable inputs Level 2 | Derivative | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | [3] | 3 | 9 | ||
UNITED STATES | Fair Value, Inputs, Level 3 | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 246 | 212 | $ 203 | ||
UNITED STATES | Fair Value, Inputs, Level 3 | Real estate | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 66 | 64 | 60 | ||
UNITED STATES | Fair Value, Inputs, Level 3 | Private Equity and Real Estate | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | [4] | 246 | 212 | ||
UNITED KINGDOM | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 1,960 | 1,753 | |||
Total Fair Value of Defined Benefit Plan assets subject to leveling | 854 | 1,004 | |||
Investments Net Asset Value | 1,106 | 749 | |||
UNITED KINGDOM | U.S. Equity | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 63 | 174 | |||
UNITED KINGDOM | Non-U.S. Equity | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 91 | 193 | |||
UNITED KINGDOM | Global Equities | |||||
Pension and other postretirement benefits | |||||
Investments Net Asset Value | 144 | 0 | |||
UNITED KINGDOM | U.S. and non-U.S. corporate debt | |||||
Pension and other postretirement benefits | |||||
Investments Net Asset Value | 822 | 655 | |||
UNITED KINGDOM | Insurance Contract | |||||
Pension and other postretirement benefits | |||||
Insurance Contract Payment Deferment Period | 10 years | ||||
UNITED KINGDOM | Cash Equivalents | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | [5] | 29 | 24 | ||
UNITED KINGDOM | Private Equity Real Estate and Insurance | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | [6] | 671 | 613 | ||
UNITED KINGDOM | Reinsurance | |||||
Pension and other postretirement benefits | |||||
Investments Net Asset Value | 86 | 56 | |||
UNITED KINGDOM | Managed Futures Funds | |||||
Pension and other postretirement benefits | |||||
Investments Net Asset Value | 54 | 38 | |||
UNITED KINGDOM | Fair Value, Inputs, Level 1 | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 29 | 24 | |||
UNITED KINGDOM | Fair Value, Inputs, Level 1 | Cash Equivalents | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | [5] | 29 | 24 | ||
UNITED KINGDOM | Significant other observable inputs Level 2 | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 154 | 367 | |||
UNITED KINGDOM | Significant other observable inputs Level 2 | U.S. Equity | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 63 | 174 | |||
UNITED KINGDOM | Significant other observable inputs Level 2 | Non-U.S. Equity | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 91 | 193 | |||
UNITED KINGDOM | Fair Value, Inputs, Level 3 | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 671 | 613 | 601 | ||
UNITED KINGDOM | Fair Value, Inputs, Level 3 | Real estate | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 59 | 57 | $ 57 | ||
UNITED KINGDOM | Fair Value, Inputs, Level 3 | Insurance Contract | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 477 | 439 | |||
UNITED KINGDOM | Fair Value, Inputs, Level 3 | Private Equity Real Estate and Insurance | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | [6] | $ 671 | $ 613 | ||
[1] | Accruals include interest or dividends that were not settled at December 31. | ||||
[2] | Cash equivalents include commercial paper, short-term government/agency, mortgage and credit instruments. | ||||
[3] | Derivative instruments include interest rate swaps and credit default swaps. | ||||
[4] | The instruments in private equity, real estate and insurance 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 statements of the funds. | ||||
[5] | Cash equivalents include commercial paper, short-term government/agency, mortgage and credit instruments. | ||||
[6] | The instruments in private equity, real estate and insurance 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. |
PENSION AND OTHER POSTRETIREM67
PENSION AND OTHER POSTRETIREMENT BENEFITS - LEVEL 3 FAIR VALUE RECONCILIATION (Details 5) - USD ($) $ in Millions | 12 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | |
UNITED STATES | |||
Summary of changes in the fair value of level 3 assets | |||
Fair value of plan assets | $ 3,166 | $ 2,751 | |
UNITED STATES | Fair Value, Inputs, Level 3 | |||
Summary of changes in the fair value of level 3 assets | |||
Unrealized (losses) gains on assets still held at the reporting date | 29 | 12 | |
Purchases, sales and settlements, net | 5 | (3) | |
Fair value of plan assets | 246 | 212 | $ 203 |
UNITED STATES | Fair Value, Inputs, Level 3 | Private equity / venture capital | |||
Summary of changes in the fair value of level 3 assets | |||
Unrealized (losses) gains on assets still held at the reporting date | 24 | 6 | |
Purchases, sales and settlements, net | 8 | (1) | |
Fair value of plan assets | 180 | 148 | 143 |
UNITED STATES | Fair Value, Inputs, Level 3 | Real estate | |||
Summary of changes in the fair value of level 3 assets | |||
Unrealized (losses) gains on assets still held at the reporting date | 5 | 6 | |
Purchases, sales and settlements, net | (3) | (2) | |
Fair value of plan assets | 66 | 64 | 60 |
UNITED KINGDOM | |||
Summary of changes in the fair value of level 3 assets | |||
Fair value of plan assets | 1,960 | 1,753 | |
UNITED KINGDOM | Fair Value, Inputs, Level 3 | |||
Summary of changes in the fair value of level 3 assets | |||
Unrealized (losses) gains on assets still held at the reporting date | 76 | 2 | |
Purchases, sales and settlements, net | (18) | 10 | |
Fair value of plan assets | 671 | 613 | 601 |
UNITED KINGDOM | Fair Value, Inputs, Level 3 | Private equity / venture capital | |||
Summary of changes in the fair value of level 3 assets | |||
Unrealized (losses) gains on assets still held at the reporting date | 28 | 15 | |
Purchases, sales and settlements, net | (10) | 3 | |
Fair value of plan assets | 135 | 117 | 99 |
UNITED KINGDOM | Fair Value, Inputs, Level 3 | Real estate | |||
Summary of changes in the fair value of level 3 assets | |||
Unrealized (losses) gains on assets still held at the reporting date | 10 | (7) | |
Purchases, sales and settlements, net | (8) | 7 | |
Fair value of plan assets | 59 | 57 | 57 |
UNITED KINGDOM | Fair Value, Inputs, Level 3 | Insurance | |||
Summary of changes in the fair value of level 3 assets | |||
Unrealized (losses) gains on assets still held at the reporting date | 38 | (6) | |
Purchases, sales and settlements, net | 0 | 0 | |
Fair value of plan assets | $ 477 | $ 439 | $ 445 |
PENSION AND OTHER POSTRETIREM68
PENSION AND OTHER POSTRETIREMENT BENEFITS (Details 6) - Scenario, Forecast $ in Millions | Jan. 01, 2018USD ($) |
Pension Plan | |
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block | |
Defined Benefit Plan, Expected Future Employer Contributions, Current Fiscal Year | $ 38 |
Expected benefit payments | |
2,018 | 239 |
2,019 | 237 |
2,020 | 242 |
2,021 | 248 |
2,022 | 253 |
2023-2027 | 1,320 |
Other Postretirement Benefit Plan | |
Expected benefit payments | |
2,018 | 29 |
2,019 | 28 |
2,020 | 27 |
2,021 | 26 |
2,022 | 25 |
2023-2027 | $ 108 |
Contribution Plan (Details 7)
Contribution Plan (Details 7) - USD ($) $ in Millions | 12 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | |
Other Pension Plan | |||
Defined Contribution Plan Disclosure [Line Items] | |||
Defined Contribution Plan, Cost | $ 84 | $ 68 | $ 74 |
DEBT (Details)
DEBT (Details) $ in Millions | Sep. 05, 2017USD ($) | Nov. 13, 2015USD ($) | Dec. 31, 2017USD ($)Rate | Dec. 31, 2016USD ($)Rate | Dec. 31, 2015USD ($)Rate | Sep. 19, 2013USD ($)Rate | |
Debt Instruments | |||||||
Loans payable | $ 57 | $ 41 | |||||
Weighted average interest rate (as a percent) | Rate | 3.01% | 4.20% | 3.65% | ||||
Commercial paper | $ 298 | $ 212 | |||||
Leverage ratio | 3.5 | ||||||
Unamortized discount | $ (54) | (56) | |||||
Fair value adjustment due to hedge on indebtedness | 35 | 47 | |||||
Capital leases | 121 | 88 | |||||
Total long-term debt | 1,651 | 1,603 | |||||
Less: Current maturities of long-term debt | 63 | 35 | |||||
Long-term debt | 1,588 | 1,568 | |||||
Total interest incurred | 85 | 75 | $ 68 | ||||
Interest capitalized | 4 | 6 | 3 | ||||
Principal payments required on long-term debt | |||||||
2,018 | 63 | ||||||
2,019 | 50 | ||||||
2,020 | 12 | ||||||
2,021 | 6 | ||||||
2,022 | 6 | ||||||
Fair value | |||||||
Fair value of total debt | [1] | 2,301 | 2,077 | ||||
Carrying value of total debt | 2,006 | 1,856 | |||||
Senior Notes, 3.65%, due 2023 | |||||||
Debt Instruments | |||||||
Unsecured Debt | $ 500 | 500 | |||||
Debt instrument interest rate (as a percent) | Rate | 3.65% | ||||||
Debentures, 6.75%, due 2027 | |||||||
Debt Instruments | |||||||
Unsecured Debt | $ 58 | 58 | |||||
