DOCUMENT COVER Document
DOCUMENT COVER Document - USD ($) $ / shares in Units, $ in Billions | 12 Months Ended | |||
Dec. 31, 2019 | Jan. 31, 2020 | Jun. 30, 2019 | Dec. 31, 2018 | |
DOCUMENT COVER [Abstract] | ||||
Document Type | 10-K | |||
Document Period End Date | Dec. 31, 2019 | |||
Entity File Number | 1-4949 | |||
Entity Registrant Name | CUMMINS INC. | |||
Entity Incorporation, State or Country Code | IN | |||
Entity Tax Identification Number | 35-0257090 | |||
Entity Address, Address Line One | 500 Jackson Street | |||
Entity Address, Address Line Two | Box 3005 | |||
Entity Address, City or Town | Columbus | |||
Entity Address, State or Province | IN | |||
Entity Address, Postal Zip Code | 47202-3005 | |||
City Area Code | 812 | |||
Local Phone Number | 377-5000 | |||
Title of 12(b) Security | Common stock, $2.50 par value | |||
Trading Symbol | CMI | |||
Security Exchange Name | NYSE | |||
Entity Well-known Seasoned Issuer | Yes | |||
Entity Voluntary Filers | No | |||
Entity Current Reporting Status | Yes | |||
Entity Interactive Data Current | Yes | |||
Entity Filer Category | Large Accelerated Filer | |||
Entity Small Business | false | |||
Entity Emerging Growth Company | false | |||
Entity Shell Company | false | |||
Entity Public Float | $ 27 | |||
Entity Common Stock, Shares Outstanding | 150,269,665 | |||
Common Stock, Par or Stated Value Per Share | $ 2.50 | $ 2.50 | ||
Entity Central Index Key | 0000026172 | |||
Current Fiscal Year End Date | --12-31 | |||
Document Fiscal Year Focus | 2019 | |||
Document Fiscal Period Focus | FY | |||
Document Annual Report | true | |||
Amendment Flag | false | |||
Document Transition Report | false |
CONSOLIDATED STATEMENTS OF INCO
CONSOLIDATED STATEMENTS OF INCOME - USD ($) $ in Millions | 12 Months Ended | |||||
Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 | ||||
Income Statement [Abstract] | ||||||
Net sales | [1] | $ 23,571 | $ 23,771 | $ 20,428 | ||
Cost of sales | 17,591 | 18,034 | 15,328 | |||
GROSS MARGIN | 5,980 | 5,737 | 5,100 | |||
OPERATING EXPENSES AND INCOME | ||||||
Selling, general and administrative expenses | 2,454 | 2,437 | 2,429 | |||
Research, development and engineering expenses | 1,001 | 902 | 754 | |||
Equity, royalty and interest income from investees (Note 3) | 330 | 394 | 357 | [2] | ||
Restructuring actions (Note 4) | 119 | [3] | 0 | 0 | ||
Other operating income (expense), net | (36) | (6) | 60 | |||
OPERATING INCOME | 2,700 | 2,786 | 2,334 | |||
Interest income | 46 | 35 | 18 | |||
Interest expense (Note 11) | 109 | 114 | 81 | |||
Other income, net | 197 | 46 | 94 | |||
INCOME BEFORE INCOME TAXES | 2,834 | 2,753 | 2,365 | |||
Income tax expense (Note 5) | 566 | 566 | 1,371 | |||
CONSOLIDATED NET INCOME | 2,268 | 2,187 | 994 | |||
Less: Net income (loss) attributable to noncontrolling interests | 8 | 46 | (5) | |||
NET INCOME ATTRIBUTABLE TO CUMMINS INC. | $ 2,260 | $ 2,141 | $ 999 | |||
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC. (Note 20) | ||||||
Basic (in dollars per share) | $ 14.54 | $ 13.20 | $ 5.99 | |||
Diluted (in dollars per share) | $ 14.48 | $ 13.15 | $ 5.97 | |||
Sales to nonconsolidated equity investees | $ 1,191 | $ 1,267 | $ 1,174 | |||
[1] | Includes sales to nonconsolidated equity investees of $1,191 million , $1,267 million and $1,174 million for the years ended December 31, 2019 , 2018 and 2017 , respectively. | |||||
[2] | 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 $12 million for the Engine, Distribution and Components segments, respectively. See Note 5 , " INCOME TAXES | |||||
[3] | See Note 4 " RESTRUCTURING ACTIONS ," for additional information. |
CONSOLIDATED STATEMENTS OF COMP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Millions | 12 Months Ended | ||
Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 | |
Statement of Comprehensive Income [Abstract] | |||
CONSOLIDATED NET INCOME | $ 2,268 | $ 2,187 | $ 994 |
Other comprehensive income (loss), net of tax (Note 17) | |||
Change in pension and other postretirement defined benefit plans | (63) | 18 | (4) |
Foreign currency translation adjustments | (152) | (356) | 335 |
Unrealized gain on debt securities | 0 | 0 | 2 |
Unrealized (loss) gain on derivatives | (11) | 5 | 5 |
Total other comprehensive (loss) income, net of tax | (226) | (333) | 338 |
COMPREHENSIVE INCOME | 2,042 | 1,854 | 1,332 |
Less: Comprehensive income attributable to noncontrolling interests | 3 | 17 | 15 |
COMPREHENSIVE INCOME ATTRIBUTABLE TO CUMMINS INC. | $ 2,039 | $ 1,837 | $ 1,317 |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS - USD ($) $ in Millions | Dec. 31, 2019 | Dec. 31, 2018 |
Current assets | ||
Cash and cash equivalents | $ 1,129 | $ 1,303 |
Marketable securities (Note 6) | 341 | 222 |
Total cash, cash equivalents and marketable securities | 1,470 | 1,525 |
Accounts and notes receivable, net | ||
Trade and other | 3,387 | 3,635 |
Nonconsolidated equity investees | 283 | 231 |
Inventories (Note 7) | 3,486 | 3,759 |
Prepaid expenses and other current assets | 761 | 668 |
Total current assets | 9,387 | 9,818 |
Long-term assets | ||
Property, plant and equipment, net (Note 8) | 4,245 | 4,096 |
Investments and advances related to equity method investees (Note 3) | 1,237 | 1,222 |
Goodwill (Note 10) | 1,286 | 1,126 |
Other intangible assets, net (Note 10) | 1,003 | 909 |
Pension assets (Note 13) | 1,001 | 929 |
Other assets | 1,578 | 962 |
Total assets | 19,737 | 19,062 |
Current liabilities | ||
Accounts payable (principally trade) | 2,534 | 2,822 |
Loans payable (Note 11) | 100 | 54 |
Commercial paper (Note 11) | 660 | 780 |
Accrued compensation, benefits and retirement costs | 560 | 679 |
Current portion of accrued product warranty (Note 12) | 803 | 654 |
Current portion of deferred revenue (Note 2) | 533 | 498 |
Other accrued expenses (Note 14) | 1,039 | 852 |
Current maturities of long-term debt (Note 11) | 31 | 45 |
Total current liabilities | 6,260 | 6,384 |
Long-term liabilities | ||
Long-term debt (Note 11) | 1,576 | 1,597 |
Pensions and other postretirement benefits (Note 13) | 591 | 532 |
Accrued product warranty (Note 12) | 645 | 740 |
Deferred revenue (Note 2) | 821 | 658 |
Other liabilities (Note 14) | 1,379 | 892 |
Total liabilities | 11,272 | 10,803 |
Commitments and contingencies (Note 15) | ||
Cummins Inc. shareholders’ equity (Note 16) | ||
Common stock, $2.50 par value, 500 shares authorized, 222.4 and 222.4 shares issued | 2,346 | 2,271 |
Retained earnings | 14,416 | 12,917 |
Treasury stock, at cost, 71.7 and 64.4 shares | (7,225) | (6,028) |
Common stock held by employee benefits trust, at cost, 0.2 and 0.4 shares | (2) | (5) |
Accumulated other comprehensive loss (Note 17) | (2,028) | (1,807) |
Total Cummins Inc. shareholders' equity | 7,507 | 7,348 |
Noncontrolling interests (Note 18) | 958 | 911 |
Total equity | 8,465 | 8,259 |
Total liabilities and equity | $ 19,737 | $ 19,062 |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares shares in Millions | Dec. 31, 2019 | Dec. 31, 2018 |
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 | 71.7 | 64.4 |
Common stock held by employee benefits trust, at cost, shares | 0.2 | 0.4 |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Millions | 12 Months Ended | ||
Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 | |
CASH FLOWS FROM OPERATING ACTIVITIES | |||
Consolidated net income | $ 2,268 | $ 2,187 | $ 994 |
Adjustments to reconcile consolidated net income to net cash provided by operating activities | |||
Impact of tax legislation, net (Note 5) | 15 | 820 | |
Depreciation and amortization | 672 | 611 | 583 |
Deferred income taxes (Note 5) | (4) | (97) | (54) |
Equity in income of investees, net of dividends | (14) | (93) | (123) |
Pension and OPEB expense (Note 13) | 75 | 97 | 102 |
Pension contributions and OPEB payments (Note 13) | (150) | (67) | (268) |
Stock-based compensation expense (Note 19) | 49 | 53 | 41 |
Restructuring actions, net of cash payments (Note 4) | 115 | 0 | 0 |
(Gain) loss on corporate owned life insurance | (61) | 26 | (52) |
Foreign currency remeasurement and transaction exposure | (105) | (46) | 71 |
Changes in current assets and liabilities, net of acquisitions | |||
Accounts and notes receivable | 195 | (363) | (508) |
Inventories | 291 | (695) | (407) |
Other current assets | (95) | (162) | (12) |
Accounts Payable | (310) | 302 | 639 |
Accrued Expenses | (112) | 371 | 383 |
Changes in other liabilities and deferred revenue | 240 | 75 | 241 |
Other, net | 127 | 164 | (173) |
Net cash provided by operating activities | 3,181 | 2,378 | 2,277 |
CASH FLOWS FROM INVESTING ACTIVITIES | |||
Capital expenditures | (700) | (709) | (506) |
Investments in internal use software | (75) | (75) | (81) |
Proceeds from disposals of property, plant and equipment | 23 | 20 | 110 |
Investments in and advances to equity investees | (20) | (37) | (66) |
Acquisitions of businesses, net of cash acquired (Note 21) | (237) | (70) | (662) |
Investments in marketable securities—acquisitions | (495) | (368) | (194) |
Investments in marketable securities—liquidations (Note 6) | 389 | 331 | 266 |
Cash flows from derivatives not designated as hedges | (44) | (102) | 76 |
Other, net | 9 | 36 | 5 |
Net cash used in investing activities | (1,150) | (974) | (1,052) |
CASH FLOWS FROM FINANCING ACTIVITIES | |||
Net (payments) borrowings of commercial paper (Note 11) | (120) | 482 | 86 |
Payments on borrowings and finance lease obligations | (96) | (62) | (60) |
Net borrowings under short-term credit agreements | 53 | 1 | 12 |
Distributions to noncontrolling interests | (33) | (30) | (29) |
Dividend payments on common stock (Note 16) | (761) | (718) | (701) |
Repurchases of common stock (Note 16) | (1,271) | (1,140) | (451) |
Other, net | 133 | 67 | 69 |
Net cash used in financing activities | (2,095) | (1,400) | (1,074) |
Effect of Exchange Rate on Cash and Cash Equivalents | (110) | (70) | 98 |
Cash and Cash Equivalents, Period Increase (Decrease) | (174) | (66) | 249 |
Cash and cash equivalents at beginning of year | 1,303 | 1,369 | 1,120 |
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ 1,129 | $ 1,303 | $ 1,369 |
CONSOLIDATED STATEMENTS OF CHAN
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY - USD ($) $ in Millions | Total | Common Stock | Additional paid-in Capital | Retained Earnings | Treasury Stock | Common Stock Held in Trust | Accumulated Other Comprehensive Loss | Total Cummins Inc. Shareholders' Equity | Noncontrolling interests |
BALANCE, AT THE BEGINNING OF THE PERIOD at Dec. 31, 2016 | $ 7,174 | $ 556 | $ 1,597 | $ 11,040 | $ (4,489) | $ (8) | $ (1,821) | $ 6,875 | $ 299 |
Increase (Decrease) in Shareholders' Equity | |||||||||
Impact of tax legislation (Note 5) | 126 | 126 | 126 | ||||||
Net income | 994 | 999 | 999 | (5) | |||||
Other comprehensive income, net of tax (Note 17) | 338 | 318 | 318 | 20 | |||||
Issuance of common stock | 6 | 6 | 6 | ||||||
Employee benefits trust activity (Note 16) | 18 | 17 | 1 | 18 | |||||
Repurchases of common stock (Note 16) | (451) | (451) | (451) | ||||||
Cash dividends on common stock (Note 16) | (701) | (701) | (701) | ||||||
Distributions to noncontrolling interests | (29) | (29) | |||||||
Stock-based awards | 38 | 3 | 35 | 38 | |||||
Acquisition of business (Note 21) | 600 | 0 | 600 | ||||||
Other shareholder transactions | 51 | 31 | 31 | 20 | |||||
BALANCE, AT THE END OF THE PERIOD at Dec. 31, 2017 | 8,164 | 556 | 1,654 | 11,464 | (4,905) | (7) | (1,503) | 7,259 | 905 |
Increase (Decrease) in Shareholders' Equity | |||||||||
Adoption of new accounting standards | 30 | 30 | 30 | ||||||
Net income | 2,187 | 2,141 | 2,141 | 46 | |||||
Other comprehensive income, net of tax (Note 17) | (333) | (304) | (304) | (29) | |||||
Issuance of common stock | 12 | 12 | 12 | ||||||
Employee benefits trust activity (Note 16) | 17 | 15 | 2 | 17 | |||||
Repurchases of common stock (Note 16) | (1,140) | (1,140) | (1,140) | ||||||
Cash dividends on common stock (Note 16) | (718) | (718) | (718) | ||||||
Distributions to noncontrolling interests | (30) | (30) | |||||||
Stock-based awards | 13 | (4) | 17 | 13 | |||||
Other shareholder transactions | 57 | 38 | (38) | 19 | |||||
BALANCE, AT THE END OF THE PERIOD at Dec. 31, 2018 | 8,259 | 556 | 1,715 | 12,917 | (6,028) | (5) | (1,807) | 7,348 | 911 |
Increase (Decrease) in Shareholders' Equity | |||||||||
Net income | 2,268 | 2,260 | 2,260 | 8 | |||||
Other comprehensive income, net of tax (Note 17) | (226) | (221) | (221) | (5) | |||||
Issuance of common stock | 3 | 3 | 3 | ||||||
Employee benefits trust activity (Note 16) | 37 | 34 | 3 | 37 | |||||
Repurchases of common stock (Note 16) | (1,271) | (1,271) | (1,271) | ||||||
Cash dividends on common stock (Note 16) | (761) | (761) | (761) | ||||||
Distributions to noncontrolling interests | (33) | (33) | |||||||
Stock-based awards | 76 | 2 | 74 | 76 | |||||
Other shareholder transactions | 113 | 36 | 36 | 77 | |||||
BALANCE, AT THE END OF THE PERIOD at Dec. 31, 2019 | $ 8,465 | $ 556 | $ 1,790 | $ 14,416 | $ (7,225) | $ (2) | $ (2,028) | $ 7,507 | $ 958 |
SUMMARY OF SIGNIFICANT ACCOUNTI
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 12 Months Ended |
Dec. 31, 2019 | |
Accounting Policies [Abstract] | |
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, natural gas, electric and hybrid powertrains and powertrain-related components including filtration, aftertreatment, turbochargers, fuel systems, controls systems, air handling systems, automated transmissions, electric power generation systems, batteries, electrified power systems, hydrogen generation and fuel cell products. We sell our products to original equipment manufacturers (OEMs), distributors, dealers and other customers worldwide. We serve our customers through a network of approximately 600 wholly-owned, joint venture and independent distributor locations and over 7,600 Cummins certified 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 or joint ventures for which we are deemed to have a controlling financial interest. Intercompany balances and transactions are eliminated in consolidation. Where our ownership interest is less than 100 percent, the noncontrolling ownership interests are reported in our Consolidated Balance Sheets . The noncontrolling ownership interest in our income, net of tax, is classified as "Net income (loss) attributable to noncontrolling interests" in our Consolidated Statements of Net 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 2018 and 2017 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. Dividends received from equity method investees reduce the amount of our investment when received and do not impact our earnings. 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 Net 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 Net Income . Our remaining 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 judgement and are used for, but not limited to, 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 pensions and other postretirement benefit costs, restructuring costs, income taxes and deferred tax valuation allowances 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 On January 1, 2018, we adopted the new revenue recognition standard in accordance with GAAP on a modified retrospective basis. Revenue Recognition Sales of Products We sell to customers either through long-term arrangements or standalone purchase orders. Our long-term arrangements generally do not include committed volumes until underlying purchase orders are issued. Our performance obligations vary by contract, but may include diesel and natural gas engines and engine-related component products, including filtration, aftertreatment, turbochargers, fuel systems, controls systems, air handling systems, transmissions, power generation systems and construction related projects, batteries, electrified power systems, hydrogen systems, fuel cells, parts, maintenance services and extended warranty coverage. Typically, we recognize revenue on the products we sell at a point in time, generally in accordance with shipping terms, which reflects the transfer of control to the customer. Since control of construction projects transfer to the customer as the work is performed, revenue on these projects is recognized based on the percentage of inputs incurred to date compared to the total expected cost of inputs, which is reflective of the value transferred to the customer. Revenue is recognized under long-term maintenance and other service agreements over the term of the agreement as underlying services are performed based on the percentage of the cost of services provided to date compared to the total expected cost of services to be provided under the contract. Sales of extended coverage are recognized based on the pattern of expected costs over the extended coverage period or, if such a pattern is unknown, on a straight-line basis over the coverage period as the customer is considered to benefit from our stand ready obligation over the coverage period. In all cases, we believe cost incurred is the most representative depiction of the extent of service performed to date on a particular contract. Our arrangements may include the act of shipping products to our customers after the performance obligation related to that product has been satisfied. We have elected to account for shipping and handling as activities to fulfill the promise to transfer goods and have not allocated revenue to the shipping activity. All related shipping and handling costs are accrued at the time the related performance obligation has been satisfied. Our sales arrangements may include the collection of sales and other similar taxes that are then remitted to the related taxing authority. We have elected to present the amounts collected for these taxes net of the related tax expense rather than presenting them as additional revenue. We grant credit limits and terms to customers based upon traditional practices and competitive conditions. Typical terms vary by market, but payments are generally due in 90 days or less from invoicing for most of our product and service sales, while payments on construction and other similar arrangements may be due on an installment basis. For contracts where the time between cash collection and performance is less than one year, we have elected to use the practical expedient that allows us to ignore the possible existence of a significant financing component within the contract. For contracts where this time period exceeds one year, generally the timing difference is the result of business concerns other than financing. We do have a limited amount of customer financing for which we charge or impute interest, but such amounts are immaterial to our Consolidated Statements of Net Income . Sales Incentives We provide various sales incentives to both our distribution network and OEM customers. These programs are designed to promote the sale of our products in the channel or encourage the usage of our products by OEM customers. When there is uncertainty surrounding these sales incentives, we may limit the amount of revenue we recognize under a contract until the uncertainty has been resolved. 