Debt instrument interest rate (as a percent) | Rate | 6.75% | ||||||
Debentures, 7.125%, due 2028 | |||||||
Debt Instruments | |||||||
Unsecured Debt | $ 250 | 250 | |||||
Debt instrument interest rate (as a percent) | Rate | 7.125% | ||||||
Senior Notes 4.875 Percent, Due 2043 | |||||||
Debt Instruments | |||||||
Unsecured Debt | $ 500 | 500 | |||||
Debt instrument interest rate (as a percent) | Rate | 4.875% | ||||||
Debentures, 5.65%, due 2098 (effective interest rate 7.48%) | |||||||
Debt Instruments | |||||||
Unsecured Debt | $ 165 | 165 | |||||
Debt instrument interest rate (as a percent) | Rate | 5.65% | ||||||
Effective interest rate (as a percent) | Rate | 7.48% | ||||||
Other long-term debt | |||||||
Debt Instruments | |||||||
Other Long-term Debt | $ 76 | 51 | |||||
Interest rate contracts | Senior Notes, 3.65%, due 2023 | |||||||
Debt Instruments | |||||||
Unsecured Debt | $ 500 | ||||||
Debt instrument interest rate (as a percent) | Rate | 3.65% | ||||||
London Interbank Offered Rate (LIBOR) | Interest rate contracts | Senior Notes, 3.65%, due 2023 | |||||||
Debt Instruments | |||||||
Debt Instrument, Description of Variable Rate Basis | one-month LIBOR | ||||||
Interest Expense | Interest rate contracts | |||||||
Other debt disclosure | |||||||
Gain/(Loss) on Swaps | [2] | $ (7) | (8) | 6 | |||
Gain/(Loss) on Borrowings | [2] | $ 8 | $ 12 | $ (2) | |||
Commercial Paper | |||||||
Debt Instruments | |||||||
Weighted average interest rate (as a percent) | Rate | 1.56% | ||||||
International and other domestic short-term credit facilities | |||||||
Debt Instruments | |||||||
Line of credit facility, remaining borrowing capacity | $ 240 | ||||||
1-year revolving credit agreement | |||||||
Debt Instruments | |||||||
Term of loan | 364 days | ||||||
Line of Credit Facility, Maximum Borrowing Capacity | $ 1,000 | ||||||
Line of credit facility, remaining borrowing capacity | 1,000 | ||||||
5-year revolving credit agreement | |||||||
Debt Instruments | |||||||
Term of loan | 5 years | ||||||
Line of Credit Facility, Maximum Borrowing Capacity | $ 1,750 | $ 1,750 | |||||
Revolving credit facility amount available for swingline loans | $ 300 | ||||||
Debt Instrument, Description of Variable Rate Basis | LIBOR | ||||||
Percentage added to reference rate to compute the variable interest rate | Rate | 0.75% | ||||||
Line of credit facility, remaining borrowing capacity | $ 1,450 | ||||||
[1] | The fair value of debt is derived from Level 2 inputs. | ||||||
[2] | The difference between the gain/(loss) on swaps and borrowings represents hedge ineffectiveness. |
PRODUCT WARRANTY LIABILITY (Det
PRODUCT WARRANTY LIABILITY (Details) - USD ($) $ in Millions | 12 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | |
Product Warranty Liability: | |||
Balance, beginning of year | $ 1,414 | $ 1,404 | $ 1,283 |
Provision for warranties issued | 557 | 334 | 391 |
Deferred revenue on extended warranty contracts sold | 240 | 231 | 290 |
Payments | (398) | (385) | (389) |
Amortization of deferred revenue on extended warranty contracts | (219) | (201) | (179) |
Changes in estimates for pre-existing warranties | 85 | 44 | 20 |
Foreign currency translation | 8 | (13) | (12) |
Balance, end of period | 1,687 | 1,414 | $ 1,404 |
Product Warranty Liability [Line Items] | |||
Current portion of deferred revenue | 500 | 468 | |
Deferred revenue - Long-term | 604 | 589 | |
Deferred Revenue Related to extended coverage, Total | 767 | 745 | |
Long-term portion of warranty liability | 466 | 336 | |
Other Current Liabilities | |||
Product Warranty Liability [Line Items] | |||
Current portion of deferred revenue | 231 | 218 | |
Other Noncurrent Liabilities | |||
Product Warranty Liability [Line Items] | |||
Deferred revenue - Long-term | 536 | 527 | |
Long-term portion of warranty liability | $ 466 | $ 336 |
OTHER LIABILITIES AND DEFERRE72
OTHER LIABILITIES AND DEFERRED REVENUE (Details) - USD ($) $ in Millions | Dec. 31, 2017 | Dec. 31, 2016 | |
Other Liabilities Disclosure [Abstract] | |||
Deferred Revenue, Noncurrent | $ 604 | $ 589 | |
Accrued warranty | 466 | 336 | |
Deferred Income Taxes and Other Tax Liabilities, Noncurrent | 391 | 76 | |
Taxes Payable | 281 | [1] | 0 |
Accrued compensation | 151 | 151 | |
Other long-term liabilities | 134 | 137 | |
Other liabilities and deferred revenue | $ 2,027 | $ 1,289 | |
[1] | Long-term income taxes payable are the result of Tax Legislation and relate to the non-current portion of the one-time transition tax on accumulated foreign earnings. See Note 2 , " INCOME TAXES ," to our Consolidated Financial Statements for additional information |
COMMITMENTS AND CONTINGENCIES73
COMMITMENTS AND CONTINGENCIES (Details) - USD ($) $ in Millions | 3 Months Ended | 12 Months Ended | ||||||||||
Dec. 31, 2017 | Oct. 01, 2017 | Oct. 02, 2016 | Jul. 03, 2016 | Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | ||||||
Guarantee Obligations: | ||||||||||||
Loss contingency | [1] | $ 5 | $ 138 | $ 60 | ||||||||
Standard Product Warranty Accrual, Increase for Warranties Issued | 557 | 334 | 391 | |||||||||
Guarantee obligations, maximum potential loss | $ 51 | 51 | ||||||||||
Unrecorded Unconditional Purchase Obligation | 84 | 84 | ||||||||||
Purchase Obligation | 17 | 17 | ||||||||||
Guarantee obligations, current carrying value | 102 | 102 | ||||||||||
Engine | ||||||||||||
Guarantee Obligations: | ||||||||||||
Loss contingency | 5 | [1] | $ 99 | $ 39 | 5 | [1] | $ 138 | [1] | $ 60 | [1] | ||
Components | ||||||||||||
Guarantee Obligations: | ||||||||||||
Standard Product Warranty Accrual, Increase for Warranties Issued | $ 29 | |||||||||||
Unrecorded Unconditional Purchase Obligation | 23 | 23 | ||||||||||
Power Systems | ||||||||||||
Guarantee Obligations: | ||||||||||||
Unrecorded Unconditional Purchase Obligation | $ 19 | $ 19 | ||||||||||
Maximum | ||||||||||||
Guarantee Obligations: | ||||||||||||
Guarantor Obligations, Term | P2Y | |||||||||||
[1] | See Note 12 , " COMMITMENTS AND CONTINGENCIES |
COMMITMENTS AND CONTINGENCIES O
COMMITMENTS AND CONTINGENCIES OPERATING AND CAIPITAL LEASES (Details 2) - USD ($) $ in Millions | 12 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | |
Leased property under leases by major classes | |||
Rent expense | $ 215 | $ 210 | $ 205 |
Less: Accumulated amortization | (137) | (133) | |
Total | 131 | 104 | |
Net present value of the minimum payments due under capital leases | |||
2,018 | 30 | ||
2,019 | 26 | ||
2,020 | 14 | ||
2,021 | 9 | ||
2,022 | 9 | ||
After 2,022 | 75 | ||
Total minimum lease payments | 163 | ||
Interest | (42) | ||
Present value of net minimum lease payments | 121 | ||
Net present value of the minimum payments due under operating Leases | |||
2,018 | 140 | ||
2,019 | 108 | ||
2,020 | 80 | ||
2,021 | 60 | ||
2,022 | 44 | ||
After 2,022 | 70 | ||
Total minimum lease payments | 502 | ||
Buildings | |||
Leased property under leases by major classes | |||
Capital lease asset | 158 | 113 | |
Equipment | |||
Leased property under leases by major classes | |||
Capital lease asset | 94 | 109 | |
Land | |||
Leased property under leases by major classes | |||
Capital lease asset | $ 16 | $ 15 | |
Maximum | |||
Leased property under leases by major classes | |||
Lessee, Operating Lease, Term of Contract | 10 years |
SHAREHOLDERS' EQUITY (Details)
SHAREHOLDERS' EQUITY (Details) - USD ($) $ / shares in Units, shares in Millions, $ in Millions | 1 Months Ended | 3 Months Ended | 12 Months Ended | |||||||||||||||
Jul. 31, 2017 | Jul. 31, 2016 | Jul. 31, 2015 | Dec. 31, 2017 | Oct. 01, 2017 | Jul. 02, 2017 | Apr. 02, 2017 | Dec. 31, 2016 | Oct. 02, 2016 | Jul. 03, 2016 | Apr. 03, 2016 | Dec. 31, 2015 | Sep. 27, 2015 | Jun. 28, 2015 | Mar. 29, 2015 | Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | |
Class of Stock | ||||||||||||||||||
Shares acquired (in shares) | 4.7 | |||||||||||||||||
Dividends Paid | ||||||||||||||||||
Dividend payments on common stock (in dollars) | $ 701 | $ 676 | $ 622 | |||||||||||||||
Employee Benefits Trust | ||||||||||||||||||
Contributions charged to income | $ 2 | $ 1 | $ 2 | |||||||||||||||
Preferred Stock | ||||||||||||||||||
Class of Stock | ||||||||||||||||||
Preferred Stock, Shares Authorized | 1,000,000 | 1,000,000 | ||||||||||||||||
Preference Stock | ||||||||||||||||||
Class of Stock | ||||||||||||||||||
Preferred Stock, Shares Authorized | 1 | 1 | ||||||||||||||||
Common Stock | ||||||||||||||||||
Class of Stock | ||||||||||||||||||
Balance at beginning of period (in shares) | 222.4 | 222.4 | 222.3 | 222.4 | 222.4 | 222.3 | ||||||||||||
Stock Issued During Period, Shares, New Issues | 0 | 0 | 0.1 | |||||||||||||||