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 consider the expected amount of these rebates at the time of the original sale as we determine the overall transaction price. We update our assessment of the amount of rebates that will be earned 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 we assess them at least quarterly to determine our current estimates of amounts expected to be earned. These estimates are considered in the determination of transaction price 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. At the time of the sales, we consider the expected amount of these rebates when determining the overall transaction price. Estimates are adjusted at the end of each quarter based on the amounts yet to be paid. These estimates are based on historical experience with the particular program. Sales Returns The initial determination of the transaction price may also be impacted by expected product returns. Rights of return do not exist for the majority of our sales other than for quality issues. We do offer certain return rights in our aftermarket business, where some aftermarket customers are permitted to return small amounts of parts and filters each year, and in our power generation business, which sells portable generators to retail customers. An estimate of future returns is accounted for at the time of sale as a reduction in the overall contract transaction price based on historical return rates. Multiple Performance Obligations Our sales arrangements may include multiple performance obligations. We identify each of the material performance obligations in these arrangements and allocate the total transaction price to each performance obligation based on its relative selling price. In most cases, the individual performance obligations are also sold separately and we use that price as the basis for allocating revenue to the included performance obligations. When an arrangement includes multiple performance obligations and invoicing to the customer does not match the allocated portion of the transaction price, unbilled revenue or deferred revenue is recorded reflecting that difference. Unbilled and deferred revenue are discussed in more detail below. Long-term Contracts Our long-term maintenance agreements often include a variable component of the transaction price. We are generally compensated under such arrangements on a cost per hour of usage basis. We typically can estimate the expected usage over the life of the contract, but reassess the transaction price each quarter and adjust our recognized revenue accordingly. Certain maintenance agreements apply to generators used to provide standby power, which have limited expectations of usage. These agreements may include monthly minimum payments, providing some certainty to the total transaction price. For these particular contracts that relate to standby power, we limit revenue recognized to date to an amount representing the total minimums earned to date under the contract plus any cumulative billings earned in excess of the minimums. We reassess the estimates of progress and transaction price on a quarterly basis. For prime power arrangements, revenue is not subject to such a constraint and is generally equal to the current estimate on a percentage of completion basis times the total expected revenue under the contract. Deferred Revenue The timing of our billing does not always match the timing of our revenue recognition. We record deferred revenue when we are entitled to bill a customer in advance of when we are permitted to recognize revenue. Deferred revenue may arise in construction contracts, where billings may occur in advance of performance or in accordance with specific milestones. Deferred revenue may also occur in long-term maintenance contracts, where billings are often based on usage of the underlying equipment, which generally follows a predictable pattern that often will result in the accumulation of collections in advance of our performance of the related maintenance services. Finally, deferred revenue exists in our extended coverage contracts, where the cash is collected prior to the commencement of the coverage period. Deferred revenue is included in our Consolidated Balance Sheets as a component of current liabilities for the amount expected to be recognized in revenue in a period of less than one year and long-term liabilities for the amount expected to be recognized as revenue in a period beyond one year. Deferred revenue is recognized as revenue when control of the underlying product, project or service passes to the customer under the related contract. Unbilled Revenue We recognize unbilled revenue when the revenue has been earned, but not yet billed. Unbilled revenue is included in our Consolidated Balance Sheets as a component of current assets for those expected to be collected in a period of less than one year and long-term assets for those expected to be collected in a period beyond one year. Unbilled revenue relates to our right to consideration for our completed performance under a contract. Unbilled revenue generally arises from contractual provisions that delay a portion of the billings on genset deliveries until commissioning occurs. Unbilled revenue may also occur when billings trail the provision of service in construction and long-term maintenance contracts. We periodically assess our unbilled revenue for impairment. We did not record any impairment losses on our unbilled revenues during 2019 . Contract Costs We are required to record an asset for the incremental costs of obtaining a contract with a customer and other costs to fulfill a contract not otherwise required to be immediately expensed when we expect to recover those costs. The only material incremental cost we incur is commission expense, which is generally incurred in the same period as the underlying revenue. Costs to fulfill a contract are generally limited to customer-specific engineering expenses that do not meet the definition of research and development expenses. As a practical expedient, we have elected to recognize these costs of obtaining a contract as an expense when the related contract period is less than one year. When the period exceeds one year, this asset is amortized over the life of the contract. We did not have any material capitalized balances at December 31, 2019 . Extended Warranty We sell extended warranty coverage on most of our engines and on certain components. We consider a warranty to be extended coverage in any of the following situations: • When a warranty is sold separately or is optional (extended coverage contracts, for example) or • When a warranty provides additional services. The consideration 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. 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 month-end exchange rates. We translate income and expenses to U.S. dollars using weighted-average exchange rates. 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 amounts using historical exchange rates. We include in income the resulting gains and losses, including the effect of derivatives in our Consolidated Statements of Net Income , which combined with transaction gains and losses amounted to a net gain of $28 million and a net loss of $34 million and $6 million for the years ended December 31, 2019 , 2018 and 2017 , 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 swap and physical forward contracts, commodity zero-cost collars and interest rate swaps. These contracts are used strictly for hedging and not for speculative purposes. We are exposed to market risk from fluctuations in interest rates. We manage our exposure to interest rate fluctuations through the use of interest rate swaps. The objective of the swaps is to more effectively balance our borrowing costs and interest rate risk. The gain or loss on these derivative instruments as well as the offsetting gain or loss on the hedged item are recognized in current income as "Interest expense." For more detail on our interest rate swaps, see Note 11 , " 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 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. At December 31, 2019 and 2018 , realized and unrealized gains and losses related to these hedges were not material to our financial statements. 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 swap, forward 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. Commencing in 2019 , these commodity swaps are designated and qualify as cash flow hedges under GAAP. At December 31, 2019, realized and unrealized gains and losses related to these hedges were not material to our financial statements. The physical forward contracts qualify for the normal purchases scope exceptions and are treated as purchase commitments. Additional information on the physical forwards is included in Note 15 , " COMMITMENTS AND CONTINGENCIES ." The commodity zero-cost collar contracts that represent an economic hedge, but are not designated for hedge accounting, are marked to market through earnings. We record all derivatives at fair value in our financial statements. Cash flows related to derivatives that are designated as hedges are included in the Cash Flows From Operating Activities, while cash flows related to derivatives, that are not designated as hedges, are included in Cash Flows From Investing Activities in our Consolidated Statements of Cash Flows . Substantially all of our derivative contracts are subject to master netting arrangements, which provide us with the option to settle certain contracts on a net basis when they settle on the same day with the same currency. In addition, these arrangements provide for a net settlement of all contracts with a given counterparty in the event that the arrangement is terminated due to the occurrence of default or a termination event. When material, we adjust the value of our derivative contracts for counter-party or our credit risk. None of our derivative instruments are subject to collateral requirements. 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 basis. 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 5 , " 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 2019 2018 2017 Cash payments for income taxes, net of refunds $ 691 $ 699 $ 622 Cash payments for interest, net of capitalized interest 109 114 82 Marketable Securities We account for marketable securities in accordance with GAAP for investments in debt and equity securities. Debt securities are classified as "held-to-maturity," "available-for-sale" or "trading". We determine the appropriate classification of debt securities at the time of purchase and re-evaluate such classifications at each balance sheet date. At December 31, 2019 and 2018 , all of our debt securities were classified as available-for-sale. Debt and equity securities are carried at fair value with the unrealized gain or loss, net of tax, reported in other comprehensive income and other income, respectively. For debt securities, unrealized losses considered to be "other-than-temporary" are recognized currently in other 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 6 , " MARKETABLE SECURITIES ," for a detailed description of our investments in marketable securities. Accounts Receivable and Allowance for Doubtful Accounts Trade accounts receivable represent amounts billed to customers and not yet collected or amounts that have been earned, but may not be billed until the passage of time, and are recorded when the right to consideration becomes unconditional. 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 were $19 million and $15 million at December 31, 2019, and 2018 , respectively, and bad debt write-offs were not material. Inventories Our inventories are stated at the lower of cost or market. For the years ended December 31, 2019 and 2018 , approximately 14 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 7 , " INVENTORIES ," for additional information. Property, Plant and Equipment We record property, plant and equipment at cost, inclusive of assets under capital leases in 2018 and finance lease assets starting in 2019, with the adoption of the new lease standard. 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 in 2018 and finance lease asset amortization starting in 2019 are recorded in depreciation expense. We expense normal maintenance and repair costs as incurred. Depreciation expense totaled $494 million , $455 million and $467 million for the years ended December 31, 2019 , 2018 and 2017 , respectively. See RECENTLY ADOPTED AND RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS sections below and Note 9 , " LEASES ," 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. Lease Policies We determine if an arrangement contains a lease in whole or in part at the inception of the contract. Right-of-use (ROU) assets represent our right to use an underlying asset for the lease term while lease liabilities represent our obligation to make lease payments arising from the lease. All leases greater than 12 months result in the recognition of a ROU asset and a liability at the lease commencement date based on the present value of the lease payments over the lease term. As most of our leases do not provide the information required to determine the implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. This rate is determined considering factors such as the lease term, our credit standing and the economic environment of the location of the lease. We use the implicit rate when readily determinable. Our lease terms include all non-cancelable periods and may include options to extend (or to not terminate) the lease when it is reasonably certain that |
REVENUE RECOGNITION LONG-TERM C
REVENUE RECOGNITION LONG-TERM CONTRACTS AND DEFERRED AND UNBILLED REVENUE REVENUE RECOGNITION LONG-TERM CONTRACTS AND DEFERRED AND UNBILLED REVENUE | 12 Months Ended |
Dec. 31, 2019 | |
Revenue from Contract with Customer [Abstract] | |
Revenue from Contract with Customer | Long-term Contracts Most of our contracts are for a period of less than one year. We have certain long-term maintenance agreements, construction contracts and extended warranty coverage arrangements that span a period in excess of one year. The aggregate amount of the transaction price for long-term maintenance agreements and construction contracts allocated to performance obligations that have not been satisfied as of December 31, 2019, was $890 million . We expect to recognize the related revenue of $241 million over the next 12 months and $649 million over periods up to 10 years . See Note 12 ," PRODUCT WARRANTY LIABILITY ," for additional disclosures on extended warranty coverage arrangements. Our other contracts generally are for a duration of less than one year, include payment terms that correspond to the timing of costs incurred when providing goods and services to our customers or represent sales-based royalties. Deferred and Unbilled Revenue The following is a summary of our unbilled and deferred revenue and related activity: Years ended December 31, In millions 2019 2018 Unbilled revenue $ 68 $ 64 Deferred revenue, primarily extended warranty 1,354 1,156 We recognized revenue of $365 million and $361 million in 2019 and 2018 , respectively, that was included in the deferred revenue balance at the beginning of each year. We did not record any impairment losses on our unbilled revenues during 2019 or 2018 . Disaggregation of Revenue Consolidated Revenue The table below presents our consolidated sales by geographic area. Net sales attributed to geographic areas were based on the location of the customer. Years ended December 31, In millions 2019 2018 2017 United States $ 13,519 $ 13,218 $ 11,010 China 2,331 2,324 2,137 India 848 965 805 Other international 6,873 7,264 6,476 Total net sales $ 23,571 $ 23,771 $ 20,428 Segment Revenue Engine segment external sales by market were as follows: Years ended December 31, In millions 2019 2018 Heavy-duty truck $ 2,626 $ 2,885 Medium-duty truck and bus 2,244 2,536 Light-duty automotive 1,656 1,501 Total on-highway 6,526 6,922 Off-highway 1,044 1,080 Total sales $ 7,570 $ 8,002 Distribution segment external sales by region were as follows: Years ended December 31, In millions 2019 2018 North America $ 5,513 $ 5,331 Asia Pacific 875 851 Europe 528 536 China 356 317 Africa and Middle East 235 242 India 200 192 Latin America 176 169 Russia 157 169 Total sales $ 8,040 $ 7,807 Distribution segment external sales by product line were as follows: Years ended December 31, In millions 2019 2018 Parts $ 3,278 $ 3,222 Power generation 1,777 1,482 Engines 1,511 1,632 Service 1,474 1,471 Total sales $ 8,040 $ 7,807 Components segment external sales by business were as follows: Years ended December 31, In millions 2019 2018 Emission solutions $ 2,763 $ 2,780 Filtration 1,024 1,010 Turbo technologies 696 761 Automated transmissions 534 543 Electronics and fuel systems 236 237 Total sales $ 5,253 $ 5,331 Power Systems segment external sales by product line were as follows: Years ended December 31, In millions 2019 2018 Power generation $ 1,414 $ 1,467 Industrial 908 801 Generator technologies 348 357 Total sales $ 2,670 $ 2,625 |
REVENUE RECOGNITION DISAGGREGAT
REVENUE RECOGNITION DISAGGREGATION OF REVENUES REVENUE RECOGNITION DISAGGREGATION OF REVENUES (Notes) | 12 Months Ended |
Dec. 31, 2019 | |
Revenue from Contract with Customer [Abstract] | |
Revenue from Contract with Customer | Long-term Contracts Most of our contracts are for a period of less than one year. We have certain long-term maintenance agreements, construction contracts and extended warranty coverage arrangements that span a period in excess of one year. The aggregate amount of the transaction price for long-term maintenance agreements and construction contracts allocated to performance obligations that have not been satisfied as of December 31, 2019, was $890 million . We expect to recognize the related revenue of $241 million over the next 12 months and $649 million over periods up to 10 years . See Note 12 ," PRODUCT WARRANTY LIABILITY ," for additional disclosures on extended warranty coverage arrangements. Our other contracts generally are for a duration of less than one year, include payment terms that correspond to the timing of costs incurred when providing goods and services to our customers or represent sales-based royalties. Deferred and Unbilled Revenue The following is a summary of our unbilled and deferred revenue and related activity: Years ended December 31, In millions 2019 2018 Unbilled revenue $ 68 $ 64 Deferred revenue, primarily extended warranty 1,354 1,156 We recognized revenue of $365 million and $361 million in 2019 and 2018 , respectively, that was included in the deferred revenue balance at the beginning of each year. We did not record any impairment losses on our unbilled revenues during 2019 or 2018 . Disaggregation of Revenue Consolidated Revenue The table below presents our consolidated sales by geographic area. Net sales attributed to geographic areas were based on the location of the customer. Years ended December 31, In millions 2019 2018 2017 United States $ 13,519 $ 13,218 $ 11,010 China 2,331 2,324 2,137 India 848 965 805 Other international 6,873 7,264 6,476 Total net sales $ 23,571 $ 23,771 $ 20,428 Segment Revenue Engine segment external sales by market were as follows: Years ended December 31, In millions 2019 2018 Heavy-duty truck $ 2,626 $ 2,885 Medium-duty truck and bus 2,244 2,536 Light-duty automotive 1,656 1,501 Total on-highway 6,526 6,922 Off-highway 1,044 1,080 Total sales $ 7,570 $ 8,002 Distribution segment external sales by region were as follows: Years ended December 31, In millions 2019 2018 North America $ 5,513 $ 5,331 Asia Pacific 875 851 Europe 528 536 China 356 317 Africa and Middle East 235 242 India 200 192 Latin America 176 169 Russia 157 169 Total sales $ 8,040 $ 7,807 Distribution segment external sales by product line were as follows: Years ended December 31, In millions 2019 2018 Parts $ 3,278 $ 3,222 Power generation 1,777 1,482 Engines 1,511 1,632 Service 1,474 1,471 Total sales $ 8,040 $ 7,807 Components segment external sales by business were as follows: Years ended December 31, In millions 2019 2018 Emission solutions $ 2,763 $ 2,780 Filtration 1,024 1,010 Turbo technologies 696 761 Automated transmissions 534 543 Electronics and fuel systems 236 237 Total sales $ 5,253 $ 5,331 Power Systems segment external sales by product line were as follows: Years ended December 31, In millions 2019 2018 Power generation $ 1,414 $ 1,467 Industrial 908 801 Generator technologies 348 357 Total sales $ 2,670 $ 2,625 |
INVESTMENTS IN EQUITY INVESTEES
INVESTMENTS IN EQUITY INVESTEES | 12 Months Ended |
Dec. 31, 2019 | |
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 percentages were as follows: December 31, Dollars in millions Ownership % 2019 2018 Komatsu alliances 20-50% $ 267 $ 238 Beijing Foton Cummins Engine Co., Ltd. 50% 193 203 Dongfeng Cummins Engine Company, Ltd. 50% 149 160 Chongqing Cummins Engine Company, Ltd. 50% 110 102 Cummins-Scania XPI Manufacturing, LLC 50% 96 101 Tata Cummins, Ltd. 50% 60 58 Other Various 362 360 Investments and advances related to equity method investees $ 1,237 $ 1,222 We have approximately $758 million in our investment account at December 31, 2019 , that represents cumulative undistributed income in our equity investees. Dividends received from our unconsolidated equity investees were $260 million , $242 million and $219 million in 2019 , 2018 and 2017 , respectively. Equity, royalty and interest income from investees, net of applicable taxes, was as follows: Years ended December 31, In millions 2019 2018 2017 Manufacturing entities Beijing Foton Cummins Engine Co., Ltd. $ 60 $ 72 $ 94 Dongfeng Cummins Engine Company, Ltd. 52 58 73 Chongqing Cummins Engine Company, Ltd. 41 51 41 All other manufacturers 88 129 71 (1) Distribution entities Komatsu Cummins Chile, Ltda. 28 26 30 All other distributors 2 — (1 ) Cummins share of net income 271 336 308 Royalty and interest income 59 58 49 Equity, royalty and interest income from investees $ 330 $ 394 $ 357 ___________________________________________________________ (1) Tax legislation passed in December 2017 decreased our equity earnings at certain equity investees by $39 million due to withholding tax adjustments on foreign earnings and remeasurement of deferred taxes. See Note 5 , " INCOME TAXES ," to our Consolidated Financial Statements for additional information . Manufacturing Entities Our manufacturing joint ventures have generally been formed with customers and are primarily 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 electronics, fuel systems, filtration, aftertreatment systems, turbocharger products and automated 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 (except for Eaton Cummins Automated Transmission Technologies joint venture which is consolidated due to our majority voting 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 Net 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 has 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 and medium-duty commercial trucks, pick-up trucks, buses, multipurpose and sport utility vehicles with main markets in China, Brazil and Russia. Certain types of small construction equipment and industrial applications are also served by these engine families. The heavy-duty business produces the X11 and X12, ranging from 10.5 liter to 12.9 liter , high performance heavy-duty diesel engines in Beijing, and is nearing the launch of the X13 engine. 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 and one of the largest medium-duty and heavy-duty truck manufacturers in China. DCEC produces 3.9 liter to 14 liter diesel engines, with a power range from 80 to 680 horsepower, and natural gas engines. On-highway engines are used in multiple applications in light-duty and medium-duty trucks, special purpose vehicles, buses and heavy-duty trucks with a main market in China. Off-highway engines are used in a variety of construction, power generation, marine and agriculture markets in China. • 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. 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. 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 value 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 . Equity Investee Financial Summary Summary financial information for our equity investees was as follows: For the years ended and at December 31, In millions 2019 2018 2017 Net sales $ 7,068 $ 7,352 $ 7,050 Gross margin 1,274 1,373 1,422 Net income 566 647 680 Cummins share of net income $ 271 $ 336 $ 308 Royalty and interest income 59 58 49 Total equity, royalty and interest from investees $ 330 $ 394 $ 357 Current assets $ 3,282 $ 3,401 Non-current assets 1,622 1,449 Current liabilities (2,654 ) (2,669 ) Non-current liabilities (326 ) (218 ) Net assets $ 1,924 $ 1,963 Cummins share of net assets $ 1,159 $ 1,144 |