Balance at the end of the period (in shares) | 222.4 | 222.4 | 222.4 | 222.4 | 222.4 | 222.4 | ||||||||||||
Dividends Paid | ||||||||||||||||||
Percentage increase in cash dividend per common share | 5.40% | 5.10% | 25.00% | |||||||||||||||
Cash dividend (in dollars per share) | $ 1.08 | $ 1.08 | $ 1.025 | $ 1.025 | $ 1.025 | $ 1.025 | $ 0.975 | $ 0.975 | $ 0.975 | $ 0.975 | $ 0.78 | $ 0.78 | $ 4.21 | $ 4 | $ 3.51 | |||
Treasury Stock, Common | ||||||||||||||||||
Class of Stock | ||||||||||||||||||
Balance at beginning of period (in shares) | 54.2 | 47.2 | 40.1 | 54.2 | 47.2 | 40.1 | ||||||||||||
Shares acquired (in shares) | 2.9 | 7.3 | 7.2 | |||||||||||||||
Stock Issued During Period, Shares, New Issues | (0.4) | (0.3) | (0.1) | |||||||||||||||
Balance at the end of the period (in shares) | 56.7 | 54.2 | 47.2 | 56.7 | 54.2 | 47.2 | ||||||||||||
Common Stock Held in Trust | ||||||||||||||||||
Class of Stock | ||||||||||||||||||
Balance at beginning of period (in shares) | 0.7 | 0.9 | 1.1 | 0.7 | 0.9 | 1.1 | ||||||||||||
Stock Issued During Period, Shares, New Issues | (0.2) | (0.2) | (0.2) | |||||||||||||||
Balance at the end of the period (in shares) | 0.5 | 0.7 | 0.9 | 0.5 | 0.7 | 0.9 | ||||||||||||
Employee Benefits Trust | ||||||||||||||||||
Contributions charged to income | $ 17 | $ 23 | $ 25 |
SHAREHOLDERS' EQUITY (Details 2
SHAREHOLDERS' EQUITY (Details 2) - USD ($) $ / shares in Units, shares in Millions, $ in Millions | 1 Months Ended | 3 Months Ended | 12 Months Ended | |||||||
Dec. 31, 2016 | Dec. 31, 2017 | Oct. 01, 2017 | Jul. 02, 2017 | Apr. 02, 2017 | Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | Feb. 09, 2016 | ||
Share repurchase programs | ||||||||||
Shares acquired | 4.7 | |||||||||
Average Cost Per Share (in dollars per share) | $ 155.81 | |||||||||
Repurchases of common stock | $ 451 | $ 778 | $ 900 | |||||||
Accelerated Share Repurchases, Settlement (Payment) or Receipt | $ 500 | |||||||||
Accelerated Share Repurchases, Final Price Paid Per Share | $ 105.50 | |||||||||
$1 Billion Share Repurchase Program 2015 | ||||||||||
Share repurchase programs | ||||||||||
Average Cost Per Share (in dollars per share) | $ 166 | $ 155.05 | $ 153.95 | $ 151.32 | ||||||
Repurchases of common stock | $ 60 | $ 271 | $ 69 | $ 51 | ||||||
Remaining Authorized Capacity | [1] | $ 46 | $ 105 | $ 376 | $ 445 | $ 46 | ||||
Treasury Stock, Common | ||||||||||
Share repurchase programs | ||||||||||
Shares acquired | 2.9 | 7.3 | 7.2 | |||||||
Treasury Stock, Common | $1 Billion Share Repurchase Program 2015 | ||||||||||
Share repurchase programs | ||||||||||
Shares acquired | 0.4 | 1.7 | 0.5 | 0.3 | ||||||
Treasury Stock, Common | $1 Billion Share Repurchase Program 2016 | ||||||||||
Share repurchase programs | ||||||||||
Treasury Stock Repurchase Authorization Value | $ 1,000 | |||||||||
[1] | The remaining authorized capacity under the 2015 plan was calculated based on the cost to purchase the shares but excludes commission expenses in accordance with the authorized plan. |
OTHER COMPREHENSIVE INCOME (L77
OTHER COMPREHENSIVE INCOME (LOSS) (Details) - USD ($) $ in Millions | 12 Months Ended | |||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | ||
Changes in accumulated other comprehensive income (loss) by component: | ||||
Balance at the beginning of period | $ (1,821) | |||
Before tax amount | 418 | $ (634) | $ (445) | |
Tax (expense) benefit | (51) | 88 | 110 | |
After tax amount | 367 | (546) | (335) | |
Amounts reclassified from accumulated other comprehensive income | [1],[2] | 74 | 56 | 50 |
Impact of tax legislation (Note 2) | (103) | |||
Net current period other comprehensive income (loss) | 338 | (490) | (285) | |
Balance at the end of period | (1,503) | (1,821) | ||
Impact of the Tax Cuts and Jobs Act of 2017 | 126 | |||
Accumulated Other Comprehensive Loss | ||||
Changes in accumulated other comprehensive income (loss) by component: | ||||
Net current period other comprehensive income (loss) | 318 | (473) | (270) | |
Total attributable to Cummins Inc. | ||||
Changes in accumulated other comprehensive income (loss) by component: | ||||
Balance at the beginning of period | (1,821) | (1,348) | (1,078) | |
Before tax amount | 398 | (617) | (430) | |
Tax (expense) benefit | (51) | 88 | 110 | |
After tax amount | 347 | (529) | (320) | |
Amounts reclassified from accumulated other comprehensive income | [1],[2] | 74 | 56 | 50 |
Impact of tax legislation (Note 2) | (103) | |||
Net current period other comprehensive income (loss) | 318 | (473) | (270) | |
Balance at the end of period | (1,503) | (1,821) | (1,348) | |
Impact of the Tax Cuts and Jobs Act of 2017 | 126 | |||
Change in pensions and other postretirement defined benefit plans | ||||
Changes in accumulated other comprehensive income (loss) by component: | ||||
Balance at the beginning of period | (685) | (654) | (669) | |
Before tax amount | 73 | (111) | (81) | |
Tax (expense) benefit | (36) | 44 | 35 | |
After tax amount | 37 | (67) | (46) | |
Amounts reclassified from accumulated other comprehensive income | [1],[2] | 62 | 36 | 61 |
Impact of tax legislation (Note 2) | [3] | 103 | ||
Net current period other comprehensive income (loss) | (4) | (31) | 15 | |
Balance at the end of period | (689) | (685) | (654) | |
Foreign currency translation adjustment | ||||
Changes in accumulated other comprehensive income (loss) by component: | ||||
Balance at the beginning of period | (1,127) | (696) | (406) | |
Before tax amount | 335 | (469) | (366) | |
Tax (expense) benefit | (20) | 38 | 76 | |
After tax amount | 315 | (431) | (290) | |
Net current period other comprehensive income (loss) | 315 | (431) | (290) | |
Balance at the end of period | (812) | (1,127) | (696) | |
Unrealized gain (loss) on marketable securities | ||||
Changes in accumulated other comprehensive income (loss) by component: | ||||
Balance at the beginning of period | (1) | (2) | (1) | |
Before tax amount | 2 | 1 | ||
Tax (expense) benefit | 0 | |||
After tax amount | 2 | 1 | ||
Amounts reclassified from accumulated other comprehensive income | [1],[2] | (1) | ||
Net current period other comprehensive income (loss) | 2 | 1 | (1) | |
Balance at the end of period | 1 | (1) | (2) | |
Unrealized gain (loss) on derivatives | ||||
Changes in accumulated other comprehensive income (loss) by component: | ||||
Balance at the beginning of period | (8) | 4 | (2) | |
Before tax amount | (12) | (38) | 17 | |
Tax (expense) benefit | 5 | 6 | (1) | |
After tax amount | (7) | (32) | 16 | |
Amounts reclassified from accumulated other comprehensive income | [1],[2] | 12 | 20 | (10) |
Net current period other comprehensive income (loss) | 5 | (12) | 6 | |
Balance at the end of period | (3) | (8) | 4 | |
Noncontrolling interests | ||||
Changes in accumulated other comprehensive income (loss) by component: | ||||
Before tax amount | 20 | (17) | (15) | |
After tax amount | 20 | (17) | (15) | |
Amounts reclassified from accumulated other comprehensive income | [1],[2] | 0 | ||
Net current period other comprehensive income (loss) | 20 | $ (17) | $ (15) | |
Tax Year 2016 | Accumulated Other Comprehensive Loss | ||||
Changes in accumulated other comprehensive income (loss) by component: | ||||
Impact of the Tax Cuts and Jobs Act of 2017 | (126) | |||
Tax Year 2017 | Accumulated Other Comprehensive Loss | ||||
Changes in accumulated other comprehensive income (loss) by component: | ||||
Impact of the Tax Cuts and Jobs Act of 2017 | $ 23 | |||
[1] | Amounts are net of tax. | |||
[2] | Reclassifications out of accumulated other comprehensive income (loss) and the related tax effects are immaterial for separate disclosure. | |||
[3] | Impact of tax legislation includes $(126) million related to one-time cumulative adjustments and $23 million related to 2017. See Note 2 , " INCOME TAXES ," to our Consolidated Financial Statements for additional information . |
STOCK INCENTIVE AND STOCK OPT78
STOCK INCENTIVE AND STOCK OPTION PLANS (Details) - USD ($) $ in Millions | 12 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | |
Share-based Compensation Arrangement by Share-based Payment Award | |||
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized | 8,500,000 | ||
Stock options' expiration from the date of grant | 10 years | ||
Number of shares in every even block of KESIP shares | 100 | ||
Stock options granted for every even block of 100 KESIP shares purchased by the employee | 50 | ||
Compensation expense (net of estimated forfeitures) | $ 2 | $ 1 | $ 2 |
Excess tax benefit / (deficiency) associated with share-based plans | 2 | 1 | 1 |
Total unrecognized compensation expense (net of estimated forfeitures) | $ 41 | ||