RESTRUCTURING AND OTHER CHARGES
RESTRUCTURING AND OTHER CHARGES | 12 Months Ended |
Dec. 31, 2019 | |
Restructuring and Related Activities [Abstract] | |
Restructuring, Impairment, and Other Activities Disclosure [Text Block] | NOTE 4. RESTRUCTURING ACTIONS In November 2019, we announced our intentions to reduce our global workforce in response to the continued deterioration in our global markets in the second half of 2019, as well as expected reductions in orders in most U.S. and international markets in 2020. In the fourth quarter of 2019, we began executing restructuring actions, primarily in the form of voluntary and involuntary employee separation programs. To the extent these programs involve voluntary separations, a liability is generally recorded at the time offers to employees are accepted. To the extent these programs provide separation benefits in accordance with pre-existing agreements or policies, a liability is recorded once the amount is probable and reasonably estimable. We incurred a charge of $119 million ( $90 million after-tax) in the fourth quarter of 2019 for these actions which impacted approximately 2,300 employees. The voluntary actions were completed by December 31, 2019 and the majority of the involuntary actions were executed prior to January 31, 2020, with expected completion by March 31, 2020. Due to the inherent uncertainty involved, actual amounts paid for such activities may differ from amounts initially recorded and we may need to revise previous estimates. Restructuring actions were included in our segment and non-segment operating results as follows: In millions Years ended December 31, 2019 Engine $ 18 Distribution 37 Components 20 Power Systems 12 New Power 1 Non-segment 31 Restructuring actions $ 119 The table below summarizes the activity and balance of accrued restructuring, which is included in "Other accrued expenses" in our Consolidated Balance Sheets : In millions Restructuring Accrual Workforce reductions $ 119 Cash payments (4 ) Foreign currency loss 1 Balance at December 31, 2019 $ 116 |
INCOME TAXES
INCOME TAXES | 12 Months Ended |
Dec. 31, 2019 | |
Income Tax Disclosure [Abstract] | |
INCOME TAXES | NOTE 5. INCOME TAXES The following table summarizes income before income taxes: Years ended December 31, In millions 2019 2018 2017 U.S. income $ 1,677 $ 1,239 $ 1,237 Foreign income 1,157 1,514 1,128 Income before income taxes $ 2,834 $ 2,753 $ 2,365 Income tax expense (benefit) consists of the following: Years ended December 31, In millions 2019 2018 2017 Current U.S. federal and state $ 288 $ 303 $ 355 Foreign 282 348 289 Impact of tax legislation — 153 349 Total current income tax expense 570 804 993 Deferred U.S. federal and state (32 ) (71 ) (42 ) Foreign 28 (26 ) (12 ) Impact of tax legislation — (141 ) 432 Total deferred income tax (benefit) expense (4 ) (238 ) 378 Income tax expense $ 566 $ 566 $ 1,371 A reconciliation of the statutory U.S. federal income tax rate to the effective tax rate was as follows: Years ended December 31, 2019 2018 2017 Statutory U.S. federal income tax rate 21.0 % 21.0 % 35.0 % State income tax, net of federal effect 1.1 0.9 0.6 Differences in rates and taxability of foreign subsidiaries and joint ventures 1.5 (0.2 ) (6.4 ) Research tax credits (1.5 ) (1.2 ) (1.4 ) Foreign derived intangible income (1.3 ) (1.3 ) — Impact of tax legislation — 0.5 33.1 Other, net (0.8 ) 0.9 (2.9 ) Effective tax rate 20.0 % 20.6 % 58.0 % Our effective tax rate for 2019 was 20.0 percent compared to 20.6 percent for 2018 and 58.0 percent for 2017 . The year ended December 31, 2019, contained $34 million of favorable net discrete tax items, primarily due to withholding taxes and provision to return adjustments. The year ended December 31, 2018, contained $14 million of favorable net discrete tax items, primarily due to $26 million of other favorable discrete tax items, partially offset by $12 million of unfavorable discrete tax items related to the tax legislation. 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 required companies to pay a one-time transition tax on certain previously undistributed earnings on certain foreign subsidiaries and foreign joint ventures that were tax deferred. The impacts of the Tax Legislation resulted in additional tax expense of $12 million in 2018 and $781 million in 2017. See Tax Legislation Summary below for additional information. 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 2019 2018 Deferred tax assets U.S. state carryforward benefits $ 207 $ 191 Foreign carryforward benefits 157 149 Employee benefit plans 279 245 Warranty expenses 427 401 Lease liabilities 122 — Accrued expenses 76 94 Other 44 65 Gross deferred tax assets 1,312 1,145 Valuation allowance (317 ) (327 ) Total deferred tax assets 995 818 Deferred tax liabilities Property, plant and equipment (260 ) (255 ) Unremitted income of foreign subsidiaries and joint ventures (181 ) (184 ) Employee benefit plans (222 ) (202 ) Lease assets (120 ) — Other (77 ) (30 ) Total deferred tax liabilities (860 ) (671 ) Net deferred tax assets $ 135 $ 147 Our 2019 U.S. carryforward benefits include $207 million of state credit and net operating loss carryforward benefits that begin to expire in 2020 . Our foreign carryforward benefits include $157 million of net operating loss carryforwards that begin to expire in 2020 . 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 is $317 million and decreased in 2019 by a net $10 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 2019 2018 Prepaid expenses and other current assets Refundable income taxes $ 191 $ 117 Other assets Deferred income tax assets 441 410 Long-term refundable income taxes 23 6 Other accrued expenses Income tax payable 52 97 Other liabilities One-time transition tax 293 293 Deferred income tax liabilities 306 263 A reconciliation of unrecognized tax benefits for the years ended December 31, 2019, 2018 and 2017 was as follows: December 31, In millions 2019 2018 2017 Balance at beginning of year $ 71 $ 41 $ 59 Additions to current year tax positions 23 10 11 Additions to prior years' tax positions 5 27 9 Reductions to prior years' tax positions (11 ) (2 ) (3 ) Reductions for tax positions due to settlements with taxing authorities (11 ) (5 ) (35 ) Balance at end of year $ 77 $ 71 $ 41 Included in the December 31, 2019 , 2018 and 2017 , balances are $69 million , $62 million and $32 million , respectively, related to tax positions that, if released, would favorably impact the effective tax rate in future periods. We have also accrued interest expense related to the unrecognized tax benefits of $5 million , $4 million and $4 million as of December 31, 2019 , 2018 and 2017 , respectively. We recognize potential accrued interest and penalties related to unrecognized tax benefits in income tax expense. 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. As a result of our global operations, we file income tax returns in various jurisdictions including U.S. federal, state and foreign jurisdictions. We are routinely subject to examination by taxing authorities throughout the world, including Australia, Belgium, Brazil, Canada, China, France, India, Mexico, the U.K. and the U.S. With few exceptions, our U.S. federal, major state and foreign jurisdictions are no longer subject to income tax assessments for years before 2015. TAX LEGISLATION SUMMARY 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 could not be finalized at December 31, 2017. This guidance allowed entities to record provisional amounts based on current estimates that were updated on a quarterly basis in 2018. The SEC required final calculations to be completed within the one year measurement period ending December 22, 2018 and reflect any additional guidance issued throughout the year. We 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. 2017 Impact of Tax Legislation Deferred tax assets and liabilities We remeasured certain deferred tax assets and liabilities based on the rates at which they were expected to reverse in the future, which was generally 21 percent. The provisional amount related to the remeasurement of our deferred tax balance was an incremental tax expense of $152 million in 2017. See Note 3 , " INVESTMENTS IN EQUITY INVESTEES ," for the impact to our equity investees. One-time transition tax The one-time transition tax was 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 was 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 required 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 was provisional as we refined 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 18 , " NONCONTROLLING INTERESTS ," for the impact of withholding taxes to our equity investees and noncontrolling interests. 2018 Adjustments to Tax Legislation We completed accounting for the tax effects of the enactment of the Tax Legislation as of December 31, 2018 and included $12 million of unfavorable discrete tax items in our 2018 tax provision. The adjustments for income tax expense (benefit) during the one-year Tax Legislation measurement period for each group and other Tax Legislation adjustments consisted of the following: Years Ended December 31, In millions 2018 2017 Total Impact One-year measurement adjustments to 2017 estimates Withholding tax accrued $ (148 ) $ 331 $ 183 Deferred tax balances 7 152 159 One-time transition tax 111 298 409 Net impact of measurement period changes (30 ) 781 751 Other 2018 adjustments Deferred tax charges (1) 35 — 35 Foreign currency adjustment related to Tax Legislation 7 — 7 Net impact of 2018 adjustments 42 — 42 Total Tax Legislation impact $ 12 $ 781 $ 793 ____________________________________________________ (1) |
MARKETABLE SECURITIES
MARKETABLE SECURITIES | 12 Months Ended |
Dec. 31, 2019 | |
Marketable Securities [Abstract] | |
MARKETABLE SECURITIES | NOTE 6. MARKETABLE SECURITIES A summary of marketable securities, all of which are classified as current, was as follows: December 31, 2019 2018 In millions Cost Gross unrealized gains/(losses) (1) Estimated Cost Gross unrealized gains/(losses) (1) Estimated Equity securities Debt mutual funds $ 180 $ 3 $ 183 $ 103 $ 1 $ 104 Certificates of deposit 133 — 133 101 — 101 Equity mutual funds 19 4 23 16 — 16 Bank debentures 1 — 1 — — — Debt securities 1 — 1 1 — 1 Total marketable securities $ 334 $ 7 $ 341 $ 221 $ 1 $ 222 ______________________________________________________ (1) Unrealized gains and losses for debt securities are recorded in other comprehensive income while unrealized gains and losses for equity securities are recorded in "Other income, net" in our Consolidated Statements of Net Income . All debt securities are classified as available-for-sale. All marketable securities presented use a Level 2 fair value measure. 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 2019 or 2018. A description of the valuation techniques and inputs used for our Level 2 fair value measures is 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. • Certificates of deposit and bank debentures — 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 institution's 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. • 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 were as follows: Years ended December 31, In millions 2019 2018 2017 Proceeds from sales of marketable securities $ 258 $ 253 $ 145 Proceeds from maturities of marketable securities 131 78 121 Investments in marketable securities - liquidations $ 389 $ 331 $ 266 |
INVENTORIES
INVENTORIES | 12 Months Ended |
Dec. 31, 2019 | |
Inventory Disclosure [Abstract] | |
INVENTORIES | NOTE 7. INVENTORIES Inventories are stated at the lower of cost or market. Inventories included the following: December 31, In millions 2019 2018 Finished products $ 2,214 $ 2,405 Work-in-process and raw materials 1,395 1,487 Inventories at FIFO cost 3,609 3,892 Excess of FIFO over LIFO (123 ) (133 ) Total inventories $ 3,486 $ 3,759 |
PROPERTY, PLANT AND EQUIPMENT
PROPERTY, PLANT AND EQUIPMENT | 12 Months Ended |
Dec. 31, 2019 | |
Property, Plant and Equipment [Abstract] | |
PROPERTY, PLANT AND EQUIPMENT | NOTE 8. PROPERTY, PLANT AND EQUIPMENT Details of our property, plant and equipment balance were as follows: December 31, In millions 2019 2018 Land and buildings $ 2,487 $ 2,398 Machinery, equipment and fixtures 5,618 5,391 Construction in process 594 530 Property, plant and equipment, gross 8,699 8,319 Less: Accumulated depreciation (4,454 ) (4,223 ) Property, plant and equipment, net $ 4,245 $ 4,096 |
LEASES FOOTNOTE DISCLOSURE LEAS
LEASES FOOTNOTE DISCLOSURE LEASES FOOTNOTE DISCLOSURE (Notes) | 12 Months Ended |
Dec. 31, 2019 | |
Leases [Abstract] | |
Leases of Lessee Disclosure | NOTE 9. LEASES Our lease portfolio consists primarily of real estate and equipment leases. Our real estate leases primarily consist of land, office, distribution, warehousing and manufacturing facilities. These leases typically range in term from 2 to 50 years and may contain renewal options for periods up to 2 years at our discretion. Our equipment lease portfolio consists primarily of vehicles (including service vehicles), forktrucks and IT equipment. These leases typically range in term from two years to three years and may contain renewal options. Our leases generally do not contain variable lease payments other than (1) certain foreign real estate leases which have payments indexed to inflation and (2) certain real estate executory costs (such as taxes, insurance and maintenance), which are paid based on actual expenses incurred by the lessor during the year. Our leases generally do not include residual value guarantees other than our service vehicle fleet, which has a residual guarantee based on a percentage of the original cost declining over the lease term. The components of our lease cost were as follows: In millions Year Ended Operating lease cost $ 208 Finance lease cost Amortization of right-of-use asset 18 Interest expense 9 Short-term lease cost 5 Variable lease cost 7 Total lease cost $ 247 Supplemental balance sheet information related to leases: In millions December 31, 2019 Balance Sheet Location Assets Operating lease assets $ 496 Other assets Finance lease assets (1) 90 Property, plant and equipment, net Total lease assets $ 586 Liabilities Current Operating $ 131 Other accrued expenses Finance 12 Current maturities of long-term debt Long-term Operating 370 Other liabilities Finance 78 Long-term debt Total lease liabilities $ 591 ____________________________________ (1) Finance lease assets were recorded net of accumulated amortization of $62 million at December 31, 2019 . Supplemental cash flow and other information related to leases: In millions Year Ended Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases $ 163 Operating cash flows from finance leases 47 Financing cash flows from finance leases 9 Right-of-use assets obtained in exchange for lease obligations Operating leases $ 214 Finance leases 5 Additional information related to leases: December 31, 2019 Weighted-average remaining lease term (in years) Operating leases 5.3 Finance leases 12.1 Weighted-average discount rate Operating leases 3.3 % Finance leases 4.4 % Following is a summary of the future minimum lease payments due to finance and operating leases with terms of more than one year at December 31, 2019 , together with the net present value of the minimum payments: In millions Finance Leases Operating Leases 2020 $ 15 $ 143 2021 11 117 2022 10 90 2023 9 60 2024 7 47 After 2024 65 95 Total minimum lease payments 117 552 Interest (27 ) (51 ) Present value of net minimum lease payments $ 90 $ 501 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, 2018, together with the net present value of the minimum payments due under capital leases: In millions Capital Leases Operating Leases 2019 $ 30 $ 138 2020 21 109 2021 16 81 2022 14 60 2023 13 39 After 2023 144 81 Total minimum lease payments $ 238 $ 508 Interest (106 ) Present value of net minimum lease payments $ 132 |
GOODWILL AND OTHER INTANGIBLE A
GOODWILL AND OTHER INTANGIBLE ASSETS | 12 Months Ended |
Dec. 31, 2019 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
GOODWILL AND OTHER INTANGIBLE ASSETS | NOTE 10. GOODWILL AND OTHER INTANGIBLE ASSETS The following table summarizes the changes in the carrying amount of goodwill for the years ended December 31, 2019 and 2018 : In millions Components New Power Distribution Power Systems Engine Segment Total Unallocated Total Balance at December 31, 2017 $ 940 $ — $ 79 $ 10 $ 6 $ 1,035 $ 47 (2) $ 1,082 Acquisitions — 49 (1) — — — 49 — 49 Translation and other (5 ) — — — — (5 ) — (5 ) Allocation to segment — 47 (2) — — — 47 (47 ) (2) — Balance at December 31, 2018 935 96 79 10 6 1,126 — 1,126 Acquisitions — 161 (1) — — — 161 — 161 Translation and other (1 ) — — — — (1 ) — (1 ) Balance at December 31, 2019 $ 934 $ 257 $ 79 $ 10 $ 6 $ 1,286 $ — $ 1,286 ____________________________________________________ (1) See Note 21 , " ACQUISITIONS ," for additional information on acquisition goodwill. (2) Goodwill associated with the Brammo Inc. acquisition was presented as an unallocated item as it had not yet been assigned to a reportable segment at December 31, 2017. Effective January 1, 2018, Brammo Inc. was assigned to our New Power segment. See Note 21 , " 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 2019 2018 Software $ 708 $ 662 Less: Accumulated amortization (425 ) (372 ) Software, net 283 290 Trademarks, patents, customer relationships and other 956 803 Less: Accumulated amortization (236 ) (184 ) Trademarks, patents, customer relationships and other, net 720 619 Total other intangible assets, net $ 1,003 $ 909 Amortization expense for software and other intangibles totaled $175 million , $153 million and $112 million for the years ended December 31, 2019 , 2018 and 2017 , respectively. The projected amortization expense of our intangible assets, assuming no further acquisitions or dispositions, is as follows: In millions 2020 2021 2022 2023 2024 Projected amortization expense $ 136 $ 118 $ 101 $ 84 $ 66 |
PRODUCT WARRANTY LIABILITY
PRODUCT WARRANTY LIABILITY | 12 Months Ended |
Dec. 31, 2019 | |
Product Warranties Disclosures [Abstract] | |