Maximum | |||
Share-based Compensation Arrangement by Share-based Payment Award | |||
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 | |||
Vesting 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 | |||
Vesting period | 2 years | ||
Restricted shares released after two years (as a percent) | 33.33% | ||
Restricted shares released on the grant date each year after the first two years (as a percent) | 33.33% | ||
Employee Stock Option | |||
Share-based Compensation Arrangement by Share-based Payment Award | |||
Vesting period | 3 years | ||
Compensation expense (net of estimated forfeitures) | $ 39 | $ 31 | $ 22 |
STOCK INCENTIVE AND STOCK OPT79
STOCK INCENTIVE AND STOCK OPTION PLANS (Details 2) - USD ($) $ / shares in Units, $ in Millions | 12 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | |
Stock option plan activity | |||
Balance, at the beginning of the period (in shares) | 2,734,764 | 2,029,686 | 1,626,724 |
Granted (in shares) | 648,900 | 984,430 | 476,205 |
Exercised (in shares) | (355,479) | (215,890) | (53,545) |
Forfeited (in shares) | (126,816) | (63,462) | (19,698) |
Balance, at the end of the period (in shares) | 2,901,369 | 2,734,764 | 2,029,686 |
Exercisable (in shares) | 1,063,889 | 1,149,549 | 1,318,101 |
Weighted average exercise price activity | |||
Weighted-average Exercise Price at the beginning of the period (in dollars per share) | $ 115.02 | $ 115.02 | $ 108.30 |
Weighted-average Exercise Price Granted (in dollars per share) | 149.98 | 109.24 | 135.21 |
Weighted-average Exercise Price Exercised (in dollars per share) | 105.91 | 87.27 | 82.89 |
Weighted-average Exercise Price Forfeited (in dollars per share) | 125.65 | 119.56 | 135.89 |
Weighted-average Exercise Price at the end of the period (in dollars per share) | 123.49 | 115.02 | 115.02 |
Weighted-average Exercise Price Exercisable (in dollars per share) | $ 115.26 | $ 104.19 | $ 100.55 |
Weighted-average remaining contractual life of options outstanding | 7 years 1 month 6 days | ||
Weighted-average remaining contractual life of options exercisable | 4 years 8 months 12 days | 4 years 9 months 18 days | 5 years 8 months 12 days |
Aggregate intrinsic value of options outstanding | $ 156 | ||
Aggregate intrinsic value of options exercisable | $ 66 | $ 38 | $ 13 |
Weighted average grant date fair value of options granted (in dollars per share) | $ 36.86 | $ 25.28 | $ 35.25 |
Total intrinsic value of options exercised | $ 19 | $ 9 | $ 3 |
STOCK INCENTIVE AND STOCK OPT80
STOCK INCENTIVE AND STOCK OPTION PLANS (Details 3) - USD ($) $ / shares in Units, $ in Millions | 12 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | |
Black-Scholes option pricing model assumptions | |||
Expected life | 6 years | 5 years | 5 years |
Risk-free interest rate | 2.08% | 1.34% | 1.41% |
Expected volatility | 29.97% | 30.96% | 33.06% |
Dividend yield | 2.28% | 2.10% | 1.69% |
Performance Shares | |||
Share-based compensation plan, other than stock options, activity | |||
Nonvested at the beginning of the period (in shares) | 404,494 | 420,369 | 466,693 |
Granted (in shares) | 150,225 | 169,150 | 133,975 |
Vested (in shares) | (85,020) | (115,680) | (112,901) |
Forfeited (in shares) | (58,460) | (69,345) | (67,398) |
Nonvested at the end of the period (in shares) | 411,239 | 404,494 | 420,369 |
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) | $ 120.41 | $ 123.88 | $ 119.78 |
Granted (in dollars per share) | 138.23 | 98.26 | 128.48 |
Vested (in dollars per share) | 141.50 | 106.55 | 115.48 |
Forfeited (in dollars per share) | 132.52 | 110.52 | 118.71 |
Weighted-average Nonvested, Outstanding at the end of the period (in dollars per share) | $ 120.84 | $ 120.41 | $ 123.88 |
Total fair value of equity instruments other than options vested in period (in dollars) | $ 13 | $ 12 | $ 11 |
Restricted Shares | |||
Share-based compensation plan, other than stock options, activity | |||
Nonvested at the beginning of the period (in shares) | 9,841 | 4,254 | 11,275 |
Granted (in shares) | 0 | 8,089 | 0 |
Vested (in shares) | (1,752) | (2,502) | (7,021) |
Forfeited (in shares) | 0 | 0 | 0 |
Nonvested at the end of the period (in shares) | 8,089 | 9,841 | 4,254 |
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) | $ 115.76 | $ 111.40 | $ 110.94 |
Granted (in dollars per share) | 0 | 117.69 | 0 |
Vested (in dollars per share) | 106.89 | 114.57 | 110.66 |
Forfeited (in dollars per share) | 0 | 0 | 0 |
Weighted-average Nonvested, Outstanding at the end of the period (in dollars per share) | $ 117.68 | $ 115.76 | $ 111.40 |
Total fair value of equity instruments other than options vested in period (in dollars) | $ 1 | $ 1 | |
Maximum | Restricted Shares | |||
Share-based compensation plan, other than stock options, weighted average grant date fair value activity | |||
Total fair value of equity instruments other than options vested in period (in dollars) | $ 1 |
NONCONTROLLING INTERESTS (Detai
NONCONTROLLING INTERESTS (Details) - USD ($) $ in Millions | Dec. 31, 2017 | Dec. 31, 2016 | |
Noncontrolling Interest | |||
Stockholders' Equity Attributable to Noncontrolling Interest | $ 905 | $ 299 | |
Eaton Cummins Automated Transmission Technologies | |||
Noncontrolling Interest | |||
Stockholders' Equity Attributable to Noncontrolling Interest | 609 | 0 | |
Cummins India Ltd. | |||
Noncontrolling Interest | |||
Stockholders' Equity Attributable to Noncontrolling Interest | 280 | [1] | 285 |
Other | |||
Noncontrolling Interest | |||
Stockholders' Equity Attributable to Noncontrolling Interest | 16 | $ 14 | |
Tax Cuts and Jobs Act of 2017 Impact | Cummins India Ltd. | |||
Noncontrolling Interest | |||
Noncontrolling interests in the equity | $ 43 | ||
[1] | Noncontrolling interest for Cummins India Ltd. was reduced by $43 million related to withholding taxes on foreign earnings as a result of tax legislation. See Note 2 , " INCOME TAXES ," to our Consolidated Financial Statements for additional information . |
EARNINGS PER SHARE (Details)
EARNINGS PER SHARE (Details) - USD ($) $ / shares in Units, $ in Millions | 3 Months Ended | 12 Months Ended | |||||||||||||||||
Dec. 31, 2017 | Oct. 01, 2017 | Jul. 02, 2017 | Apr. 02, 2017 | Dec. 31, 2016 | Oct. 02, 2016 | Jul. 03, 2016 | Apr. 03, 2016 | Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | |||||||||
Earnings Per Share [Abstract] | |||||||||||||||||||
NET INCOME ATTRIBUTABLE TO CUMMINS INC. | $ (274) | [1] | $ 453 | $ 424 | $ 396 | $ 378 | $ 289 | $ 406 | $ 321 | $ 999 | $ 1,394 | $ 1,399 | |||||||
Weighted-average common shares outstanding: | |||||||||||||||||||
Basic (in shares) | 166,625,320 | 169,038,410 | 178,037,581 | ||||||||||||||||
Dilutive effect of stock compensation awards (in shares) | 645,545 | 298,206 | 369,247 | ||||||||||||||||
Diluted (in shares) | 167,270,865 | 169,336,616 | 178,406,828 | ||||||||||||||||
Options excluded (in shares) | 31,991 | 1,091,799 | 866,262 | ||||||||||||||||
Earnings per common share attributable to Cummins Inc. | |||||||||||||||||||
Basic (in dollars per share) | $ (1.66) | [2] | $ 2.72 | [2] | $ 2.53 | [2] | $ 2.36 | [2] | $ 2.26 | [2],[3] | $ 1.72 | [2],[3] | $ 2.41 | [2],[3] | $ 1.87 | [2] | $ 5.99 | $ 8.25 | $ 7.86 |
Diluted (in dollars per share) | $ (1.65) | [2] | $ 2.71 | [2] | $ 2.53 | [2] | $ 2.36 | [2] | $ 2.25 | [2],[3] | $ 1.72 | [2],[3] | $ 2.40 | [2],[3] | $ 1.87 | [2] | $ 5.97 | $ 8.23 | $ 7.84 |
[1] | Net income attributable to Cummins Inc. and earnings per share were negatively impacted by a $777 million tax adjustment related to The Tax Cuts and Jobs Act passed in December of 2017. For the fourth quarter of 2017, results for basic and diluted earnings per share were reduced by $4.70 per share and $4.68 | ||||||||||||||||||
[2] | Earnings per share in each quarter is computed using the weighted-average number of shares outstanding during that quarter while earnings per share for the full year is computed using the weighted-average number of shares outstanding during the year. Thus, the sum of the four quarters earnings per share may not equal the full year earnings per share. | ||||||||||||||||||
[3] | The second quarter of 2016 included a $39 million loss contingency charge ( $24 million after-tax). The third quarter of 2016 included an additional $99 million loss contingency charge ( $50 million |
ACQUISITIONS (Details)
ACQUISITIONS (Details) - USD ($) $ in Millions | Jan. 01, 2018 | Nov. 01, 2017 | Jul. 31, 2017 | Dec. 05, 2016 | Oct. 04, 2016 | Jan. 01, 2016 | Aug. 03, 2015 | Jun. 29, 2015 | Dec. 31, 2017 | Oct. 01, 2017 | Jul. 02, 2017 | Apr. 02, 2017 | Dec. 31, 2016 | Oct. 02, 2016 | Jul. 03, 2016 | Apr. 03, 2016 | Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | Dec. 31, 2014 | Jul. 31, 2017 | Jul. 31, 2017 | ||||