PRODUCT WARRANTY LIABILITY | NOTE 12. PRODUCT WARRANTY LIABILITY A tabular reconciliation of the product warranty liability, including the deferred revenue related to our extended warranty coverage and accrued product campaigns was as follows: December 31, In millions 2019 2018 2017 Balance, beginning of year $ 2,208 $ 1,687 $ 1,414 Provision for base warranties issued 458 437 376 Deferred revenue on extended warranty contracts sold 356 293 240 Provision for product campaigns issued 210 481 181 Payments made during period (590 ) (443 ) (398 ) Amortization of deferred revenue on extended warranty contracts (230 ) (244 ) (219 ) Changes in estimates for pre-existing product warranties (24 ) 3 85 Foreign currency translation and other 1 (6 ) 8 Balance, end of year $ 2,389 $ 2,208 $ 1,687 We recognized supplier recoveries of $67 million , $26 million and $16 million for the for the years ended December 31, 2019, 2018 and 2017 , respectively. Warranty related deferred revenues and warranty liabilities on our Consolidated Balance Sheets were as follows: December 31, In millions 2019 2018 Balance Sheet Location Deferred revenue related to extended coverage programs Current portion $ 227 $ 227 Current portion of deferred revenue Long-term portion 714 587 Deferred revenue Total $ 941 $ 814 Product warranty Current portion $ 803 $ 654 Current portion of accrued product warranty Long-term portion 645 740 Accrued product warranty Total $ 1,448 $ 1,394 Total warranty accrual $ 2,389 $ 2,208 Engine System Campaign Accrual During 2017, the California Air Resources Board (CARB) and the U.S. Environmental Protection Agency (EPA) selected certain of our pre-2013 model year engine systems for additional emissions testing. Some of these engine systems failed CARB and EPA tests as a result of degradation of an aftertreatment component. We recorded charges of $36 million to "Cost of sales" in our Consolidated Statements of Net Income during 2017 for the then expected cost of field campaigns to repair some of these engine systems. In the first quarter of 2018, we concluded based upon additional emission testing performed, and further discussions with the EPA and CARB that the field campaigns should be expanded to include a larger population of our engine systems that are subject to the aftertreatment component degradation, including our model years 2010 through 2015. As a result, we recorded an additional charge of $187 million , or $0.87 per share, to "Cost of sales" in our Consolidated Statements of Net Income ( $94 million recorded in the Components segment and $93 million in the Engine segment). In the second quarter of 2018, we reached agreement with the CARB and EPA regarding our plans to address the affected populations. In finalizing our plans, we increased the number of systems to be addressed through hardware replacement compared to our assumptions resulting in an additional charge of $181 million , or $0.85 per share, to "Cost of sales" in our Consolidated Statements of Net Income ( $91 million recorded in the Engine segment and $90 million in the Components segment). The campaigns launched in the third quarter of 2018 and are being completed in phases across the affected population with a projection to be substantially complete by December 31, 2020. The total engine system campaign charge, excluding supplier recoveries, was $410 million . At December 31, 2019 , the remaining accrual balance was $247 million |
DEBT
DEBT | 12 Months Ended |
Dec. 31, 2019 | |
Debt Disclosure [Abstract] | |
DEBT | NOTE 11. DEBT Loans Payable and Commercial Paper Loans payable at December 31, 2019 and 2018 were $100 million and $54 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: 2019 2018 2017 Weighted-average interest rate 3.20 % 4.66 % 3.01 % We can issue up to $3.5 billion of unsecured, short-term promissory notes (commercial paper) pursuant to the Board of Directors (the 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 $660 million and $780 million in outstanding borrowings under our commercial paper programs at December 31, 2019 and 2018 , respectively. The weighted-average interest rate for commercial paper at December 31 was as follows: 2019 2018 2017 Weighted-average interest rate 1.82 % 2.59 % 1.56 % Revolving Credit Facilities On August 22, 2018, we entered into a new 5 - year revolving credit agreement with a syndicate of lenders and we amended the agreement on August 21, 2019. The amended credit agreement provides us with a $2 billion senior unsecured revolving credit facility until August 22, 2023. Amounts payable under our revolving credit facility will rank pro rata with all of our unsecured, unsubordinated indebtedness. Advances under the facility bear interest at (i) an alternate base rate or (ii) a rate equal to the adjusted LIBOR 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 adjusted LIBOR rate loans was 0.75 percent per annum as of December 31, 2019 . Advances under the facility may be prepaid without premium or penalty, subject to customary breakage costs. On August 21, 2019, we entered into an amended and restated 364 - day credit agreement that allows us to borrow up to $1.5 billion of unsecured funds at any time through August 18, 2020. This credit agreement amends and restates the prior $1.5 billion 364-day credit facility that matured on August 21, 2019. Both credit agreements include various covenants, including, among others, maintaining a net debt to total capital leverage ratio of no more than 0.65 to 1.0. At December 31, 2019 , we were in compliance with the covenants. These revolving credit facilities are maintained primarily to provide backup liquidity for our commercial paper borrowings and for general corporate purposes. There were no outstanding borrowings under these facilities at December 31, 2019 . We intend to maintain credit facilities of a similar aggregate amount by renewing or replacing these facilities before expiration. At December 31, 2019 , our $660 million of commercial paper outstanding effectively reduced the $3.5 billion available capacity under our revolving credit facilities to $2.84 billion . At December 31, 2019 , we also had $204 million available for borrowings under our international and other domestic credit facilities. Long-term Debt December 31, In millions Interest Rate 2019 2018 Long-term debt Senior notes, due 2023 3.65% $ 500 $ 500 Debentures, due 2027 6.75% 58 58 Debentures, due 2028 7.125% 250 250 Senior notes, due 2043 4.875% 500 500 Debentures, due 2098 (1) 5.65% 165 165 Other debt 59 64 Unamortized discount (50 ) (52 ) Fair value adjustments due to hedge on indebtedness 35 25 Finance leases 90 132 Total long-term debt 1,607 1,642 Less: Current maturities of long-term debt 31 45 Long-term debt $ 1,576 $ 1,597 ____________________________________ (1) The effective interest rate on this debt is 7.48% . Principal payments required on long-term debt during the next five years are as follows: In millions 2020 2021 2022 2023 2024 Principal payments $ 31 $ 46 $ 9 $ 506 $ 5 The $250 million 7.125% debentures and $165 million 5.65% debentures are unsecured and are not subject to any sinking fund requirements. We can redeem these 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. At December 31, 2019 , 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 13, 2019. 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. Our current shelf is scheduled to expire in February 2022. Interest Expense For the years ended December 31, 2019 , 2018 and 2017 , total interest incurred was $112 million , $116 million and $85 million , respectively, and interest capitalized was $3 million , $2 million and $4 million , respectively. Interest Rate Risk In the second half of 2019, we entered into a series of interest rate lock agreements to reduce the variability of the cash flows of the interest payments on $350 million of fixed rate debt forecast to be issued in 2023 to replace our senior notes at maturity. The terms of the rate locks mirror the time period of the expected fixed rate debt issuance and the expected timing of interest payments on that debt. The gains and losses on these derivative instruments will be initially recorded in "Other comprehensive income" and will be released to earnings in "Interest expense" in future periods to reflect the difference in (1) the fixed rates economically locked in at the inception of the hedge and (2) the actual fixed rates established in the debt instrument at issuance. The loss included in "Other comprehensive (loss) income" for the year ended December 31, 2019 , was $10 million . 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 debt is included in the Consolidated Balance Sheets as "Long-term debt." 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 the Consolidated Financial Statements as "Interest expense." A basis adjustment related to credit risk, excluded from the assessment of effectiveness, is being amortized over the life of the hedge using a straight-line method and is considered de minimis. The carrying amount of the hedged debt was $500 million . The cumulative amount of the fair value hedging adjustments to hedged liabilities included in the carrying amount of the hedged liabilities recognized on the balance sheets was a $4 million net loss. The following table summarizes the gains and losses: Years ended December 31, In millions 2019 2018 2017 Type of Swap Gain (Loss) on Swaps Gain (Loss) on Borrowings Gain (Loss) on Swaps Gain (Loss) on Borrowings Gain (Loss) on Gain (Loss) on Interest rate swaps (1) $ 16 $ (14 ) $ (8 ) $ 7 $ (7 ) $ 8 ___________________________________________________________ (1) The difference between the gain/(loss) on swaps and borrowings represents hedge ineffectiveness. The following table summarizes the interest rate lock activity in AOCL for 2019: Year ended December 31, In millions 2019 Type of Swap Gain (Loss) Gain (Loss) Reclassified from AOCL into Interest Expense Interest rate locks $ (10 ) $ — 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 2019 2018 Fair values of total debt (1) $ 2,706 $ 2,679 Carrying values of total debt 2,367 2,476 ___________________________________________ (1) The fair value of debt is derived from Level 2 inputs. |
PENSION AND OTHER POSTRETIREMEN
PENSION AND OTHER POSTRETIREMENT BENEFITS | 12 Months Ended |
Dec. 31, 2019 | |
Retirement Benefits [Abstract] | |
Pension and Other Postretirement Benefits Disclosure | NOTE 13. PENSIONS AND OTHER POSTRETIREMENT BENEFITS Pension Plans We sponsor several pension plans covering substantially all employees. Generally, pension benefits for salaried employees are determined as a function of employee’s compensation. Pension benefits for most hourly employees are determined similarly and as a function of employee’s compensation, with the exception of a small group of hourly employees whose pension benefits were grandfathered in accordance with agreements with their union representation and are based on their years of service and compensation during active employment. The level of benefits and terms of vesting may vary among plans and are offered in accordance with applicable laws. Pension plans 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 2019 2018 2019 2018 Change in benefit obligation Benefit obligation at the beginning of the year $ 2,562 $ 2,765 $ 1,550 $ 1,662 Service cost 116 120 26 29 Interest cost 108 98 43 41 Actuarial loss (gain) 296 (212 ) 232 (46 ) Benefits paid from fund (150 ) (193 ) (62 ) (62 ) Benefits paid directly by employer (16 ) (16 ) — — Plan amendment — — — 15 (1) Exchange rate changes — — 62 (89 ) Benefit obligation at end of year $ 2,916 $ 2,562 $ 1,851 $ 1,550 Change in plan assets Fair value of plan assets at beginning of year $ 2,937 $ 3,166 $ 1,782 $ 1,960 Actual return on plan assets 493 (36 ) 193 (33 ) Employer contributions 77 — 28 21 Benefits paid from fund (150 ) (193 ) (62 ) (62 ) Exchange rate changes — — 69 (104 ) Fair value of plan assets at end of year $ 3,357 $ 2,937 $ 2,010 $ 1,782 Funded status (including unfunded plans) at end of year $ 441 $ 375 $ 159 $ 232 Amounts recognized in consolidated balance sheets Pension assets $ 842 $ 697 $ 159 $ 232 Accrued compensation, benefits and retirement costs (16 ) (14 ) — — Pension and other postretirement benefits (385 ) (308 ) — — Net amount recognized $ 441 $ 375 $ 159 $ 232 Amounts recognized in accumulated other comprehensive loss Net actuarial loss $ 611 $ 635 $ 323 $ 230 Prior service cost 7 8 22 16 Net amount recognized $ 618 $ 643 $ 345 $ 246 ___________________________________________________________ (1) Guaranteed minimum pension benefits to equalize certain pension benefits between men and women per the U.K. court decision. In addition to the pension plans in the above table, we also maintain less significant defined benefit pension plans in 14 other countries outside of the U.S. and the U.K. that comprise approximately 3 percent and 5 percent of our pension plan assets and obligations , respectively, at December 31, 2019 . These plans are reflected in "Other liabilities" on our Consolidated Balance Sheets . In 2019 and 2018 , we made $15 million and $11 million of contributions to these plans, respectively. The following table presents information regarding the total accumulated benefit obligation (ABO), the ABO and fair value of plan assets for defined benefit pension plans with ABO in excess of plan assets and the PBO and fair value of plan assets for defined benefit pension plans with PBO in excess of plan assets: Qualified and Non-Qualified Pension Plans U.S. Plans U.K. Plans In millions 2019 2018 2019 2018 Total ABO $ 2,894 $ 2,544 $ 1,756 $ 1,473 Plans with ABO in excess of plan assets ABO 379 304 — — Plans with PBO in excess of plan assets PBO 401 322 — — 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 2019 2018 2017 2019 2018 2017 Service cost $ 116 $ 120 $ 107 $ 26 $ 29 $ 26 Interest cost 108 98 106 43 41 40 Expected return on plan assets (189 ) (196 ) (204 ) (70 ) (69 ) (70 ) Amortization of prior service cost 1 1 — 2 — — Recognized net actuarial loss 17 33 37 11 29 40 Net periodic pension cost $ 53 $ 56 $ 46 $ 12 $ 30 $ 36 Other changes in benefit obligations and plan assets recognized in other comprehensive loss (income) for the years ended December 31 were as follows: In millions 2019 2018 2017 Amortization of prior service cost $ (3 ) $ — $ — Recognized net actuarial loss (28 ) (62 ) (77 ) Incurred actuarial loss (gain) 101 91 (40 ) Foreign exchange translation adjustments 4 (5 ) 30 Total recognized in other comprehensive loss (income) $ 74 $ 24 $ (87 ) Total recognized in net periodic pension cost and other comprehensive loss (income) $ 139 $ 110 $ (5 ) 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 2019 2018 2019 2018 Discount rate 3.36 % 4.36 % 2.00 % 2.80 % Cash balance crediting rate 4.11 % 4.03 % — — Compensation increase rate 2.73 % 3.00 % 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 2019 2018 2017 2019 2018 2017 Discount rate 4.36 % 3.66 % 4.12 % 2.80 % 2.55 % 2.70 % Expected return on plan assets 6.25 % 6.50 % 7.25 % 4.00 % 4.00 % 4.50 % Compensation increase rate 2.73 % 3.00 % 4.87 % 3.75 % 3.75 % 3.75 % 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 6.25 percent in 2019 . Projected returns are based primarily on broad, publicly traded equity and fixed income indices and forward-looking estimates of active portfolio and investment management. We expect additional positive returns from this active investment management. Based on the historical returns and forward-looking return expectations, we have elected to maintain our assumption of 6.25 percent in 2020 . 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 5.0 % +5.0/ -5.0% Non-U.S. equities 1.0 % +3.0/ -1.0% Global equities 6.0 % +3.0/ -3.0% Total equities 12.0 % Real assets 6.0 % +4.0/ -6.0% Private equity/venture capital 6.0 % +4.0/ -6.0% Opportunistic credit 4.0 % +6.0/ -4.0% Fixed income 72.0 % +5.0/ -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 72 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 approved by the BPC. U.K. Plan Assets For the U.K. qualified pension plans, our assumption for the expected return on assets was 4.0 percent in 2019 . 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 Equities 10.0 % Private markets/secure income assets 18.0 % Credit 7.5 % Diversifying strategies 8.0 % Fixed income/insurance annuity 55.5 % Cash 1.0 % 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 55.5 percent fixed income component is structured in a way that covers approximately 80 percent of the plan's exposure to changes in its discount rate. Based on the above discussion, we have elected an assumption of 4.0 percent in 2020 . 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, 2019 In millions Quoted prices in active Significant other Significant Total Equities U.S. $ 96 $ — $ — $ 96 Non-U.S. 47 — — 47 Fixed income Government debt — 72 — 72 Corporate debt U.S. — 357 — 357 Non-U.S. — 11 — 11 Asset/mortgaged backed securities — 1 — 1 Net cash equivalents (1) 338 33 — 371 Private markets and real assets (2) — — 371 371 Net plan assets subject to leveling $ 481 $ 474 $ 371 $ 1,326 Accruals (3) 5 Investments measured at net asset value 2,026 Net plan assets $ 3,357 Fair Value Measurements at December 31, 2018 In millions Quoted prices in active Significant other Significant unobservable inputs (Level 3) Total Equities U.S. $ 77 $ — $ — $ 77 Non-U.S. 42 — — 42 Fixed income Government debt — 38 — 38 Corporate debt U.S. — 323 — 323 Non-U.S. — 15 — 15 Asset/mortgaged backed securities — 5 — 5 Net cash equivalents (1) 175 17 — 192 Private markets and real assets (2) — — 316 316 Net plan assets subject to leveling $ 294 $ 398 $ 316 $ 1,008 Pending trade/purchases/sales 9 Accruals (3) 5 Investments measured at net asset value 1,915 Net plan assets $ 2,937 ____________________________________________________ (1) Cash equivalents include commercial paper, short-term government/agency, mortgage and credit instruments. (2) The instruments in private markets and real assets, 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. Private markets include equity, venture capital and private credit instruments and funds. Real assets include real estate and infrastructure. (3) 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. Corporate Debt ( $939 million and $821 million at December 31, 2019 and 2018 , respectively) - These commingled funds have observable NAVs provided to investors and provide for liquidity either immediately or within a couple of days. • Government Debt ( $503 million and $602 million at December 31, 2019 and 2018 , 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 ( $367 million and $343 million at December 31, 2019 and 2018 , respectively) - These commingled funds have observable NAVs provided to investors and provide for liquidity either immediately or within a couple of days. • Real Estate ( $140 million and $147 million at December 31, 2019 and 2018 , 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 ( $77 million and $2 million at December 31, 2019 and 2018 , 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 Markets Real Assets Total Balance at December 31, 2017 $ 180 $ 66 $ 246 Actual return on plan assets Unrealized gains on assets still held at the reporting date 33 6 39 Purchases, sales and settlements, net 34 (3 ) 31 Balance at December 31, 2018 247 69 316 Actual return on plan assets Unrealized gains on assets still held at the reporting date 24 5 29 Purchases, sales and settlements, net 28 (2 ) 26 Balance at December 31, 2019 $ 299 $ 72 $ 371 Fair Value of U.K. Plan Assets The fair values of U.K. pension plan assets by asset category were as follows: Fair Value Measurements at December 31, 2019 In millions Quoted prices in active Significant other Significant Total Equities U.S. $ — $ 45 $ — $ 45 Non-U.S. — 58 — 58 Fixed income Net cash equivalents (1) 35 — — 35 Insurance annuity (2) — — 476 476 Private markets and real assets (3) — — 259 259 Net plan assets subject to leveling $ 35 $ 103 $ 735 $ 873 Investments measured at net asset value 1,137 Net plan assets $ 2,010 Fair Value Measurements at December 31, 2018 In millions Quoted prices in active markets for identical assets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Total Equities U.S. $ — $ 47 $ — $ 47 Non-U.S. — 61 — 61 Fixed income Net cash equivalents (1) 12 — — 12 Insurance annuity (2) — — 442 442 Private markets and real assets (3) — — 244 244 Net plan assets subject to leveling $ 12 $ 108 $ 686 $ 806 Investments measured at net asset value 976 Net plan assets $ 1,782 _____________________________________________________ (1) Cash equivalents include commercial paper, short-term government/agency, mortgage and credit instruments. (2) 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 . (3) The instruments in private markets and real assets, 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. Private markets include equity, venture capital and private credit instruments and funds. Real assets include real estate and infrastructure. 