Business Combination, Recognized Identifiable Assets Acquired, Goodwill, and Liabilities Assumed, Net [Abstract] | ||||||||||||||||||||||||||
Gain on remeasurement of pre-existing ownership interest in the acquiree company | $ 0 | $ 15 | $ 18 | |||||||||||||||||||||||
Goodwill | $ 1,082 | $ 480 | 1,082 | 480 | 482 | |||||||||||||||||||||
Amortization of Intangible Assets | 112 | 92 | 90 | |||||||||||||||||||||||
NET SALES | 5,476 | $ 5,285 | $ 5,078 | $ 4,589 | $ 4,503 | $ 4,187 | $ 4,528 | $ 4,291 | 20,428 | [1] | 17,509 | [1] | 19,110 | [1] | ||||||||||||
Brammo Inc. | ||||||||||||||||||||||||||
Business Combination, Recognized Identifiable Assets Acquired, Goodwill, and Liabilities Assumed, Net [Abstract] | ||||||||||||||||||||||||||
Business Acquisition, Percentage of Voting Interests Acquired | 100.00% | |||||||||||||||||||||||||
Cash paid for business acquisition | $ 62 | |||||||||||||||||||||||||
Payments to Acquire Businesses Liabilities Paid | 0 | |||||||||||||||||||||||||
Business Combination, Consideration Transferred | [2] | 68 | ||||||||||||||||||||||||
Gain on remeasurement of pre-existing ownership interest in the acquiree company | 0 | |||||||||||||||||||||||||
Goodwill | 47 | |||||||||||||||||||||||||
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill | [3] | $ 23 | ||||||||||||||||||||||||
Net sales prior to acquisition | 4 | |||||||||||||||||||||||||
Business Combination, Contingent Consideration Arrangements, Range of Outcomes, Value, High | 100 | 100 | ||||||||||||||||||||||||
Business Combination, Contingent Consideration, Liability | $ 5 | 5 | ||||||||||||||||||||||||
Eaton Cummins Automated Transmission Technologies | ||||||||||||||||||||||||||
Business Combination, Recognized Identifiable Assets Acquired, Goodwill, and Liabilities Assumed, Net [Abstract] | ||||||||||||||||||||||||||
Business Acquisition, Percentage of Voting Interests Acquired | 50.00% | 50.00% | ||||||||||||||||||||||||
Cash paid for business acquisition | [4] | $ 600 | ||||||||||||||||||||||||
Payments to Acquire Businesses Liabilities Paid | $ 0 | |||||||||||||||||||||||||
Business Combination, Consideration Transferred | 600 | |||||||||||||||||||||||||
Gain on remeasurement of pre-existing ownership interest in the acquiree company | $ 0 | |||||||||||||||||||||||||
Goodwill | 544 | |||||||||||||||||||||||||
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill | [3] | 596 | ||||||||||||||||||||||||
Net sales prior to acquisition | [4] | $ 0 | ||||||||||||||||||||||||
Advances to Affiliate | 20 | |||||||||||||||||||||||||
Business Combination, Recognized Identifiable Assets Acquired, Goodwill, and Liabilities Assumed, Net | 1,200 | |||||||||||||||||||||||||
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Inventory | 3 | |||||||||||||||||||||||||
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Property, Plant, and Equipment | 58 | |||||||||||||||||||||||||
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Current Liabilities | 1 | |||||||||||||||||||||||||
Business Combination, Acquisition of Less than 100 Percent, Noncontrolling Interest, Fair Value | 600 | |||||||||||||||||||||||||
Business Acquisition, Goodwill, Expected Tax Deductible Amount | 31 | |||||||||||||||||||||||||
NET SALES | 164 | |||||||||||||||||||||||||
Income (Loss) from Subsidiaries, Net of Tax | $ 11 | |||||||||||||||||||||||||
Wuxi Cummins Turbo Technologies Co. Ltd. | ||||||||||||||||||||||||||
Business Combination, Recognized Identifiable Assets Acquired, Goodwill, and Liabilities Assumed, Net [Abstract] | ||||||||||||||||||||||||||
Business Acquisition, Percentage of Voting Interests Acquired | 45.00% | |||||||||||||||||||||||||
Cash paid for business acquisition | $ 86 | |||||||||||||||||||||||||
Payments to Acquire Businesses Liabilities Paid | 0 | |||||||||||||||||||||||||
Business Combination, Consideration Transferred | 86 | |||||||||||||||||||||||||
Gain on remeasurement of pre-existing ownership interest in the acquiree company | 0 | |||||||||||||||||||||||||
Goodwill | 0 | |||||||||||||||||||||||||
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill | $ 0 | |||||||||||||||||||||||||
Net sales prior to acquisition | 0 | |||||||||||||||||||||||||
Cummins Pacific LLC | ||||||||||||||||||||||||||
Business Combination, Recognized Identifiable Assets Acquired, Goodwill, and Liabilities Assumed, Net [Abstract] | ||||||||||||||||||||||||||
Business Acquisition, Percentage of Voting Interests Acquired | 50.00% | |||||||||||||||||||||||||
Cash paid for business acquisition | $ 32 | |||||||||||||||||||||||||
Payments to Acquire Businesses Liabilities Paid | 67 | |||||||||||||||||||||||||
Business Combination, Consideration Transferred | 99 | |||||||||||||||||||||||||
Gain on remeasurement of pre-existing ownership interest in the acquiree company | [5] | 15 | ||||||||||||||||||||||||
Goodwill | 4 | |||||||||||||||||||||||||
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill | [3] | $ 8 | ||||||||||||||||||||||||
Net sales prior to acquisition | [6] | 391 | ||||||||||||||||||||||||
Cummins Northeast LLC | ||||||||||||||||||||||||||
Business Combination, Recognized Identifiable Assets Acquired, Goodwill, and Liabilities Assumed, Net [Abstract] | ||||||||||||||||||||||||||
Business Acquisition, Percentage of Voting Interests Acquired | 35.00% | |||||||||||||||||||||||||
Cash paid for business acquisition | $ 12 | |||||||||||||||||||||||||
Payments to Acquire Businesses Liabilities Paid | 0 | |||||||||||||||||||||||||
Business Combination, Consideration Transferred | 12 | |||||||||||||||||||||||||
Gain on remeasurement of pre-existing ownership interest in the acquiree company | 0 | |||||||||||||||||||||||||
Goodwill | 0 | |||||||||||||||||||||||||
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill | $ 0 | |||||||||||||||||||||||||
Net sales prior to acquisition | $ 0 | |||||||||||||||||||||||||
Cummins Crosspoint LLC | ||||||||||||||||||||||||||
Business Combination, Recognized Identifiable Assets Acquired, Goodwill, and Liabilities Assumed, Net [Abstract] | ||||||||||||||||||||||||||
Business Acquisition, Percentage of Voting Interests Acquired | 50.00% | |||||||||||||||||||||||||
Cash paid for business acquisition | $ 29 | |||||||||||||||||||||||||
Payments to Acquire Businesses Liabilities Paid | 36 | |||||||||||||||||||||||||
Business Combination, Consideration Transferred | 65 | |||||||||||||||||||||||||
Gain on remeasurement of pre-existing ownership interest in the acquiree company | [5] | 10 | ||||||||||||||||||||||||
Goodwill | 7 | |||||||||||||||||||||||||
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill | [3] | $ 2 | ||||||||||||||||||||||||
Net sales prior to acquisition | [6] | $ 258 | ||||||||||||||||||||||||
Cummins Atlantic LLC | ||||||||||||||||||||||||||
Business Combination, Recognized Identifiable Assets Acquired, Goodwill, and Liabilities Assumed, Net [Abstract] | ||||||||||||||||||||||||||
Business Acquisition, Percentage of Voting Interests Acquired | 51.00% | |||||||||||||||||||||||||
Cash paid for business acquisition | $ 21 | |||||||||||||||||||||||||
Payments to Acquire Businesses Liabilities Paid | 28 | |||||||||||||||||||||||||
Business Combination, Consideration Transferred | 49 | |||||||||||||||||||||||||
Gain on remeasurement of pre-existing ownership interest in the acquiree company | [5] | 8 | ||||||||||||||||||||||||
Goodwill | 5 | |||||||||||||||||||||||||
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill | [3] | $ 6 | ||||||||||||||||||||||||
Net sales prior to acquisition | [6] | 245 | ||||||||||||||||||||||||
Cummins Central Power LLC | ||||||||||||||||||||||||||
Business Combination, Recognized Identifiable Assets Acquired, Goodwill, and Liabilities Assumed, Net [Abstract] | ||||||||||||||||||||||||||
Business Acquisition, Percentage of Voting Interests Acquired | 20.01% | |||||||||||||||||||||||||
Cash paid for business acquisition | $ 8 | |||||||||||||||||||||||||
Payments to Acquire Businesses Liabilities Paid | 0 | |||||||||||||||||||||||||
Business Combination, Consideration Transferred | 8 | |||||||||||||||||||||||||
Gain on remeasurement of pre-existing ownership interest in the acquiree company | 0 | |||||||||||||||||||||||||
Goodwill | 0 | |||||||||||||||||||||||||
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill | $ 0 | |||||||||||||||||||||||||
Net sales prior to acquisition | $ 0 | |||||||||||||||||||||||||
Maximum | ||||||||||||||||||||||||||
Business Combination, Recognized Identifiable Assets Acquired, Goodwill, and Liabilities Assumed, Net [Abstract] | ||||||||||||||||||||||||||