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 ( $791 million and $753 million at December 31, 2019 and 2018 , 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 ( $160 million and $100 million at December 31, 2019 and 2018 , respectively) - These commingled funds have observable NAVs provided to investors and provide for liquidity either immediately or within a couple of days. • Asset/Mortgage Backed Securities ( $96 million and $0 million at December 31, 2019 and 2018 , 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. • Diversified Strategies ( $60 million and $46 million at December 31, 2019 and 2018 , 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. • Re-insurance ( $30 million and $77 million at December 31, 2019 and 2018 , respectively) - This commingled fund has a NAV that is determined on a monthly basis and the investment may be sold at that value. The reconciliation of Level 3 assets was as follows: Fair Value Measurements In millions Insurance Annuity Real Assets Private Markets Total Balance at December 31, 2017 $ 477 $ 59 $ 135 $ 671 Actual return on plan assets Unrealized (losses) gains on assets still held at the reporting date (35 ) (2 ) 21 (16 ) Purchases, sales and settlements, net — — 31 31 Balance at December 31, 2018 442 57 187 686 Actual return on plan assets Unrealized gains on assets still held at the reporting date 34 5 14 53 Purchases, sales and settlements, net — (27 ) 23 (4 ) Balance at December 31, 2019 $ 476 $ 35 $ 224 $ 735 Level 3 Assets The investments in an insurance annuity contract, venture capital, private equity and real estate, 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 $100 million to our defined benefit pension plans in 2020 . The table below presents expected future benefit payments under our pension plans: Qualified and Non-Qualified Pension Plans In millions 2020 2021 2022 2023 2024 2025 - 2029 Expected benefit payments $ 258 $ 256 $ 263 $ 265 $ 271 $ 1,388 Other Pension Plans We also sponsor defined contribution plans for certain hourly and salaried employees. Our contributions to these plans were $102 million , $104 million and $84 million for the years ended December 31, 2019 , 2018 and 2017 . Other Postretirement Benefits Our other postretirement benefit (OPEB) 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 OPEB 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 OPEB 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 OPEB plans were as follows: December 31, In millions 2019 2018 Change in benefit obligation Benefit obligation at the beginning of the year $ 246 $ 318 Interest cost 10 11 Plan participants' contributions 14 21 Actuarial gain — (51 ) Benefits paid directly by employer (43 ) (53 ) Benefit obligation at end of year $ 227 $ 246 Funded status at end of year $ (227 ) $ (246 ) Amounts recognized in consolidated balance sheets Accrued compensation, benefits and retirement costs $ (21 ) $ (22 ) Pension and other postretirement benefits (206 ) (224 ) Net amount recognized $ (227 ) $ (246 ) Amounts recognized in accumulated other comprehensive loss: Net actuarial gain $ (25 ) $ (24 ) Prior service credit (4 ) (4 ) Net amount recognized $ (29 ) $ (28 ) In addition to the OPEB plans in the above table, we also maintain less significant OPEB plans in four other countries outside the U.S. that comprise approximately 11 percent and 9 percent of our OPEB obligations at December 31, 2019 and 2018 , respectively. These plans are reflected in "Other liabilities" in our Consolidated Balance Sheets . Components of Net Periodic OPEB Cost The following table presents the net periodic OPEB cost under our plans: Years ended December 31, In millions 2019 2018 2017 Interest cost $ 10 $ 11 $ 14 Recognized net actuarial loss — — 6 Net periodic OPEB cost $ 10 $ 11 $ 20 Other changes in benefit obligations recognized in other comprehensive (income) loss for the years ended December 31 were as follows: Years ended December 31, In millions 2019 2018 2017 Recognized net actuarial loss $ — $ — $ (6 ) Incurred actuarial gain (1 ) (51 ) (35 ) Total recognized in other comprehensive (income) loss $ (1 ) $ (51 ) $ (41 ) Total recognized in net periodic OPEB cost and other comprehensive loss (income) $ 9 $ (40 ) $ (21 ) Assumptions The table below presents assumptions used in determining the OPEB obligation for each year and reflects weighted-average percentages for our other OPEB plans as follows: 2019 2018 Discount rate 3.15 % 4.25 % The table below presents assumptions used in determining the net periodic OPEB cost and reflects weighted-average percentages for the various plans as follows: 2019 2018 2017 Discount rate 4.25 % 3.55 % 4.00 % Our consolidated OPEB obligation is determined by application of the terms of health care and life insurance plans, together with relevant actuarial assumptions and health care cost trend rates. For measurement purposes, a 7.25 percent annual rate of increase in the per capita cost of covered health care benefits was assumed in 2019 . The rate is assumed to decrease on a linear basis to 5.0 percent through 2026 and remain at that level thereafter. Estimated Benefit Payments The table below presents expected benefit payments under our OPEB plans: In millions 2020 2021 2022 2023 2024 2025 - 2029 Expected benefit payments $ 22 $ 21 $ 21 $ 19 $ 19 $ 77 |
OTHER LIABILITIES
OTHER LIABILITIES | 12 Months Ended |
Dec. 31, 2019 | |
Other Liabilities Disclosure [Abstract] | |
OTHER LIABILITIES | NOTE 14. SUPPLEMENTAL BALANCE SHEET DATA Other accrued expenses included the following: December 31, In millions 2019 2018 Other taxes payable $ 228 $ 196 Marketing accruals 176 199 Current portion of operating lease liabilities 131 — Income taxes payable 52 97 Other 452 360 Other accrued expenses $ 1,039 $ 852 Other liabilities included the following: December 31, In millions 2019 2018 Operating lease liabilities $ 370 $ — Deferred income taxes 306 263 One-time transition tax 293 293 Accrued compensation 206 173 Other long-term liabilities 204 163 Other liabilities $ 1,379 $ 892 |
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES | 12 Months Ended |
Dec. 31, 2019 | |
Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENTS AND CONTINGENCIES | NOTE 15. 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. On April 29, 2019, we announced that we were conducting a formal internal review of our emissions certification process and compliance with emission standards for our pick-up truck applications, following conversations with the EPA and CARB regarding certification of our engines in model year 2019 RAM 2500 and 3500 trucks. This review is being conducted with external advisors to ensure the certification and compliance processes for all of our pick-up truck applications are consistent with our internal policies, engineering standards and applicable laws. In addition, we voluntarily disclosed our formal internal review to our regulators and to other government agencies, the Department of Justice (DOJ) and the SEC , and have been working cooperatively with them to ensure a complete and thorough review. During conversations with the EPA and CARB about the effectiveness of our pick-up truck applications, the regulators raised concerns that certain aspects of our emissions systems may reduce the effectiveness of our emissions control systems and thereby act as defeat devices. As a result, our internal review focuses, in part, on the regulators’ concerns. We are working closely with the regulators to enhance our emissions systems to improve the effectiveness of all of our pick-up truck applications and to fully address the regulators’ requirements. Based on discussions with the regulators, we have developed a new calibration for the engines in model year 2019 RAM 2500 and 3500 trucks that has been included in all engines shipped since September 2019. During our discussions, the regulators have asked us to look at other model years and other engines, though the primary focus of our review has been the model year 2019 RAM. We are also fully cooperating with the DOJ's and the SEC's information requests and inquiries. Due to the continuing nature of our formal review, our ongoing cooperation with our regulators and other government agencies, and the presence of many unknown facts and circumstances, we cannot predict the final outcome of this review and these regulatory and agency processes, and we cannot provide assurance that the matter will not have a materially adverse impact on our results of operations and cash flows. 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, 2019, the maximum potential loss related to these guarantees was $53 million . We have arrangements with certain suppliers that require us to purchase minimum volumes or be subject to monetary penalties. At December 31, 2019, if we were to stop purchasing from each of these suppliers, the aggregate amount of the penalty would be approximately $48 million . Most of these arrangements enable us to secure supplies of critical components. We do not currently anticipate paying any penalties under these contracts. We enter into physical forward contracts with suppliers of platinum and palladium to purchase certain volumes of the commodities at contractually stated prices for various periods, which generally fall within two years . At December 31, 2019, the total commitments under these contracts were $58 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 $96 million at December 31, 2019 . Indemnifications Periodically, we enter into various contractual arrangements where we agree to indemnify a third-party against certain types of losses. Common types of indemnities include: • product liability and license, patent or trademark indemnifications; • asset sale agreements where we agree to indemnify the purchaser against future environmental exposures related to the asset sold; and • any contractual agreement where we agree to indemnify the 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. |
SHAREHOLDERS' EQUITY
SHAREHOLDERS' EQUITY | 12 Months Ended |
Dec. 31, 2019 | |
Equity [Abstract] | |
SHAREHOLDERS' EQUITY | NOTE 16. CUMMINS INC. SHAREHOLDERS' EQUITY Preferred and Preference Stock We are authorized to issue one million shares of zero par value preferred and one million shares of 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, 2019 , 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, 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 Shares acquired — 7.9 — Shares issued — (0.2 ) (0.1 ) Balance at December 31, 2018 222.4 64.4 0.4 Shares acquired — 8.1 — Shares issued — (0.8 ) (0.2 ) Balance at December 31, 2019 222.4 71.7 0.2 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, 2019 , consisting of shares issued and repurchased is presented in our Consolidated Statements of Changes in Equity . In December 2019, the Board authorized the acquisition of up to $2.0 billion of additional common stock upon completion of the 2018 repurchase plan. In October 2018, the Board authorized the acquisition of up to $2.0 billion of additional common stock upon completion of the 2016 repurchase plan. For the year ended December 31, 2019, we made the following purchases under the 2018 stock repurchase program: In millions (except per share amounts) For each quarter ended 2019 Shares Purchased Average Cost Per Share Total Cost of Repurchases Remaining Authorized Capacity (1) March 31 0.7 $ 137.80 $ 100 $ 1,806 June 30 — — — 1,806 September 29 4.6 152.57 706 1,100 December 31 2.8 167.82 465 635 Total 8.1 156.46 $ 1,271 ___________________________________________ (1) The remaining authorized capacity under these plans was calculated based on the cost to purchase the shares but excludes commission expenses in accordance with the authorized plan. In 2018, we entered into an accelerated share repurchase agreement with Goldman, Sachs & Co. LLC to repurchase $500 million of our common stock under our previously announced share repurchase plans and received 3.5 million shares at an average price of $144.02 per share. We repurchased $1,271 million , $1,140 million and $451 million of our common stock in the years ended December 31, 2019 , 2018 and 2017 , respectively. Dividends Total dividends paid to common shareholders in 2019 , 2018 and 2017 were $761 million , $718 million and $701 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 the Board, who meet quarterly to consider our dividend payment. We expect to fund dividend payments with cash from operations. In July 2019 , the Board authorized an increase to our quarterly dividend of 15.0 percent from $1.14 per share to $1.311 per share. In July 2018 , the Board authorized a 5.6 percent increase to our quarterly cash dividend on our common stock from $1.08 per share to $1.14 per share. In July 2017 , the Board approved a 5.4 percent increase to our quarterly dividend on our common stock from $1.025 per share to $1.08 per share. Cash dividends per share paid to common shareholders for the last three years were as follows: Quarterly Dividends 2019 2018 2017 First quarter $ 1.14 $ 1.08 $ 1.025 Second quarter 1.14 1.08 1.025 Third quarter 1.311 1.14 1.08 Fourth quarter 1.311 1.14 1.08 Total $ 4.90 $ 4.44 $ 4.21 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. Shares of Cummins stock and cash in the EBT may be used to fund the accounts of participants in the Cummins Retirement and Savings Plan who have elected to receive company matching funds in Cummins stock. In addition, we may direct the trustee to sell shares in the EBT on the open market and sweep cash from the EBT to fund other employee benefit plans. Matching contributions charged to income for the years ended December 31, 2019 , 2018 and 2017 were $10 million , $12 million and $17 million , respectively. |
OTHER COMPREHENSIVE INCOME (LOS
OTHER COMPREHENSIVE INCOME (LOSS) | 12 Months Ended |
Dec. 31, 2019 | |
Equity [Abstract] | |
OTHER COMPREHENSIVE INCOME (LOSS) | NOTE 17. 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 debt securities (1) Unrealized gain (loss) on derivatives Total attributable to Cummins Inc. Noncontrolling interests Total 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 (2) 62 — — 12 74 — 74 Impact of tax legislation (Note 5) (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 ) Other comprehensive income before reclassifications Before-tax amount (42 ) (333 ) 2 21 (352 ) $ (30 ) $ (382 ) Tax benefit (expense) 7 7 — (7 ) 7 — 7 After-tax amount (35 ) (326 ) 2 14 (345 ) (30 ) (375 ) Amounts reclassified from accumulated other comprehensive income (2) 53 — (3 ) (9 ) 41 1 42 Net current period other comprehensive income (loss) 18 (326 ) (1 ) 5 (304 ) $ (29 ) $ (333 ) Balance at December 31, 2018 $ (671 ) $ (1,138 ) $ — $ 2 $ (1,807 ) Other comprehensive income before reclassifications Before-tax amount (106 ) (153 ) — (12 ) (271 ) $ (5 ) $ (276 ) Tax benefit (expense) 16 6 — 5 27 — 27 After-tax amount (90 ) (147 ) — (7 ) (244 ) (5 ) (249 ) Amounts reclassified from accumulated other comprehensive income (2) 27 — — (4 ) 23 — 23 Net current period other comprehensive income (loss) (63 ) (147 ) — (11 ) (221 ) $ (5 ) $ (226 ) Balance at December 31, 2019 $ (734 ) $ (1,285 ) $ — $ (9 ) $ (2,028 ) _______________________________________________________________________ (1) Effective January 1, 2018 and forward, unrealized gains and losses, net of tax for equity securities are reported in "Other income, net" on the Consolidated Statements of Net Income instead of comprehensive income. (2) Amounts are net of tax. Reclassifications out of accumulated other comprehensive income (loss) and the related tax effects are immaterial for separate disclosure. (3) Impact of tax legislation includes a $126 million loss related to Tax Legislation offset by a $23 million favorable impact related to 2017 activity. See Note 5 , " INCOME TAXES ," to our Consolidated Financial Statements for additional information . |
NONCONTROLLING INTERESTS
NONCONTROLLING INTERESTS | 12 Months Ended |
Dec. 31, 2019 | |
Noncontrolling Interest [Abstract] | |
NONCONTROLLING INTERESTS | NOTE 18. NONCONTROLLING INTERESTS Noncontrolling interests in the equity of consolidated subsidiaries were as follows: December 31, In millions 2019 2018 Eaton Cummins Automated Transmission Technologies $ 581 $ 602 Cummins India Ltd. 302 293 Hydrogenics Corporation (1) 58 — Other 17 16 Total $ 958 $ 911 ____________________________________________________ (1) See Note 21 , " ACQUISITIONS ," for additional information. |
STOCK INCENTIVE AND STOCK OPTIO
STOCK INCENTIVE AND STOCK OPTION PLANS | 12 Months Ended |
Dec. 31, 2019 | |
Share-based Payment Arrangement [Abstract] | |
STOCK INCENTIVE AND STOCK OPTION PLANS | NOTE 19. STOCK INCENTIVE AND STOCK OPTION PLANS Our stock incentive plan (the Plan) allows for 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 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 certain measures of our operating performance. A payout factor has been established ranging from 0 to 200 percent of the target award based on our actual performance during the 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, 2019, 2018 and 2017, was approximately $48 million , $52 million and $39 million , respectively. In addition, non-employee director share-based compensation expense for the years ended December 31, 2019 , 2018 and 2017 , was approximately $1 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, 2019 , 2018 and 2017 , was $4 million , $2 million and $2 million , respectively. The total unrecognized compensation expense (net of estimated forfeitures) related to nonvested awards for our employee share-based plans was approximately $40 million at December 31, 2019 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, 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 Granted 515,320 159.06 Exercised (140,133 ) 88.74 Forfeited (32,894 ) 133.00 Balance at December 31, 2018 3,243,662 130.55 Granted 710,120 163.42 Exercised (652,980 ) 116.76 Forfeited (63,232 ) 139.86 Balance at December 31, 2019 3,237,570 $ 140.36 6.6 $ 125 Exercisable, December 31, 2017 1,063,889 $ 115.26 4.7 $ 66 Exercisable, December 31, 2018 1,366,722 $ 124.97 4.7 $ 18 Exercisable, December 31, 2019 1,665,710 $ 123.55 4.8 $ 92 The weighted-average grant date fair value of options granted during the years ended December 31, 2019 , 2018 and 2017 , was $31.04 , $34.21 and $36.86 , respectively. The total intrinsic value of options exercised during the years ended December 31, 2019 , 2018 and 2017 , was approximately $35 million , $9 million and $19 million , respectively. The weighted-average grant date fair value of performance and restricted shares was as follows: Performance Shares Restricted Shares Nonvested Shares Weighted-average Shares Weighted-average 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 Granted 124,700 146.50 — — Vested (80,996 ) 128.47 (2,696 ) 117.68 Forfeited (44,593 ) 127.90 — — Balance at December 31, 2018 410,350 126.36 5,393 117.68 Granted 185,377 141.01 — — Vested (176,613 ) 98.28 (2,696 ) 117.68 Forfeited (23,183 ) 145.26 — — Balance at December 31, 2019 395,931 $ 144.64 2,697 $ 117.68 The total vesting date fair value of performance shares vested during the years ended December 31, 2019 , 2018 and 2017 was $27 million , $13 million and $13 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, 2019 , 2018 and 2017 , 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: 2019 2018 2017 Expected life (years) 6 6 6 Risk-free interest rate 2.41 % 2.72 % 2.08 % Expected volatility 23.79 % 25.40 % 29.97 % Dividend yield 2.68 % 2.48 % 2.28 % Expected life —The expected life of employee stock options represents the weighted-average period the stock options are expected to remain outstanding based upon our historical data. Risk-free interest rate —The risk-free interest rate assumption is based upon the observed U.S. treasury security rate appropriate for the expected life of our employee stock options. Expected volatility —The expected volatility assumption is based upon the weighted-average historical daily price changes of our common stock over the most recent period equal to the expected option life of the grant, adjusted for activity which is not expected to occur in the future. Dividend yield —The dividend yield assumption is based on our history and expectation of dividend payouts. |
EARNINGS PER SHARE
EARNINGS PER SHARE | 12 Months Ended |
Dec. 31, 2019 | |
Earnings Per Share [Abstract] | |
EARNINGS PER SHARE | NOTE 20. EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC. 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 16 , " CUMMINS INC. 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, In millions, except per share amounts 2019 2018 2017 Net income attributable to Cummins Inc. $ 2,260 $ 2,141 $ 999 Weighted-average common shares outstanding Basic 155.4 162.2 166.7 Dilutive effect of stock compensation awards 0.7 0.6 0.6 Diluted 156.1 162.8 167.3 Earnings per common share attributable to Cummins Inc. Basic $ 14.54 $ 13.20 $ 5.99 Diluted 14.48 13.15 5.97 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, 2019 2018 2017 Options excluded 473,845 969,385 31,991 |
ACQUISITIONS
ACQUISITIONS | 12 Months Ended |
Dec. 31, 2019 | |
Business Combinations [Abstract] | |