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life | 25 years | |||||||||||||||||||||||||
Customer Relationships | Eaton Cummins Automated Transmission Technologies | ||||||||||||||||||||||||||
Business Combination, Recognized Identifiable Assets Acquired, Goodwill, and Liabilities Assumed, Net [Abstract] | ||||||||||||||||||||||||||
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill | 424 | |||||||||||||||||||||||||
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life | 25 years | |||||||||||||||||||||||||
Fair value inputs, Rate of Return | 10.00% | |||||||||||||||||||||||||
Fair value inputs, Customer attrition rate | 3.00% | |||||||||||||||||||||||||
Technology-Based Intangible Assets | Eaton Cummins Automated Transmission Technologies | ||||||||||||||||||||||||||
Business Combination, Recognized Identifiable Assets Acquired, Goodwill, and Liabilities Assumed, Net [Abstract] | ||||||||||||||||||||||||||
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill | $ 172 | |||||||||||||||||||||||||
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life | 15 years | |||||||||||||||||||||||||
Fair value inputs, Rate of Return | 10.00% | |||||||||||||||||||||||||
Fair value inputs, Market royalty rate | 5.00% | |||||||||||||||||||||||||
Fair Value Inputs, Economic Depreciation Rate | 7.50% | |||||||||||||||||||||||||
Scenario, Forecast | Eaton Cummins Automated Transmission Technologies | ||||||||||||||||||||||||||
Business Combination, Recognized Identifiable Assets Acquired, Goodwill, and Liabilities Assumed, Net [Abstract] | ||||||||||||||||||||||||||
Finite-Lived Intangible Asset, Useful Life | 5 years | |||||||||||||||||||||||||
Scenario, Forecast | Maximum | Eaton Cummins Automated Transmission Technologies | ||||||||||||||||||||||||||
Business Combination, Recognized Identifiable Assets Acquired, Goodwill, and Liabilities Assumed, Net [Abstract] | ||||||||||||||||||||||||||
Amortization of Intangible Assets | $ 28 | |||||||||||||||||||||||||
[1] | Includes sales to nonconsolidated equity investees of $1,174 million , $1,028 million and $1,209 million for the years ended December 31, 2017 , 2016 and 2015 | |||||||||||||||||||||||||
[2] | The "Total Purchase Consideration" represents the total amount that will or is estimated to be paid to complete the acquisition. A portion of the Brammo Inc. acquisition payment has not yet been made and will be paid in future periods in accordance with the purchase contract. The Brammo Inc. acquisition contains an earnout based on future results of the acquired business and could result in a maximum contingent consideration payment of $100 million (fair value of $5 | |||||||||||||||||||||||||
[3] | Intangible assets acquired in business combinations were mostly customer and technology related, the majority of which will be amortized over a period of`up to 25 years | |||||||||||||||||||||||||
[4] | This transaction created a newly formed joint venture that we consolidated. See additional information below. | |||||||||||||||||||||||||
[5] | All results from acquired entities (excluding Brammo Inc.) were included in segment results subsequent to the acquisition date. Previously consolidated entities were accounted for as equity transactions (EQUITY). Newly consolidated entities were accounted for as business combinations (COMB) with gains recognized based on the requirement to remeasure our pre-existing ownership to fair value in accordance with GAAP and are included in the Consolidated Statements of Income as " Other income, net | |||||||||||||||||||||||||
[6] | Sales amounts are not fully incremental to our consolidated sales as the amount would be reduced by the elimination of sales to the previously unconsolidated entity. |
IMPAIRMENTS (Details)
IMPAIRMENTS (Details) - USD ($) $ in Millions | 12 Months Ended | ||||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | |||
Impaired Long-Lived Assets Held and Used [Line Items] | |||||
LDD Asset Gross Prior to Impairment | $ 279 | ||||
Property, plant and equipment, net | $ 3,927 | $ 3,800 | |||
Impairment of light-duty diesel assets | $ 0 | $ 0 | 211 | [1],[2] | |
Impairment of Light-duty diesel assets Held-for-use (After-tax) | 133 | ||||
Engine | |||||
Impaired Long-Lived Assets Held and Used [Line Items] | |||||
Impairment of light-duty diesel assets | [2] | 202 | |||
Components | |||||
Impaired Long-Lived Assets Held and Used [Line Items] | |||||
Impairment of light-duty diesel assets | [2] | 9 | |||
Assets measured prior to impairment | |||||
Impaired Long-Lived Assets Held and Used [Line Items] | |||||
Property, plant and equipment, net | [1] | 246 | |||
Assets measured prior to impairment | Engine | |||||
Impaired Long-Lived Assets Held and Used [Line Items] | |||||
Property, plant and equipment, net | [1] | 235 | |||
Assets measured prior to impairment | Components | |||||
Impaired Long-Lived Assets Held and Used [Line Items] | |||||
Property, plant and equipment, net | [1] | 11 | |||
Assets measured after impairment | |||||
Impaired Long-Lived Assets Held and Used [Line Items] | |||||
Assets, Fair Value After Impairment | [1] | 35 | |||
Assets measured after impairment | Engine | |||||
Impaired Long-Lived Assets Held and Used [Line Items] | |||||
Assets, Fair Value After Impairment | [1] | 33 | |||
Assets measured after impairment | Components | |||||
Impaired Long-Lived Assets Held and Used [Line Items] | |||||
Assets, Fair Value After Impairment | [1] | $ 2 | |||
[1] | 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 , $3 million and $3 million for the years ended December 31, 2017, 2016 and 2015, respectively. | ||||
[2] | See Note 19 , " IMPAIRMENT OF LIGHT-DUTY DIESEL ASSETS |
RESTRUCTURING AND OTHER CHARG85
RESTRUCTURING AND OTHER CHARGES (Details) $ in Millions | 3 Months Ended | 12 Months Ended | |
Dec. 31, 2015USD ($)employee | Dec. 31, 2015USD ($) | [1] | |
Restructuring and other charges | |||
Restructuring and Related Cost, Number of Positions Eliminated | employee | 1,900 | ||
Restructuring actions and other charges | $ 90 | $ 90 | |
Restructuring Charges, Net of Tax | 61 | ||
Workforce reductions | 86 | ||
Impairment and other restructuring charges | $ 4 | ||
Voluntary Retirement, Number of employees | |||
Restructuring and other charges | |||
Restructuring and Related Cost, Number of Positions Eliminated | employee | 370 | ||
[1] | See Note 20 , " RESTRUCTURING ACTIONS AND OTHER CHARGES |
OPERATING SEGMENTS FINANCIAL IN
OPERATING SEGMENTS FINANCIAL INFORMATION (Details) $ in Millions | 3 Months Ended | 12 Months Ended | |||||||||||||||
Dec. 31, 2017USD ($)l | Oct. 01, 2017USD ($) | Jul. 02, 2017USD ($) | Apr. 02, 2017USD ($) | Dec. 31, 2016USD ($) | Oct. 02, 2016USD ($) | Jul. 03, 2016USD ($) | Apr. 03, 2016USD ($) | Dec. 31, 2015USD ($) | Dec. 31, 2017USD ($)l | Dec. 31, 2016USD ($) | Dec. 31, 2015USD ($) | ||||||
Operating results: | |||||||||||||||||
Total sales | $ 5,476 | $ 5,285 | $ 5,078 | $ 4,589 | $ 4,503 | $ 4,187 | $ 4,528 | $ 4,291 | $ 20,428 | [1] | $ 17,509 | [1] | $ 19,110 | [1] | |||
Depreciation and amortization (3) | [2] | 580 | 527 | 511 | |||||||||||||
Research, development and engineering expenses | 752 | 636 | 735 | ||||||||||||||
Equity, royalty and interest income from investees | 357 | 301 | 315 | ||||||||||||||
Interest income | 18 | 23 | 24 | ||||||||||||||
Loss contingency (Note 12) | [3] | 5 | 138 | 60 | |||||||||||||
Impairment of light-duty diesel assets | 0 | 0 | 211 | [2],[4] | |||||||||||||
Restructuring actions and other charges | $ 90 | 90 | [5] | ||||||||||||||
Segment EBIT | 2,446 | 1,999 | 2,090 | ||||||||||||||
Less: Interest expense | 81 | 69 | 65 | ||||||||||||||
INCOME BEFORE INCOME TAXES | 2,365 | 1,930 | 2,025 | ||||||||||||||
Amortization of Debt Discount (Premium) | 3 | 3 | 3 | ||||||||||||||
Tax Cuts and Jobs Act of 2017, Change in Tax Rate (applied to deferred tax balances), Provisional Income Tax Expense (Benefit) | 152 | ||||||||||||||||
Gain on remeasurement of pre-existing ownership interest in the acquiree company | 0 | 15 | 18 | ||||||||||||||
Statement of Financial Position [Abstract] | |||||||||||||||||
Net assets | 10,142 | 8,721 | 9,064 | 10,142 | 8,721 | 9,064 | |||||||||||
Investments and advances to equity method investees | 1,156 | 946 | 975 | 1,156 | 946 | 975 | |||||||||||
Capital expenditures | 506 | 531 | 744 | ||||||||||||||
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Assets | 72 | [6] | 0 | 0 | 72 | [6] | 0 | 0 | |||||||||
Liabilities deducted in arriving at net assets | 7,397 | 6,152 | 5,920 | 7,397 | 6,152 | 5,920 | |||||||||||