Acquisitions | NOTE 21. ACQUISITIONS Acquisitions for the years ended December 31, 2019 , 2018 and 2017 were as follows: Entity Acquired (Dollars in millions) Date of Acquisition Percent Interest Acquired Payments to Former Owners Acquisition Related Debt Retirements Total Purchase Consideration (1) Goodwill Recognized Intangibles Recognized (2) Net Sales Previous Fiscal Year Ended 2019 Hydrogenics Corporation 09/09/19 81% $ 235 $ — $ 235 $ 161 $ 161 $ 34 2018 Efficient Drivetrains, Inc. 08/15/18 100% $ 51 $ 2 $ 64 (3) $ 49 $ 15 $ 3 2017 Brammo Inc. 11/01/17 100% $ 60 $ — $ 68 (3) $ 47 $ 23 $ 4 Eaton Cummins Automated Transmission Technologies 07/31/17 50% 600 (4) — 600 544 596 — ____________________________________________________ (1) All results from acquired entities (excluding Brammo Inc. in 2017) were included in segment results subsequent to the acquisition date. Newly consolidated entities were accounted for as business combinations and (excluding Brammo Inc. and Eaton Cummins Automated Transmission Technologies) were included in the New Power Segment on the date of acquisition. The Brammo Inc. acquisition was allocated to the New Power Segment on January 1, 2018. Eaton Cummins Automated Transmission Technologies was included in the Components Segment on the date of acquisition. (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 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 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. Hydrogenics Corporation On September 9, 2019, we acquired an 81 percent interest in Hydrogenics Corporation for total consideration of $235 million . The Hydrogen Company, a wholly-owned subsidiary of L’Air Liquide, S.A., will maintain a 19 percent noncontrolling interest in Hydrogenics Corporation of $56 million , based on the publicly traded share price of Hydrogenics at the acquisition date, which was representative of its fair value. We accounted for the transaction as a business combination and included it in the New Power segment in the third quarter of 2019. We assigned this business to our New Power reporting unit, which included both our electrified power and fuel cell businesses, for goodwill impairment purposes. The purchase price allocation was as follows: In millions Inventory $ 21 Other current assets 25 Intangible assets Technology assets 96 Customer relationships 29 In-process research and development 35 Other intangible assets 1 Goodwill 161 Other assets 18 Current liabilities (53 ) Other liabilities (42 ) Total business valuation 291 Less: Noncontrolling interest 56 Total purchase consideration $ 235 As of December 31, 2019 , our purchase accounting was complete. The intangible assets will be amortized over periods ranging from 3 to 20 years . As a result of our review and validation of the significant assumptions used to value the intangible assets and our validation of calculations related to deferred tax assets and liabilities, our final valuation resulted in increases from our original estimates of $2 million to technology assets and $1 million to customer relationships and decreases of $5 million to other liabilities and $5 million to goodwill. Technology assets represent the value of both the existing fuel cells and generation equipment. These assets were valued using the relief-from-royalty method, which is a combination of 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 are expected revenue, the royalty rate, the estimated remaining useful life and the discount rate. This value is considered a level 3 measurement under the GAAP fair value hierarchy. Customer relationship assets represent the value of the long-term strategic relationship the business has with its significant customers. The assets were valued using an income approach, specifically the multiperiod 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. Key assumptions are expected revenue, related expenses, the estimated remaining useful life and the discount rate. These assets are each being amortized over 15 to 20 years . Annual amortization of the intangible assets for the next five years is expected to approximate $8 million . In-process research and development assets represent acquired research and development assets that have been initiated, achieved material progress, but have not yet resulted in a technologically feasible or commercially viable project. These assets were valued using the relief-from-royalty method, as described above. These assets will not be amortized until they have been completed, but will be tested annually for impairment until that time. 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. The goodwill amount will not be deductible for tax purposes. Among the factors contributing to a purchase price resulting in the recognition of goodwill are the acquisition of engineering talent in the fuel cell space, the ability to be one of the forerunners in the development of clean fuel cell energy and the continued opportunity to expand our position as a global power leader. This business was included in our results starting in September 2019. Pro forma financial information was not provided as the historical financial statement activity of Hydrogenics Corporation is not material to our consolidated results. |
OPERATING SEGMENTS
OPERATING SEGMENTS | 12 Months Ended |
Dec. 31, 2019 | |
Segment Reporting [Abstract] | |
OPERATING SEGMENTS | NOTE 22. OPERATING SEGMENTS Operating segments under GAAP are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the Chief Operating Decision Maker (CODM), or decision-making group, in deciding how to allocate resources and in assessing performance. Our CODM is the President and Chief Operating Officer. In November 2019, we renamed our Electrified Power segment as "New Power" in order to better represent the incorporation of fuel cell and hydrogen production technologies resulting from our acquisition of Hydrogenics Corporation. The New Power segment includes our electrified power, fuel cell and hydrogen production technologies. Our reportable operating segments consist of Engine, Distribution, Components, Power Systems and New Power. This reporting structure is organized according to the products and markets each segment serves . The Engine segment produces engines (15 liters and smaller) 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, electronics, fuel systems and automated 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. The New Power segment designs, manufactures, sells and supports electrified power systems ranging from fully electric to hybrid along with innovative components and subsystems, including battery, fuel cell and hydrogen production technologies. We continue to serve all our markets as they adopt electrification and alternative power technologies, meeting the needs of our OEM partners and end customers. We use EBITDA (defined as earnings before interest expense, income taxes, noncontrolling interests, depreciation and amortization) as the primary basis for the CODM to evaluate the performance of each of our reportable operating segments. We believe EBITDA is a useful measure of our operating performance as it assists investors and debt holders in comparing our performance on a consistent basis without regard to financing methods, capital structure, income taxes or depreciation and amortization methods, which can vary significantly depending upon many factors. 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 gains (losses) of corporate owned life insurance or restructuring charges related to corporate functions to individual segments. EBITDA may not be consistent with measures used by other companies. Summarized financial information regarding our reportable operating segments at December 31, is shown in the table below: In millions Engine Distribution Components Power Systems New Power Total Segments Intersegment Eliminations (1) Total 2019 External sales $ 7,570 $ 8,040 $ 5,253 $ 2,670 $ 38 $ 23,571 $ — $ 23,571 Intersegment sales 2,486 31 1,661 1,790 — 5,968 (5,968 ) — Total sales 10,056 8,071 6,914 4,460 38 29,539 (5,968 ) 23,571 Research, development and engineering expenses 337 28 300 230 106 1,001 — 1,001 Equity, royalty and interest income from investees 200 52 40 38 — 330 — 330 Interest income 15 15 8 8 — 46 — 46 Segment EBITDA (excluding restructuring actions) 1,472 693 1,117 524 (148 ) 3,658 73 3,731 Restructuring actions (2) 18 37 20 12 1 88 31 119 Segment EBITDA 1,454 656 1,097 512 (149 ) 3,570 42 3,612 Depreciation and amortization (3) 202 115 222 118 12 669 — 669 Net assets 1,094 2,536 2,911 2,245 472 9,258 — 9,258 Investments and advances to equity investees 575 296 193 171 2 1,237 — 1,237 Capital expenditures 240 136 191 107 26 700 — 700 2018 External sales $ 8,002 $ 7,807 $ 5,331 $ 2,625 $ 6 $ 23,771 $ — $ 23,771 Intersegment sales 2,564 21 1,835 2,001 1 6,422 (6,422 ) — Total sales 10,566 7,828 7,166 4,626 7 30,193 (6,422 ) 23,771 Research, development and engineering expenses 311 20 272 230 69 902 — 902 Equity, royalty and interest income from investees 238 46 54 56 — 394 — 394 Interest income 11 13 5 6 — 35 — 35 Segment EBITDA 1,446 563 1,030 614 (90 ) 3,563 (87 ) 3,476 Depreciation and amortization (3) 190 109 185 119 6 609 — 609 Net assets 1,265 2,677 2,878 2,262 138 9,220 — 9,220 Investments and advances to equity investees 561 278 206 177 — 1,222 — 1,222 Capital expenditures 254 133 182 129 11 709 — 709 (Table continued on next page) In millions Engine Distribution Components Power Systems New Power Total Segments Intersegment Eliminations (1) 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 Research, development and engineering expenses 280 19 241 214 — 754 — 754 Equity, royalty and interest income from investees (4) 219 44 40 54 — 357 — 357 Interest income 6 6 3 3 — 18 — 18 Segment EBITDA 1,143 500 917 411 — 2,971 55 3,026 Depreciation and amortization (3) 184 116 163 117 — 580 — 580 Net assets 1,180 2,446 2,811 2,137 — 8,574 — 8,574 Investments and advances to equity investees 531 267 194 164 — 1,156 — 1,156 Capital expenditures 188 101 127 90 — 506 — 506 ____________________________________________________ (1) Includes intersegment sales, intersegment profit in inventory eliminations and unallocated corporate expenses. The year ended December 31, 2019, includes a $31 million restructuring charge related to corporate functions. There were no significant unallocated corporate expenses for the years ended December 31, 2018 and 2017 . (2) See Note 4 " RESTRUCTURING ACTIONS ," for additional information. (3) Depreciation and amortization, as shown on a segment basis, excludes the amortization of debt discount and deferred costs included in the Consolidated Statements of Net Income as "Interest expense." The amortization of debt discount and deferred costs were $3 million , $2 million and $3 million for the years ended 2019, 2018 and 2017, respectively. A portion of depreciation expense is included in "Research, development and engineering expense." (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 5 , " INCOME TAXES ," for additional information. A reconciliation of our segment information to the corresponding amounts in the Consolidated Statements of Net Income is shown in the table below: Years ended December 31, In millions 2019 2018 2017 Total EBITDA $ 3,612 $ 3,476 $ 3,026 Less: Depreciation and amortization 669 $ 609 580 Interest expense 109 $ 114 $ 81 Income before income taxes $ 2,834 $ 2,753 $ 2,365 A reconciliation of our segment net assets to the corresponding amounts in the Consolidated Balance Sheets is shown in the table below: December 31, In millions 2019 2018 2017 Net assets for operating segments $ 9,258 $ 9,220 $ 8,574 Cash, cash equivalents and marketable securities 1,470 1,525 1,567 Brammo Inc. assets — — 72 (1) Net liabilities deducted in arriving at net assets (2) 8,498 7,836 7,398 Pension and OPEB adjustments excluded from net assets 67 68 156 Deferred tax assets not allocated to segments 441 410 306 Deferred debt costs not allocated to segments 3 3 2 Total assets $ 19,737 $ 19,062 $ 18,075 ____________________________________________________ (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 21 , " ACQUISITIONS ," for additional information. (2) Liabilities deducted in arriving at net assets include certain accounts payable, accrued expenses, long-term liabilities and other items. See Note 2 , " REVENUE RECOGNITION ," for segment net sales by geographic area. 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. Long-lived segment assets by geographic area were as follows: December 31, In millions 2019 2018 2017 United States $ 3,555 $ 3,174 $ 3,157 China 893 823 795 India 616 577 563 United Kingdom 370 337 339 Netherlands 253 234 221 Mexico 175 171 136 Canada 139 114 116 Brazil 106 104 149 Other international countries 489 329 293 Total long-lived assets $ 6,596 $ 5,863 $ 5,769 Our largest customer is PACCAR Inc. Worldwide sales to this customer were $3,937 million , $3,643 million and $2,893 million for the years ended December 31, 2019, 2018 and 2017 , representing 17 percent , 15 percent and 14 percent , respectively, of our consolidated net sales. No other customer accounted for more than 10 percent of consolidated net sales. |
QUARTERLY FINANCIAL INFORMATION
QUARTERLY FINANCIAL INFORMATION DISCLOSURE (unaudited) | 12 Months Ended |
Dec. 31, 2019 | |
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 2019 Net sales $ 6,004 $ 6,221 $ 5,768 $ 5,578 Gross margin 1,532 1,641 1,494 1,313 Net income attributable to Cummins Inc. 663 675 622 300 (1) Earnings per common share attributable to Cummins Inc.—basic (2) $ 4.22 $ 4.29 $ 3.99 $ 1.98 (1) Earnings per common share attributable to Cummins Inc.—diluted (2) 4.20 4.27 3.97 1.97 (1) Cash dividends per share 1.14 1.14 1.311 1.311 Stock price per share High $ 162.34 $ 171.84 $ 175.91 $ 186.73 Low 130.03 150.48 141.14 151.15 2018 Net sales $ 5,570 $ 6,132 $ 5,943 $ 6,126 Gross margin 1,200 (3) 1,440 (3) 1,551 1,546 Net income attributable to Cummins Inc. 325 (3) 545 (3) 692 579 Earnings per common share attributable to Cummins Inc.—basic (2) (4) $ 1.97 (3) $ 3.33 (3) $ 4.29 $ 3.65 Earnings per common share attributable to Cummins Inc.—diluted (2) (4) 1.96 (3) 3.32 (3) 4.28 3.63 Cash dividends per share 1.08 1.08 1.14 1.14 Stock price per share High $ 194.18 $ 172.08 $ 151.87 $ 156.49 Low 154.58 131.58 129.90 124.40 ___________________________________________________ (1) Net income attributable to Cummins Inc. and earnings per share were negatively impacted by $119 million ( $90 million after-tax) of restructuring actions in the fourth quarter of 2019 ( $0.59 per basic share and $0.59 per diluted share). (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) Gross margin, net income attributable to Cummins Inc. and earnings per share in 2018 were negatively impacted by an Engine Campaign charge of $187 million ( $144 million after-tax) in the first quarter ( $0.87 per basic share and $0.87 per diluted share). The second quarter of 2018 was negatively impacted by an additional charge of $181 million ( $139 million after-tax) ( $0.85 per basic share and $0.85 per diluted share). (4) Net income attributable to Cummins Inc., basic and diluted earnings per share were impacted by Tax Legislation adjustments. Net income attributable to Cummins Inc. was reduced by $74 million and $8 million in the first and second quarter, respectively, while it increased in the third and fourth quarter $33 million and $10 million , respectively. Basic and diluted earnings per share were reduced by $0.45 per share and $0.05 per share in the first and second quarters, respectively, while they increased in the third and fourth quarters by $0.20 per share and $0.06 per share , respectively. At December 31, 2019 , there were approximately 3,123 holders of record of Cummins Inc.'s $2.50 par value common stock. |
SUMMARY OF SIGNIFICANT ACCOUN_2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 12 Months Ended |
Dec. 31, 2019 | |
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 or joint ventures for which we are deemed to have a controlling financial interest. Intercompany balances and transactions are eliminated in consolidation. Where our ownership interest is less than 100 percent, the noncontrolling ownership interests are reported in our Consolidated Balance Sheets . The noncontrolling ownership interest in our income, net of tax, is classified as "Net income (loss) attributable to noncontrolling interests" in our Consolidated Statements of Net 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. |
Reclassification | Reclassifications Certain amounts for 2018 and 2017 have been reclassified to conform to the current year presentation. |
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. Dividends received from equity method investees reduce the amount of our investment when received and do not impact our earnings. 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 Net 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 Net Income . Our remaining U.S. equity investees are partnerships (non-taxable), thus there is no difference between gross or net of tax presentation as the investees are not taxed. See Note 3 , " INVESTMENTS IN EQUITY INVESTEES ," for additional information. |
Use of Estimates in the Preparation of the Financial Statements | Use of Estimates in the Preparation of the Financial Statements Preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts presented and disclosed in our Consolidated Financial Statements . Significant estimates and assumptions in these Consolidated Financial Statements require the exercise of judgement and are used for, but not limited to, 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 pensions and other postretirement benefit costs, restructuring costs, income taxes and deferred tax valuation allowances 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 On January 1, 2018, we adopted the new revenue recognition standard in accordance with GAAP on a modified retrospective basis. |
Revenue Recognition, Sales of Goods | Revenue Recognition Sales of Products We sell to customers either through long-term arrangements or standalone purchase orders. Our long-term arrangements generally do not include committed volumes until underlying purchase orders are issued. Our performance obligations vary by contract, but may include diesel and natural gas engines and engine-related component products, including filtration, aftertreatment, turbochargers, fuel systems, controls systems, air handling systems, transmissions, power generation systems and construction related projects, batteries, electrified power systems, hydrogen systems, fuel cells, parts, maintenance services and extended warranty coverage. Typically, we recognize revenue on the products we sell at a point in time, generally in accordance with shipping terms, which reflects the transfer of control to the customer. Since control of construction projects transfer to the customer as the work is performed, revenue on these projects is recognized based on the percentage of inputs incurred to date compared to the total expected cost of inputs, which is reflective of the value transferred to the customer. Revenue is recognized under long-term maintenance and other service agreements over the term of the agreement as underlying services are performed based on the percentage of the cost of services provided to date compared to the total expected cost of services to be provided under the contract. Sales of extended coverage are recognized based on the pattern of expected costs over the extended coverage period or, if such a pattern is unknown, on a straight-line basis over the coverage period as the customer is considered to benefit from our stand ready obligation over the coverage period. In all cases, we believe cost incurred is the most representative depiction of the extent of service performed to date on a particular contract. Our arrangements may include the act of shipping products to our customers after the performance obligation related to that product has been satisfied. We have elected to account for shipping and handling as activities to fulfill the promise to transfer goods and have not allocated revenue to the shipping activity. All related shipping and handling costs are accrued at the time the related performance obligation has been satisfied. Our sales arrangements may include the collection of sales and other similar taxes that are then remitted to the related taxing authority. We have elected to present the amounts collected for these taxes net of the related tax expense rather than presenting them as additional revenue. We grant credit limits and terms to customers based upon traditional practices and competitive conditions. Typical terms vary by market, but payments are generally due in 90 days or less from invoicing for most of our product and service sales, while payments on construction and other similar arrangements may be due on an installment basis. For contracts where the time between cash collection and performance is less than one year, we have elected to use the practical expedient that allows us to ignore the possible existence of a significant financing component within the contract. For contracts where this time period exceeds one year, generally the timing difference is the result of business concerns other than financing. We do have a limited amount of customer financing for which we charge or impute interest, but such amounts are immaterial to our Consolidated Statements of Net Income |
Revenue Recognition, Incentives | Sales Incentives We provide various sales incentives to both our distribution network and OEM customers. These programs are designed to promote the sale of our products in the channel or encourage the usage of our products by OEM customers. When there is uncertainty surrounding these sales incentives, we may limit the amount of revenue we recognize under a contract until the uncertainty has been resolved. 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 consider the expected amount of these rebates at the time of the original sale as we determine the overall transaction price. We update our assessment of the amount of rebates that will be earned 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 we assess them at least quarterly to determine our current estimates of amounts expected to be earned. These estimates are considered in the determination of transaction price 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. At the time of the sales, we consider the expected amount of these rebates when determining the overall transaction price. Estimates are adjusted at the end of each quarter based on the amounts yet to be paid. These estimates are based on historical experience with the particular program. |