Pension and other postretirement benefit adjustments excluded from net assets | 156 | (284) | (242) | 156 | (284) | (242) | |||||||||||
Deferred tax assets not allocated to segments | 306 | 420 | 390 | 306 | 420 | 390 | |||||||||||
Debt-related costs not allocated to segments | 2 | 2 | 2 | 2 | 2 | 2 | |||||||||||
Total assets | 18,075 | 15,011 | 15,134 | 18,075 | 15,011 | 15,134 | |||||||||||
Engine | |||||||||||||||||
Operating results: | |||||||||||||||||
Total sales | 8,953 | 7,804 | 8,670 | ||||||||||||||
Depreciation and amortization (3) | [2] | 184 | 163 | 187 | |||||||||||||
Research, development and engineering expenses | 279 | 226 | 263 | ||||||||||||||
Equity, royalty and interest income from investees | 219 | [7] | 148 | 146 | |||||||||||||
Interest income | 6 | 10 | 11 | ||||||||||||||
Loss contingency (Note 12) | 5 | [3] | $ 99 | $ 39 | 5 | [3] | 138 | [3] | 60 | [3] | |||||||
Impairment of light-duty diesel assets | [4] | 202 | |||||||||||||||
Restructuring actions and other charges | [5] | 17 | |||||||||||||||
Segment EBIT | 959 | 686 | 636 | ||||||||||||||
Statement of Financial Position [Abstract] | |||||||||||||||||
Net assets | 1,290 | 1,620 | 2,107 | 1,290 | 1,620 | 2,107 | |||||||||||
Investments and advances to equity method investees | 531 | 427 | 445 | 531 | 427 | 445 | |||||||||||
Capital expenditures | 188 | 200 | 345 | ||||||||||||||
Distribution | |||||||||||||||||
Operating results: | |||||||||||||||||
Total sales | 7,058 | 6,181 | 6,229 | ||||||||||||||
Depreciation and amortization (3) | [2] | 116 | 116 | 105 | |||||||||||||
Research, development and engineering expenses | 19 | 13 | 10 | ||||||||||||||
Equity, royalty and interest income from investees | 44 | [7] | 70 | 78 | |||||||||||||
Interest income | 6 | 4 | 4 | ||||||||||||||
Restructuring actions and other charges | [5] | 23 | |||||||||||||||
Segment EBIT | 384 | 392 | [8] | 412 | [8] | ||||||||||||
Gain on remeasurement of pre-existing ownership interest in the acquiree company | 15 | 18 | |||||||||||||||
Statement of Financial Position [Abstract] | |||||||||||||||||
Net assets | 2,700 | 2,604 | 2,330 | 2,700 | 2,604 | 2,330 | |||||||||||
Investments and advances to equity method investees | 267 | 204 | 192 | 267 | 204 | 192 | |||||||||||
Capital expenditures | 101 | 96 | 125 | ||||||||||||||
Components | |||||||||||||||||
Operating results: | |||||||||||||||||
Total sales | 5,889 | [9] | 4,836 | 5,172 | |||||||||||||
Depreciation and amortization (3) | [2] | 163 | [9] | 133 | 109 | ||||||||||||
Research, development and engineering expenses | 240 | [9] | 208 | 236 | |||||||||||||
Equity, royalty and interest income from investees | 40 | [9] | 41 | 35 | |||||||||||||
Interest income | 3 | [9] | 4 | 4 | |||||||||||||
Impairment of light-duty diesel assets | [4] | 9 | |||||||||||||||
Restructuring actions and other charges | [5] | 13 | |||||||||||||||
Segment EBIT | 754 | [9] | 641 | 727 | |||||||||||||
Statement of Financial Position [Abstract] | |||||||||||||||||
Net assets | 3,028 | [9] | 1,868 | 1,891 | 3,028 | [9] | 1,868 | 1,891 | |||||||||
Investments and advances to equity method investees | 194 | [9] | 176 | 150 | 194 | [9] | 176 | 150 | |||||||||
Capital expenditures | 127 | [9] | 143 | 137 | |||||||||||||
Power Systems | |||||||||||||||||
Operating results: | |||||||||||||||||
Total sales | 4,058 | 3,517 | 4,067 | ||||||||||||||
Depreciation and amortization (3) | [2] | 117 | 115 | 110 | |||||||||||||
Research, development and engineering expenses | 214 | 189 | 226 | ||||||||||||||
Equity, royalty and interest income from investees | 54 | 42 | 56 | ||||||||||||||
Interest income | 3 | 5 | 5 | ||||||||||||||
Restructuring actions and other charges | [5] | 26 | |||||||||||||||
Segment EBIT | 294 | 263 | [10] | 335 | |||||||||||||
Statement of Financial Position [Abstract] | |||||||||||||||||
Net assets | 3,124 | 2,629 | 2,736 | 3,124 | 2,629 | 2,736 | |||||||||||
Investments and advances to equity method investees | 164 | 139 | 188 | 164 | 139 | 188 | |||||||||||
Capital expenditures | 90 | 92 | 137 | ||||||||||||||
Power Systems | Cummins Olayan Energy | |||||||||||||||||
Operating results: | |||||||||||||||||
Gain (Loss) on Sale of Equity Investments | 17 | ||||||||||||||||
Total Segment | |||||||||||||||||
Operating results: | |||||||||||||||||
Total sales | 25,958 | 22,338 | 24,138 | ||||||||||||||
Depreciation and amortization (3) | [2] | 580 | 527 | 511 | |||||||||||||
Research, development and engineering expenses | 752 | 636 | 735 | ||||||||||||||
Equity, royalty and interest income from investees | 357 | 301 | 315 | ||||||||||||||
Interest income | 18 | 23 | 24 | ||||||||||||||
Loss contingency (Note 12) | [3] | 5 | 138 | 60 | |||||||||||||
Impairment of light-duty diesel assets | [4] | 211 | |||||||||||||||
Restructuring actions and other charges | [5] | 79 | |||||||||||||||
Segment EBIT | 2,391 | 1,982 | 2,110 | ||||||||||||||
Statement of Financial Position [Abstract] | |||||||||||||||||
Net assets | 10,142 | 8,721 | 9,064 | 10,142 | 8,721 | 9,064 | |||||||||||
Investments and advances to equity method investees | $ 1,156 | $ 946 | $ 975 | 1,156 | 946 | 975 | |||||||||||
Capital expenditures | 506 | 531 | 744 | ||||||||||||||
Intersegment Eliminations | |||||||||||||||||
Operating results: | |||||||||||||||||
Total sales | [11] | (5,530) | (4,829) | (5,028) | |||||||||||||
Non-Segment Items | |||||||||||||||||
Operating results: | |||||||||||||||||
Restructuring actions and other charges | [5],[11] | 11 | |||||||||||||||
Segment EBIT | [11] | 55 | 17 | (20) | |||||||||||||
External Sales | Engine | |||||||||||||||||
Operating results: | |||||||||||||||||
Total sales | 6,661 | 5,774 | 6,733 | ||||||||||||||
External Sales | Distribution | |||||||||||||||||
Operating results: | |||||||||||||||||
Total sales | 7,029 | 6,157 | 6,198 | ||||||||||||||
External Sales | Components | |||||||||||||||||
Operating results: | |||||||||||||||||
Total sales | 4,363 | [9] | 3,514 | 3,745 | |||||||||||||
External Sales | Power Systems | |||||||||||||||||
Operating results: | |||||||||||||||||
Total sales | 2,375 | 2,064 | 2,434 | ||||||||||||||
External Sales | Total Segment | |||||||||||||||||
Operating results: | |||||||||||||||||
Total sales | 20,428 | 17,509 | 19,110 | ||||||||||||||
Intersegment sales | Engine | |||||||||||||||||
Operating results: | |||||||||||||||||
Total sales | 2,292 | 2,030 | 1,937 | ||||||||||||||
Intersegment sales | Distribution | |||||||||||||||||
Operating results: | |||||||||||||||||
Total sales | 29 | 24 | 31 | ||||||||||||||
Intersegment sales | Components | |||||||||||||||||
Operating results: | |||||||||||||||||
Total sales | 1,526 | [9] | 1,322 | 1,427 | |||||||||||||
Intersegment sales | Power Systems | |||||||||||||||||
Operating results: | |||||||||||||||||
Total sales | 1,683 | 1,453 | 1,633 | ||||||||||||||
Intersegment sales | Total Segment | |||||||||||||||||
Operating results: | |||||||||||||||||
Total sales | 5,530 | 4,829 | 5,028 | ||||||||||||||
Intersegment sales | Intersegment Eliminations | |||||||||||||||||
Operating results: | |||||||||||||||||
Total sales | [11] | (5,530) | (4,829) | (5,028) | |||||||||||||
Operating Segments | External Sales | |||||||||||||||||
Operating results: | |||||||||||||||||
Total sales | 20,428 | $ 17,509 | $ 19,110 | ||||||||||||||
Tax Cuts and Jobs Act of 2017 Impact | Engine | |||||||||||||||||
Operating results: | |||||||||||||||||
Tax Cuts and Jobs Act of 2017, Change in Tax Rate (applied to deferred tax balances), Provisional Income Tax Expense (Benefit) | 23 | ||||||||||||||||
Tax Cuts and Jobs Act of 2017 Impact | Distribution | |||||||||||||||||
Operating results: | |||||||||||||||||
Tax Cuts and Jobs Act of 2017, Change in Tax Rate (applied to deferred tax balances), Provisional Income Tax Expense (Benefit) | 4 | ||||||||||||||||
Tax Cuts and Jobs Act of 2017 Impact | Components | |||||||||||||||||
Operating results: | |||||||||||||||||
Tax Cuts and Jobs Act of 2017, Change in Tax Rate (applied to deferred tax balances), Provisional Income Tax Expense (Benefit) | $ 12 | ||||||||||||||||
Maximum | Engine | |||||||||||||||||
Segment reporting | |||||||||||||||||
Capacity of mechanical engines (in liters) | l | 15 | 15 | |||||||||||||||
Minimum | Power Systems | |||||||||||||||||
Segment reporting | |||||||||||||||||
Capacity of mechanical engines (in liters) | l | 16 | 16 | |||||||||||||||
[1] | Includes sales to nonconsolidated equity investees of $1,174 million , $1,028 million and $1,209 million for the years ended December 31, 2017 , 2016 and 2015 | ||||||||||||||||