Revenue Recognition, Sales Returns | Sales Returns The initial determination of the transaction price may also be impacted by expected product returns. Rights of return do not exist for the majority of our sales other than for quality issues. We do offer certain return rights in our aftermarket business, where some aftermarket customers are permitted to return small amounts of parts and filters each year, and in our power generation business, which sells portable generators to retail customers. An estimate of future returns is accounted for at the time of sale as a reduction in the overall contract transaction price based on historical return rates. |
Revenue Recognition, Multiple-deliverable Arrangements, Determination of selling Price, Amount | Multiple Performance Obligations Our sales arrangements may include multiple performance obligations. We identify each of the material performance obligations in these arrangements and allocate the total transaction price to each performance obligation based on its relative selling price. In most cases, the individual performance obligations are also sold separately and we use that price as the basis for allocating revenue to the included performance obligations. When an arrangement includes multiple performance obligations and invoicing to the customer does not match the allocated portion of the transaction price, unbilled revenue or deferred revenue is recorded reflecting that difference. Unbilled and deferred revenue are discussed in more detail below. |
Revenue Recognition, Long-term Contracts | Long-term Contracts Our long-term maintenance agreements often include a variable component of the transaction price. We are generally compensated under such arrangements on a cost per hour of usage basis. We typically can estimate the expected usage over the life of the contract, but reassess the transaction price each quarter and adjust our recognized revenue accordingly. Certain maintenance agreements apply to generators used to provide standby power, which have limited expectations of usage. These agreements may include monthly minimum payments, providing some certainty to the total transaction price. For these particular contracts that relate to standby power, we limit revenue recognized to date to an amount representing the total minimums earned to date under the contract plus any cumulative billings earned in excess of the minimums. We reassess the estimates of progress and transaction price on a quarterly basis. For prime power arrangements, revenue is not subject to such a constraint and is generally equal to the current estimate on a percentage of completion basis times the total expected revenue under the contract. |
Revenue Recognition, Deferred Revenue | The timing of our billing does not always match the timing of our revenue recognition. We record deferred revenue when we are entitled to bill a customer in advance of when we are permitted to recognize revenue. Deferred revenue may arise in construction contracts, where billings may occur in advance of performance or in accordance with specific milestones. Deferred revenue may also occur in long-term maintenance contracts, where billings are often based on usage of the underlying equipment, which generally follows a predictable pattern that often will result in the accumulation of collections in advance of our performance of the related maintenance services. Finally, deferred revenue exists in our extended coverage contracts, where the cash is collected prior to the commencement of the coverage period. Deferred revenue is included in our Consolidated Balance Sheets as a component of current liabilities for the amount expected to be recognized in revenue in a period of less than one year and long-term liabilities for the amount expected to be recognized as revenue in a period beyond one year. Deferred revenue is recognized as revenue when control of the underlying product, project or service passes to the customer under the related contract. |
Revenue Recognition, Unbilled Revenue | Unbilled Revenue We recognize unbilled revenue when the revenue has been earned, but not yet billed. Unbilled revenue is included in our Consolidated Balance Sheets as a component of current assets for those expected to be collected in a period of less than one year and long-term assets for those expected to be collected in a period beyond one year. Unbilled revenue relates to our right to consideration for our completed performance under a contract. Unbilled revenue generally arises from contractual provisions that delay a portion of the billings on genset deliveries until commissioning occurs. Unbilled revenue may also occur when billings trail the provision of service in construction and long-term maintenance contracts. We periodically assess our unbilled revenue for impairment. We did not record any impairment losses on our unbilled revenues during 2019 . |
Revenue Recognition Precontract Costs | Contract Costs We are required to record an asset for the incremental costs of obtaining a contract with a customer and other costs to fulfill a contract not otherwise required to be immediately expensed when we expect to recover those costs. The only material incremental cost we incur is commission expense, which is generally incurred in the same period as the underlying revenue. Costs to fulfill a contract are generally limited to customer-specific engineering expenses that do not meet the definition of research and development expenses. As a practical expedient, we have elected to recognize these costs of obtaining a contract as an expense when the related contract period is less than one year. When the period exceeds one year, this asset is amortized over the life of the contract. We did not have any material capitalized balances at December 31, 2019 . |
Revenue Recognition, Extended Warranty | Extended Warranty We sell extended warranty coverage on most of our engines and on certain components. We consider a warranty to be extended coverage in any of the following situations: • When a warranty is sold separately or is optional (extended coverage contracts, for example) or • When a warranty provides additional services. The consideration 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. |
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 month-end exchange rates. We translate income and expenses to U.S. dollars using weighted-average exchange rates. 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 amounts using historical exchange rates. We include in income the resulting gains and losses, including the effect of derivatives in our Consolidated Statements of Net Income , which combined with transaction gains and losses amounted to a net gain of $28 million and a net loss of $34 million and $6 million for the years ended December 31, 2019 , 2018 and 2017 , respectively. |
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 swap and physical forward contracts, commodity zero-cost collars and interest rate swaps. These contracts are used strictly for hedging and not for speculative purposes. We are exposed to market risk from fluctuations in interest rates. We manage our exposure to interest rate fluctuations through the use of interest rate swaps. The objective of the swaps is to more effectively balance our borrowing costs and interest rate risk. The gain or loss on these derivative instruments as well as the offsetting gain or loss on the hedged item are recognized in current income as "Interest expense." For more detail on our interest rate swaps, see Note 11 , " 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 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. At December 31, 2019 and 2018 , realized and unrealized gains and losses related to these hedges were not material to our financial statements. 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 swap, forward 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. Commencing in 2019 , these commodity swaps are designated and qualify as cash flow hedges under GAAP. At December 31, 2019, realized and unrealized gains and losses related to these hedges were not material to our financial statements. The physical forward contracts qualify for the normal purchases scope exceptions and are treated as purchase commitments. Additional information on the physical forwards is included in Note 15 , " COMMITMENTS AND CONTINGENCIES ." The commodity zero-cost collar contracts that represent an economic hedge, but are not designated for hedge accounting, are marked to market through earnings. We record all derivatives at fair value in our financial statements. Cash flows related to derivatives that are designated as hedges are included in the Cash Flows From Operating Activities, while cash flows related to derivatives, that are not designated as hedges, are included in Cash Flows From Investing Activities in our Consolidated Statements of Cash Flows . Substantially all of our derivative contracts are subject to master netting arrangements, which provide us with the option to settle certain contracts on a net basis when they settle on the same day with the same currency. In addition, these arrangements provide for a net settlement of all contracts with a given counterparty in the event that the arrangement is terminated due to the occurrence of default or a termination event. When material, we adjust the value of our derivative contracts for counter-party or our credit risk. None of our derivative instruments are subject to collateral requirements. |
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 basis. 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 5 , " INCOME TAXES ." |
Cash and Cash Equivalents | Cash and Cash Equivalents Cash equivalents are defined as short-term, highly liquid investments with an original maturity of 90 days or less at the time of purchase. The carrying amounts reflected in our Consolidated Balance Sheets for cash and cash equivalents approximate fair value due to the short-term maturity of these investments. Years ended December 31, In millions 2019 2018 2017 Cash payments for income taxes, net of refunds $ 691 $ 699 $ 622 Cash payments for interest, net of capitalized interest 109 114 82 |
Marketable Securities | Marketable Securities We account for marketable securities in accordance with GAAP for investments in debt and equity securities. Debt securities are classified as "held-to-maturity," "available-for-sale" or "trading". We determine the appropriate classification of debt securities at the time of purchase and re-evaluate such classifications at each balance sheet date. At December 31, 2019 and 2018 , all of our debt securities were classified as available-for-sale. Debt and equity securities are carried at fair value with the unrealized gain or loss, net of tax, reported in other comprehensive income and other income, respectively. For debt securities, unrealized losses considered to be "other-than-temporary" are recognized currently in other 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 6 , " MARKETABLE SECURITIES ," for a detailed description of our investments in marketable securities. |
Accounts Receivable and Allowance for Doubtful Accounts | Accounts Receivable and Allowance for Doubtful Accounts Trade accounts receivable represent amounts billed to customers and not yet collected or amounts that have been earned, but may not be billed until the passage of time, and are recorded when the right to consideration becomes unconditional. 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 were $19 million and $15 million at December 31, 2019, and 2018 , respectively, and bad debt write-offs were not material. |
Inventories | Inventories Our inventories are stated at the lower of cost or market. For the years ended December 31, 2019 and 2018 , approximately 14 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 7 , " INVENTORIES ," for additional information. |
Property, Plant and Equipment | Property, Plant and Equipment We record property, plant and equipment at cost, inclusive of assets under capital leases in 2018 and finance lease assets starting in 2019, with the adoption of the new lease standard. 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 in 2018 and finance lease asset amortization starting in 2019 are recorded in depreciation expense. We expense normal maintenance and repair costs as incurred. Depreciation expense totaled $494 million , $455 million and $467 million for the years ended December 31, 2019 , 2018 and 2017 , respectively. See RECENTLY ADOPTED AND RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS sections below and Note 9 , " LEASES ," for additional information. |
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. |
Lessee, Leases | Lease Policies We determine if an arrangement contains a lease in whole or in part at the inception of the contract. Right-of-use (ROU) assets represent our right to use an underlying asset for the lease term while lease liabilities represent our obligation to make lease payments arising from the lease. All leases greater than 12 months result in the recognition of a ROU asset and a liability at the lease commencement date based on the present value of the lease payments over the lease term. As most of our leases do not provide the information required to determine the implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. This rate is determined considering factors such as the lease term, our credit standing and the economic environment of the location of the lease. We use the implicit rate when readily determinable. Our lease terms include all non-cancelable periods and may include options to extend (or to not terminate) the lease when it is reasonably certain that we will exercise that option. Leases that have a term of 12 months or less at the commencement date are expensed on a straight-line basis over the lease term and do not result in the recognition of an asset or a liability. Lease expense for operating leases is recognized on a straight-line basis over the lease term. Lease expense for finance leases are generally front-loaded as the finance lease ROU asset is depreciated on a straight-line basis, but interest expense on the liability is recognized utilizing the interest method that results in more expense during the early years of the lease. We have lease agreements with lease and non-lease components, primarily related to real estate, vehicle and information technology (IT) assets. For vehicle and real estate leases, we account for the lease and non-lease components as a single lease component. For IT leases, we allocate the payment between the lease and non-lease components based on the relative value of each component. See Note 9 , " LEASES ," for additional information. |
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 quantitative goodwill impairment test. We have elected this option on certain reporting units. The quantitative impairment test is 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. We perform our annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. When we are required or opt to perform the quantitative 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 three 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 three situations are described further below: • Within our Components segment, our emission solutions and filtration businesses have been aggregated into a single reporting unit, • Within our New Power segment, our electrified power and fuel cell businesses have been aggregated into a single reporting unit and • 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. The discounted cash flow model requires us to make projections of revenue, gross margin, 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, the difference is recorded as a goodwill impairment loss. 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 perform the required procedures as of the end of our fiscal third quarter. While none of our reporting units recorded a goodwill impairment in 2019, we determined the automated transmission business is our only reporting unit with material goodwill where the estimated fair value does not substantially exceed the carrying value. The estimated fair value of the reporting unit exceeds its carrying amount of $1.2 billion by approximately 34 percent . Total goodwill in this reporting unit is $544 million . This reporting unit is made up of only one business, our joint venture with Eaton (Eaton Cummins Automated Transmission Technologies), which was acquired and recorded at fair value in the third quarter of 2017. As a result, we did not expect the estimated fair value would exceed the carrying value by a significant amount. At December 31, 2019 , our recorded goodwill was $1,286 million , approximately 42 percent of which resided in the automated transmissions reporting unit, 30 percent in the aggregated emission solutions and filtration reporting unit, 20 percent in the new power reporting unit and 6 percent in the distribution reporting unit. 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 10 , " GOODWILL AND OTHER INTANGIBLE ASSETS ," for additional information. |
Other Intangible Assets | 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 10 , " GOODWILL AND OTHER INTANGIBLE ASSETS ," for additional information. |
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 10 , " GOODWILL AND OTHER INTANGIBLE ASSETS ," for additional information. |
Warranty | Warranty We estimate and record a liability for base warranty programs at the time our products are sold. Our estimates are based on historical experience and reflect management's best estimates of expected costs at the time products are sold and subsequent adjustment to those expected costs when actual costs differ. Factors considered in developing these estimates included component failure rates, repair costs and the point of failure within the product life cycle. As a result of the uncertainty surrounding the nature and frequency of product campaigns, the liability for such campaigns 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 campaigns 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 product campaigns, 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. See Extended Warranty policy discussion above and Note 12 , " PRODUCT WARRANTY LIABILITY ," for additional information. |
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. When not associated with a sales contract, 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 $998 million , $894 million and $734 million for the years ended December 31, 2019, 2018 and 2017 , respectively. Contract reimbursements were $90 million , $120 million and $137 million for the years ended December 31, 2019, 2018 and 2017 , respectively. |
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 Net Income . Our related party purchases were not material to our financial position or results of operations. |
SUMMARY OF SIGNIFICANT ACCOUN_3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
New Accounting Pronouncements and Changes in Accounting Principles [Abstract] | |
Schedule of Cash Flow, Supplemental Disclosures | 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 2019 2018 2017 Cash payments for income taxes, net of refunds $ 691 $ 699 $ 622 Cash payments for interest, net of capitalized interest 109 114 82 |
REVENUE RECOGNITION LONG-TERM_2
REVENUE RECOGNITION LONG-TERM CONTRACTS AND DEFERRED AND UNBILLED REVENUE REVENUE RECOGNITION LONG-TERM CONTRAACTS AND DEFERRED AND UNBILLED REVENUE (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Revenue from Contract with Customer [Abstract] | |
Contract with Customer, Asset and Liability | The following is a summary of our unbilled and deferred revenue and related activity: Years ended December 31, In millions 2019 2018 Unbilled revenue $ 68 $ 64 Deferred revenue, primarily extended warranty 1,354 1,156 |
REVENUE RECOGNITION DISAGGREG_2
REVENUE RECOGNITION DISAGGREGATION OF REVENUES REVENUE RECOGNITION DISAGGREGATION OF REVENUES (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Disaggregation of Revenue [Line Items] | |
Revenue from External Customers by Geographic Areas | The table below presents our consolidated sales by geographic area. Net sales attributed to geographic areas were based on the location of the customer. Years ended December 31, In millions 2019 2018 2017 United States $ 13,519 $ 13,218 $ 11,010 China 2,331 2,324 2,137 India 848 965 805 Other international 6,873 7,264 6,476 Total net sales $ 23,571 $ 23,771 $ 20,428 |
Engine | |
Disaggregation of Revenue [Line Items] | |
Revenue from External Customers by Market | Engine segment external sales by market were as follows: Years ended December 31, In millions 2019 2018 Heavy-duty truck $ 2,626 $ 2,885 Medium-duty truck and bus 2,244 2,536 Light-duty automotive 1,656 1,501 Total on-highway 6,526 6,922 Off-highway 1,044 1,080 Total sales $ 7,570 $ 8,002 |
Distribution | |
Disaggregation of Revenue [Line Items] | |