[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 , $3 million and $3 million for the years ended December 31, 2017, 2016 and 2015, respectively. | ||||||||||||||||
[3] | See Note 12 , " COMMITMENTS AND CONTINGENCIES | ||||||||||||||||
[4] | See Note 19 , " IMPAIRMENT OF LIGHT-DUTY DIESEL ASSETS | ||||||||||||||||
[5] | See Note 20 , " RESTRUCTURING ACTIONS AND OTHER CHARGES | ||||||||||||||||
[6] | Assets associated with the Brammo Inc. acquisition were presented as a reconciling item as Brammo Inc. had not yet been assigned to a reportable segment at December 31, 2017. See Note 18 , " ACQUISITIONS | ||||||||||||||||
[7] | U.S. tax legislation passed in December 2017 decreased our equity earnings at certain equity investees, negatively impacting our equity, royalty and interest income from investees by $23 million , $4 million and $12 million for the Engine, Distribution and Components segments, respectively. See Note 2 , " INCOME TAXES | ||||||||||||||||
[8] | Distribution segment EBIT included gains on the fair value adjustment resulting from the acquisition of controlling interests in North American distributors of $15 million and $18 million for the years ended December 31, 2016 and 2015 , respectively. See Note 18 , " ACQUISITIONS | ||||||||||||||||
[9] | ncludes Eaton Cummins Automated Transmission Technologies joint venture results consolidated during the third quarter of 2017. See Note 18 , " ACQUISITIONS | ||||||||||||||||
[10] | Power Systems segment EBIT included a $17 million | ||||||||||||||||
[11] | Includes intersegment sales, intersegment profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the years ended December 31, 2017, 2016 and 2015, respectively. |
OPERATING SEGMENTS - GEOGRAPHIC
OPERATING SEGMENTS - GEOGRAPHIC INFORMATION AND LARGEST CUSTOMER (Details 2) - USD ($) $ in Millions | 3 Months Ended | 12 Months Ended | ||||||||||||
Dec. 31, 2017 | Oct. 01, 2017 | Jul. 02, 2017 | Apr. 02, 2017 | Dec. 31, 2016 | Oct. 02, 2016 | Jul. 03, 2016 | Apr. 03, 2016 | Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | ||||
Segment reporting | ||||||||||||||
NET SALES | $ 5,476 | $ 5,285 | $ 5,078 | $ 4,589 | $ 4,503 | $ 4,187 | $ 4,528 | $ 4,291 | $ 20,428 | [1] | $ 17,509 | [1] | $ 19,110 | [1] |
Long-lived assets | 5,769 | 5,318 | 5,769 | 5,318 | 5,233 | |||||||||
United States | ||||||||||||||
Segment reporting | ||||||||||||||
NET SALES | 11,010 | 9,476 | 10,757 | |||||||||||
Long-lived assets | 3,157 | 3,092 | 3,157 | 3,092 | 2,968 | |||||||||
China | ||||||||||||||
Segment reporting | ||||||||||||||
NET SALES | 2,137 | 1,544 | 1,451 | |||||||||||
Long-lived assets | 795 | 652 | 795 | 652 | 668 | |||||||||
India | ||||||||||||||
Segment reporting | ||||||||||||||
Long-lived assets | 563 | 475 | 563 | 475 | 450 | |||||||||
United Kingdom | ||||||||||||||
Segment reporting | ||||||||||||||
Long-lived assets | 339 | 254 | 339 | 254 | 349 | |||||||||
Netherlands | ||||||||||||||
Segment reporting | ||||||||||||||
Long-lived assets | 221 | 197 | 221 | 197 | 172 | |||||||||
Brazil | ||||||||||||||
Segment reporting | ||||||||||||||
Long-lived assets | 149 | 149 | 149 | 149 | 124 | |||||||||
Canada | ||||||||||||||
Segment reporting | ||||||||||||||
Long-lived assets | 136 | 131 | 136 | 131 | 108 | |||||||||
Mexico | ||||||||||||||
Segment reporting | ||||||||||||||
Long-lived assets | 116 | 132 | 116 | 132 | 133 | |||||||||
Other foreign countries | ||||||||||||||
Segment reporting | ||||||||||||||
NET SALES | 7,281 | 6,489 | 6,902 | |||||||||||
Long-lived assets | $ 293 | $ 236 | 293 | 236 | 261 | |||||||||
Sales Revenue, Goods, Net | ||||||||||||||
Segment reporting | ||||||||||||||
NET SALES | $ 2,893 | $ 2,359 | $ 2,949 | |||||||||||
Concentration Risk, Percentage | 14.00% | 13.00% | 15.00% | |||||||||||
[1] | Includes sales to nonconsolidated equity investees of $1,174 million , $1,028 million and $1,209 million for the years ended December 31, 2017 , 2016 and 2015 |
QUARTERLY FINANCIAL INFORMATI88
QUARTERLY FINANCIAL INFORMATION DISCLOSURE (unaudited) (Details) $ / shares in Units, $ in Millions | 3 Months Ended | 12 Months Ended | |||||||||||||||||||||||||
Dec. 31, 2017USD ($)$ / shares | Oct. 01, 2017USD ($)$ / shares | Jul. 02, 2017USD ($)$ / shares | Apr. 02, 2017USD ($)$ / shares | Dec. 31, 2016USD ($)$ / shares | Oct. 02, 2016USD ($)$ / shares | Jul. 03, 2016USD ($)$ / shares | Apr. 03, 2016USD ($)$ / shares | Dec. 31, 2015$ / shares | Sep. 27, 2015$ / shares | Jun. 28, 2015$ / shares | Mar. 29, 2015$ / shares | Dec. 31, 2017USD ($)$ / shares | Dec. 31, 2016USD ($)$ / shares | Dec. 31, 2015USD ($)$ / shares | |||||||||||||
Effect of Fourth Quarter Events [Line Items] | |||||||||||||||||||||||||||
NET SALES | $ 5,476 | $ 5,285 | $ 5,078 | $ 4,589 | $ 4,503 | $ 4,187 | $ 4,528 | $ 4,291 | $ 20,428 | [1] | $ 17,509 | [1] | $ 19,110 | [1] | |||||||||||||
Gross Profit | 1,374 | 1,339 | 1,249 | 1,128 | 1,120 | 1,079 | 1,197 | 1,056 | 5,090 | 4,452 | 4,947 | ||||||||||||||||
NET INCOME ATTRIBUTABLE TO CUMMINS INC. | $ (274) | [2] | $ 453 | $ 424 | $ 396 | $ 378 | $ 289 | $ 406 | $ 321 | $ 999 | $ 1,394 | $ 1,399 | |||||||||||||||
Basic (in dollars per share) | $ / shares | $ (1.66) | [3] | $ 2.72 | [3] | $ 2.53 | [3] | $ 2.36 | [3] | $ 2.26 | [3],[4] | $ 1.72 | [3],[4] | $ 2.41 | [3],[4] | $ 1.87 | [3] | $ 5.99 | $ 8.25 | $ 7.86 | ||||||||
Diluted (in dollars per share) | $ / shares | $ (1.65) | [3] | 2.71 | [3] | 2.53 | [3] | 2.36 | [3] | 2.25 | [3],[4] | 1.72 | [3],[4] | 2.40 | [3],[4] | 1.87 | [3] | $ 5.97 | $ 8.23 | $ 7.84 | ||||||||
Tax Cuts and Jobs Act of 2017, Provisional Income Tax Expense, Net | $ 777 | ||||||||||||||||||||||||||
Selected Quarterly Financial Information [Abstract] | |||||||||||||||||||||||||||
Loss contingency (Note 12) | [5] | $ 5 | $ 138 | $ 60 | |||||||||||||||||||||||
Registered Shareholders Total | 3,362 | 3,362 | |||||||||||||||||||||||||
Maximum | |||||||||||||||||||||||||||
Effect of Fourth Quarter Events [Line Items] | |||||||||||||||||||||||||||
Sale of Stock, Price Per Share | $ / shares | $ 181.79 | 170.68 | 164.23 | 155.51 | 147.10 | 128.60 | 120 | 111.29 | $ 181.79 | $ 147.10 | |||||||||||||||||
Minimum | |||||||||||||||||||||||||||
Effect of Fourth Quarter Events [Line Items] | |||||||||||||||||||||||||||
Sale of Stock, Price Per Share | $ / shares | 158.75 | 150.25 | 143.83 | 134.06 | 121.22 | 107.51 | 104.30 | 79.88 | 158.75 | 121.22 | |||||||||||||||||
Common Stock | |||||||||||||||||||||||||||
Effect of Fourth Quarter Events [Line Items] | |||||||||||||||||||||||||||
Cash dividend (in dollars per share) | $ / shares | $ 1.08 | $ 1.08 | $ 1.025 | $ 1.025 | $ 1.025 | $ 1.025 | $ 0.975 | $ 0.975 | $ 0.975 | $ 0.975 | $ 0.78 | $ 0.78 | $ 4.21 | $ 4 | $ 3.51 | ||||||||||||
Engine | |||||||||||||||||||||||||||
Effect of Fourth Quarter Events [Line Items] | |||||||||||||||||||||||||||
NET SALES | $ 8,953 | $ 7,804 | $ 8,670 | ||||||||||||||||||||||||
Selected Quarterly Financial Information [Abstract] | |||||||||||||||||||||||||||
Loss contingency (Note 12) | $ 5 | [5] | $ 99 | $ 39 | $ 5 | [5] | $ 138 | [5] | $ 60 | [5] | |||||||||||||||||
Loss in Period for Contingency, Net of Tax | $ 50 | $ 24 | |||||||||||||||||||||||||
Tax Cuts and Jobs Act of 2017 Impact | |||||||||||||||||||||||||||
Effect of Fourth Quarter Events [Line Items] | |||||||||||||||||||||||||||
Basic (in dollars per share) | $ / shares | $ 4.70 | ||||||||||||||||||||||||||
Diluted (in dollars per share) | $ / shares | $ 4.68 | ||||||||||||||||||||||||||
[1] | Includes sales to nonconsolidated equity investees of $1,174 million , $1,028 million and $1,209 million for the years ended December 31, 2017 , 2016 and 2015 | ||||||||||||||||||||||||||
[2] | Net income attributable to Cummins Inc. and earnings per share were negatively impacted by a $777 million tax adjustment related to The Tax Cuts and Jobs Act passed in December of 2017. For the fourth quarter of 2017, results for basic and diluted earnings per share were reduced by $4.70 per share and $4.68 | ||||||||||||||||||||||||||
[3] | Earnings per share in each quarter is computed using the weighted-average number of shares outstanding during that quarter while earnings per share for the full year is computed using the weighted-average number of shares outstanding during the year. Thus, the sum of the four quarters earnings per share may not equal the full year earnings per share. | ||||||||||||||||||||||||||
[4] | The second quarter of 2016 included a $39 million loss contingency charge ( $24 million after-tax). The third quarter of 2016 included an additional $99 million loss contingency charge ( $50 million | ||||||||||||||||||||||||||
[5] | See Note 12 , " COMMITMENTS AND CONTINGENCIES |