Revenue from External Customers by Geographic Areas | Distribution segment external sales by region were as follows: Years ended December 31, In millions 2019 2018 North America $ 5,513 $ 5,331 Asia Pacific 875 851 Europe 528 536 China 356 317 Africa and Middle East 235 242 India 200 192 Latin America 176 169 Russia 157 169 Total sales $ 8,040 $ 7,807 |
Revenue from External Customers by Products and Services | Distribution segment external sales by product line were as follows: Years ended December 31, In millions 2019 2018 Parts $ 3,278 $ 3,222 Power generation 1,777 1,482 Engines 1,511 1,632 Service 1,474 1,471 Total sales $ 8,040 $ 7,807 |
Components | |
Disaggregation of Revenue [Line Items] | |
Revenue from External Customers by Products and Services | Components segment external sales by business were as follows: Years ended December 31, In millions 2019 2018 Emission solutions $ 2,763 $ 2,780 Filtration 1,024 1,010 Turbo technologies 696 761 Automated transmissions 534 543 Electronics and fuel systems 236 237 Total sales $ 5,253 $ 5,331 |
Power Systems | |
Disaggregation of Revenue [Line Items] | |
Revenue from External Customers by Products and Services | Power Systems segment external sales by product line were as follows: Years ended December 31, In millions 2019 2018 Power generation $ 1,414 $ 1,467 Industrial 908 801 Generator technologies 348 357 Total sales $ 2,670 $ 2,625 |
INVESTMENTS IN EQUITY INVESTE_2
INVESTMENTS IN EQUITY INVESTEES (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
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 percentages were as follows: December 31, Dollars in millions Ownership % 2019 2018 Komatsu alliances 20-50% $ 267 $ 238 Beijing Foton Cummins Engine Co., Ltd. 50% 193 203 Dongfeng Cummins Engine Company, Ltd. 50% 149 160 Chongqing Cummins Engine Company, Ltd. 50% 110 102 Cummins-Scania XPI Manufacturing, LLC 50% 96 101 Tata Cummins, Ltd. 50% 60 58 Other Various 362 360 Investments and advances related to equity method investees $ 1,237 $ 1,222 |
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 2019 2018 2017 Manufacturing entities Beijing Foton Cummins Engine Co., Ltd. $ 60 $ 72 $ 94 Dongfeng Cummins Engine Company, Ltd. 52 58 73 Chongqing Cummins Engine Company, Ltd. 41 51 41 All other manufacturers 88 129 71 (1) Distribution entities Komatsu Cummins Chile, Ltda. 28 26 30 All other distributors 2 — (1 ) Cummins share of net income 271 336 308 Royalty and interest income 59 58 49 Equity, royalty and interest income from investees $ 330 $ 394 $ 357 ___________________________________________________________ (1) Tax legislation passed in December 2017 decreased our equity earnings at certain equity investees by $39 million due to withholding tax adjustments on foreign earnings and remeasurement of deferred taxes. See Note 5 , " INCOME TAXES ," to our Consolidated Financial Statements for additional information . |
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 2019 2018 2017 Net sales $ 7,068 $ 7,352 $ 7,050 Gross margin 1,274 1,373 1,422 Net income 566 647 680 Cummins share of net income $ 271 $ 336 $ 308 Royalty and interest income 59 58 49 Total equity, royalty and interest from investees $ 330 $ 394 $ 357 Current assets $ 3,282 $ 3,401 Non-current assets 1,622 1,449 Current liabilities (2,654 ) (2,669 ) Non-current liabilities (326 ) (218 ) Net assets $ 1,924 $ 1,963 Cummins share of net assets $ 1,159 $ 1,144 |
RESTRUCTURING AND OTHER CHARG_2
RESTRUCTURING AND OTHER CHARGES RESTRUCTURING AND OTHER CHARGES (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Restructuring and Related Activities [Abstract] | |
Schedule of Segment Reporting Information, by Segment [Table Text Block] | Restructuring actions were included in our segment and non-segment operating results as follows: In millions Years ended December 31, 2019 Engine $ 18 Distribution 37 Components 20 Power Systems 12 New Power 1 Non-segment 31 Restructuring actions $ 119 Summarized financial information regarding our reportable operating segments at December 31, is shown in the table below: In millions Engine Distribution Components Power Systems New Power Total Segments Intersegment Eliminations (1) Total 2019 External sales $ 7,570 $ 8,040 $ 5,253 $ 2,670 $ 38 $ 23,571 $ — $ 23,571 Intersegment sales 2,486 31 1,661 1,790 — 5,968 (5,968 ) — Total sales 10,056 8,071 6,914 4,460 38 29,539 (5,968 ) 23,571 Research, development and engineering expenses 337 28 300 230 106 1,001 — 1,001 Equity, royalty and interest income from investees 200 52 40 38 — 330 — 330 Interest income 15 15 8 8 — 46 — 46 Segment EBITDA (excluding restructuring actions) 1,472 693 1,117 524 (148 ) 3,658 73 3,731 Restructuring actions (2) 18 37 20 12 1 88 31 119 Segment EBITDA 1,454 656 1,097 512 (149 ) 3,570 42 3,612 Depreciation and amortization (3) 202 115 222 118 12 669 — 669 Net assets 1,094 2,536 2,911 2,245 472 9,258 — 9,258 Investments and advances to equity investees 575 296 193 171 2 1,237 — 1,237 Capital expenditures 240 136 191 107 26 700 — 700 2018 External sales $ 8,002 $ 7,807 $ 5,331 $ 2,625 $ 6 $ 23,771 $ — $ 23,771 Intersegment sales 2,564 21 1,835 2,001 1 6,422 (6,422 ) — Total sales 10,566 7,828 7,166 4,626 7 30,193 (6,422 ) 23,771 Research, development and engineering expenses 311 20 272 230 69 902 — 902 Equity, royalty and interest income from investees 238 46 54 56 — 394 — 394 Interest income 11 13 5 6 — 35 — 35 Segment EBITDA 1,446 563 1,030 614 (90 ) 3,563 (87 ) 3,476 Depreciation and amortization (3) 190 109 185 119 6 609 — 609 Net assets 1,265 2,677 2,878 2,262 138 9,220 — 9,220 Investments and advances to equity investees 561 278 206 177 — 1,222 — 1,222 Capital expenditures 254 133 182 129 11 709 — 709 (Table continued on next page) In millions Engine Distribution Components Power Systems New Power Total Segments Intersegment Eliminations (1) 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 Research, development and engineering expenses 280 19 241 214 — 754 — 754 Equity, royalty and interest income from investees (4) 219 44 40 54 — 357 — 357 Interest income 6 6 3 3 — 18 — 18 Segment EBITDA 1,143 500 917 411 — 2,971 55 3,026 Depreciation and amortization (3) 184 116 163 117 — 580 — 580 Net assets 1,180 2,446 2,811 2,137 — 8,574 — 8,574 Investments and advances to equity investees 531 267 194 164 — 1,156 — 1,156 Capital expenditures 188 101 127 90 — 506 — 506 ____________________________________________________ (1) Includes intersegment sales, intersegment profit in inventory eliminations and unallocated corporate expenses. The year ended December 31, 2019, includes a $31 million restructuring charge related to corporate functions. There were no significant unallocated corporate expenses for the years ended December 31, 2018 and 2017 . (2) See Note 4 " RESTRUCTURING ACTIONS ," for additional information. (3) Depreciation and amortization, as shown on a segment basis, excludes the amortization of debt discount and deferred costs included in the Consolidated Statements of Net Income as "Interest expense." The amortization of debt discount and deferred costs were $3 million , $2 million and $3 million for the years ended 2019, 2018 and 2017, respectively. A portion of depreciation expense is included in "Research, development and engineering expense." (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 5 , " INCOME TAXES ," for additional information. |
Schedule of Restructuring and Related Costs Accrual Rollforward [Table Text Block] | The table below summarizes the activity and balance of accrued restructuring, which is included in "Other accrued expenses" in our Consolidated Balance Sheets : In millions Restructuring Accrual Workforce reductions $ 119 Cash payments (4 ) Foreign currency loss 1 Balance at December 31, 2019 $ 116 |
INCOME TAXES (Tables)
INCOME TAXES (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Income Tax Disclosure [Abstract] | |
Schedule of Income before Income Tax, Domestic and Foreign | The following table summarizes income before income taxes: Years ended December 31, In millions 2019 2018 2017 U.S. income $ 1,677 $ 1,239 $ 1,237 Foreign income 1,157 1,514 1,128 Income before income taxes $ 2,834 $ 2,753 $ 2,365 |
Schedule of Components of Income Tax Expense (Benefit) | The adjustments for income tax expense (benefit) during the one-year Tax Legislation measurement period for each group and other Tax Legislation adjustments consisted of the following: Years Ended December 31, In millions 2018 2017 Total Impact One-year measurement adjustments to 2017 estimates Withholding tax accrued $ (148 ) $ 331 $ 183 Deferred tax balances 7 152 159 One-time transition tax 111 298 409 Net impact of measurement period changes (30 ) 781 751 Other 2018 adjustments Deferred tax charges (1) 35 — 35 Foreign currency adjustment related to Tax Legislation 7 — 7 Net impact of 2018 adjustments 42 — 42 Total Tax Legislation impact $ 12 $ 781 $ 793 ____________________________________________________ (1) Income tax expense (benefit) consists of the following: Years ended December 31, In millions 2019 2018 2017 Current U.S. federal and state $ 288 $ 303 $ 355 Foreign 282 348 289 Impact of tax legislation — 153 349 Total current income tax expense 570 804 993 Deferred U.S. federal and state (32 ) (71 ) (42 ) Foreign 28 (26 ) (12 ) Impact of tax legislation — (141 ) 432 Total deferred income tax (benefit) expense (4 ) (238 ) 378 Income tax expense $ 566 $ 566 $ 1,371 |
Schedule of Effective Income Tax Rate Reconciliation | A reconciliation of the statutory U.S. federal income tax rate to the effective tax rate was as follows: Years ended December 31, 2019 2018 2017 Statutory U.S. federal income tax rate 21.0 % 21.0 % 35.0 % State income tax, net of federal effect 1.1 0.9 0.6 Differences in rates and taxability of foreign subsidiaries and joint ventures 1.5 (0.2 ) (6.4 ) Research tax credits (1.5 ) (1.2 ) (1.4 ) Foreign derived intangible income (1.3 ) (1.3 ) — Impact of tax legislation — 0.5 33.1 Other, net (0.8 ) 0.9 (2.9 ) Effective tax rate 20.0 % 20.6 % 58.0 % |
Schedule of Deferred Tax Assets and Liabilities | 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 2019 2018 Deferred tax assets U.S. state carryforward benefits $ 207 $ 191 Foreign carryforward benefits 157 149 Employee benefit plans 279 245 Warranty expenses 427 401 Lease liabilities 122 — Accrued expenses 76 94 Other 44 65 Gross deferred tax assets 1,312 1,145 Valuation allowance (317 ) (327 ) Total deferred tax assets 995 818 Deferred tax liabilities Property, plant and equipment (260 ) (255 ) Unremitted income of foreign subsidiaries and joint ventures (181 ) (184 ) Employee benefit plans (222 ) (202 ) Lease assets (120 ) — Other (77 ) (30 ) Total deferred tax liabilities (860 ) (671 ) Net deferred tax assets $ 135 $ 147 |
Tax Related Line Items on the Consolidated Balance Sheets | Our Consolidated Balance Sheets contain the following tax related items: December 31, In millions 2019 2018 Prepaid expenses and other current assets Refundable income taxes $ 191 $ 117 Other assets Deferred income tax assets 441 410 Long-term refundable income taxes 23 6 Other accrued expenses Income tax payable 52 97 Other liabilities One-time transition tax 293 293 Deferred income tax liabilities 306 263 |
Schedule of Unrecognized Tax Benefits Roll Forward | A reconciliation of unrecognized tax benefits for the years ended December 31, 2019, 2018 and 2017 was as follows: December 31, In millions 2019 2018 2017 Balance at beginning of year $ 71 $ 41 $ 59 Additions to current year tax positions 23 10 11 Additions to prior years' tax positions 5 27 9 Reductions to prior years' tax positions (11 ) (2 ) (3 ) Reductions for tax positions due to settlements with taxing authorities (11 ) (5 ) (35 ) Balance at end of year $ 77 $ 71 $ 41 |
MARKETABLE SECURITIES (Tables)
MARKETABLE SECURITIES (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Marketable Securities [Abstract] | |
Summary of marketable securities | A summary of marketable securities, all of which are classified as current, was as follows: December 31, 2019 2018 In millions Cost Gross unrealized gains/(losses) (1) Estimated Cost Gross unrealized gains/(losses) (1) Estimated Equity securities Debt mutual funds $ 180 $ 3 $ 183 $ 103 $ 1 $ 104 Certificates of deposit 133 — 133 101 — 101 Equity mutual funds 19 4 23 16 — 16 Bank debentures 1 — 1 — — — Debt securities 1 — 1 1 — 1 Total marketable securities $ 334 $ 7 $ 341 $ 221 $ 1 $ 222 ______________________________________________________ (1) |
Schedule of proceeds from sales and maturities of marketable securities | The proceeds from sales and maturities of marketable securities were as follows: Years ended December 31, In millions 2019 2018 2017 Proceeds from sales of marketable securities $ 258 $ 253 $ 145 Proceeds from maturities of marketable securities 131 78 121 Investments in marketable securities - liquidations $ 389 $ 331 $ 266 |
INVENTORIES (Tables)
INVENTORIES (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Inventory Disclosure [Abstract] | |
Inventories | Inventories included the following: December 31, In millions 2019 2018 Finished products $ 2,214 $ 2,405 Work-in-process and raw materials 1,395 1,487 Inventories at FIFO cost 3,609 3,892 Excess of FIFO over LIFO (123 ) (133 ) Total inventories $ 3,486 $ 3,759 |
PROPERTY, PLANT AND EQUIPMENT (
PROPERTY, PLANT AND EQUIPMENT (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
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 2019 2018 Land and buildings $ 2,487 $ 2,398 Machinery, equipment and fixtures 5,618 5,391 Construction in process 594 530 Property, plant and equipment, gross 8,699 8,319 Less: Accumulated depreciation (4,454 ) (4,223 ) Property, plant and equipment, net $ 4,245 $ 4,096 |
LEASES FOOTNOTE DISCLOSURE LE_2
LEASES FOOTNOTE DISCLOSURE LEASES FOOTNOTE DISCLOSURE (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Leases [Abstract] | |
Lease, Cost | The components of our lease cost were as follows: In millions Year Ended Operating lease cost $ 208 Finance lease cost Amortization of right-of-use asset 18 Interest expense 9 Short-term lease cost 5 Variable lease cost 7 Total lease cost $ 247 |
Schedule Of Supplemental Balance Sheet Information Related To Leases Table | Supplemental balance sheet information related to leases: In millions December 31, 2019 Balance Sheet Location Assets Operating lease assets $ 496 Other assets Finance lease assets (1) 90 Property, plant and equipment, net Total lease assets $ 586 Liabilities Current Operating $ 131 Other accrued expenses Finance 12 Current maturities of long-term debt Long-term Operating 370 Other liabilities Finance 78 Long-term debt Total lease liabilities $ 591 ____________________________________ (1) Finance lease assets were recorded net of accumulated amortization of $62 million at December 31, 2019 . |
Schedule Of Supplemental Cash Flow Information Related To Leases Table | Supplemental cash flow and other information related to leases: In millions Year Ended Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases $ 163 Operating cash flows from finance leases 47 Financing cash flows from finance leases 9 Right-of-use assets obtained in exchange for lease obligations Operating leases $ 214 Finance leases 5 |
Schedule Of Supplemental Other Information Related To Leases Table | Additional information related to leases: December 31, 2019 Weighted-average remaining lease term (in years) Operating leases 5.3 Finance leases 12.1 Weighted-average discount rate Operating leases 3.3 % Finance leases 4.4 % |
Lessee, Operating Lease, Liability, Maturity | Following is a summary of the future minimum lease payments due to finance and operating leases with terms of more than one year at December 31, 2019 , together with the net present value of the minimum payments: In millions Finance Leases Operating Leases 2020 $ 15 $ 143 2021 11 117 2022 10 90 2023 9 60 2024 7 47 After 2024 65 95 Total minimum lease payments 117 552 Interest (27 ) (51 ) Present value of net minimum lease payments $ 90 $ 501 |
Schedule of Future Minimum Rental Payments for 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, 2018, together with the net present value of the minimum payments due under capital leases: In millions Capital Leases Operating Leases 2019 $ 30 $ 138 2020 21 109 2021 16 81 2022 14 60 2023 13 39 After 2023 144 81 Total minimum lease payments $ 238 $ 508 Interest (106 ) Present value of net minimum lease payments $ 132 |
GOODWILL AND OTHER INTANGIBLE_2
GOODWILL AND OTHER INTANGIBLE ASSETS (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
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, 2019 and 2018 : In millions Components New Power Distribution Power Systems Engine Segment Total Unallocated Total Balance at December 31, 2017 $ 940 $ — $ 79 $ 10 $ 6 $ 1,035 $ 47 (2) $ 1,082 Acquisitions — 49 (1) — — — 49 — 49 Translation and other (5 ) — — — — (5 ) — (5 ) Allocation to segment — 47 (2) — — — 47 (47 ) (2) — Balance at December 31, 2018 935 96 79 10 6 1,126 — 1,126 Acquisitions — 161 (1) — — — 161 — 161 Translation and other (1 ) — — — — (1 ) — (1 ) Balance at December 31, 2019 $ 934 $ 257 $ 79 $ 10 $ 6 $ 1,286 $ — $ 1,286 ____________________________________________________ (1) See Note 21 , " ACQUISITIONS ," for additional information on acquisition goodwill. (2) Goodwill associated with the Brammo Inc. acquisition was presented as an unallocated item as it had not yet been assigned to a reportable segment at December 31, 2017. Effective January 1, 2018, Brammo Inc. was assigned to our New Power segment. See Note 21 , " ACQUISITIONS ," for additional information. |
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 2019 2018 Software $ 708 $ 662 Less: Accumulated amortization (425 ) (372 ) Software, net 283 290 Trademarks, patents, customer relationships and other 956 803 Less: Accumulated amortization (236 ) (184 ) Trademarks, patents, customer relationships and other, net 720 619 Total other intangible assets, net $ 1,003 $ 909 |
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 2020 2021 2022 2023 2024 Projected amortization expense $ 136 $ 118 $ 101 $ 84 $ 66 |
PRODUCT WARRANTY LIABILITY (Tab
PRODUCT WARRANTY LIABILITY (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
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 product campaigns was as follows: December 31, In millions 2019 2018 2017 Balance, beginning of year $ 2,208 $ 1,687 $ 1,414 Provision for base warranties issued 458 437 376 Deferred revenue on extended warranty contracts sold 356 293 240 Provision for product campaigns issued 210 481 181 Payments made during period (590 ) (443 ) (398 ) Amortization of deferred revenue on extended warranty contracts (230 ) (244 ) (219 ) Changes in estimates for pre-existing product warranties (24 ) 3 85 Foreign currency translation and other 1 (6 ) 8 Balance, end of year $ 2,389 $ 2,208 $ 1,687 |
Deferred Revenue Extended Coverage and Base Warranty Liability, Disclosure | Warranty related deferred revenues and warranty liabilities on our Consolidated Balance Sheets were as follows: December 31, In millions 2019 2018 Balance Sheet Location Deferred revenue related to extended coverage programs Current portion $ 227 $ 227 Current portion of deferred revenue Long-term portion 714 587 Deferred revenue Total $ 941 $ 814 Product warranty Current portion $ 803 $ 654 Current portion of accrued product warranty Long-term portion 645 740 Accrued product warranty Total $ 1,448 $ 1,394 Total warranty accrual $ 2,389 $ 2,208 |
DEBT (Tables)
DEBT (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Short-term Debt [Line Items] | |
Summary of long-term debt | December 31, In millions Interest Rate 2019 2018 Long-term debt Senior notes, due 2023 3.65% $ 500 $ 500 Debentures, due 2027 6.75% 58 58 Debentures, due 2028 7.125% 250 250 Senior notes, due 2043 4.875% 500 500 Debentures, due 2098 (1) 5.65% 165 165 Other debt 59 64 Unamortized discount (50 ) (52 ) Fair value adjustments due to hedge on indebtedness 35 25 Finance leases 90 132 Total long-term debt 1,607 1,642 Less: Current maturities of long-term debt 31 45 Long-term debt $ 1,576 $ 1,597 ____________________________________ (1) The effective interest rate on this debt is 7.48% . |
Principal repayments on long-term debt | Principal payments required on long-term debt during the next five years are as follows: In millions 2020 2021 2022 2023 2024 Principal payments $ 31 $ 46 $ 9 $ 506 $ 5 |
Schedule of Interest Rate Derivatives | The following table summarizes the gains and losses: Years ended December 31, In millions 2019 2018 2017 Type of Swap Gain (Loss) on Swaps Gain (Loss) on Borrowings Gain (Loss) on Swaps Gain (Loss) on Borrowings Gain (Loss) on Gain (Loss) on Interest rate swaps (1) $ 16 $ (14 ) $ (8 ) $ 7 $ (7 ) $ 8 ___________________________________________________________ (1) The difference between the gain/(loss) on swaps and borrowings represents hedge ineffectiveness. |
Schedule of Derivative Instruments, Effect on Other Comprehensive Income (Loss) | The following table summarizes the interest rate lock activity in AOCL for 2019: Year ended December 31, In millions 2019 Type of Swap Gain (Loss) Gain (Loss) Reclassified from AOCL into Interest Expense Interest rate locks $ (10 ) $ — |
Fair value and carrying value of total 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 2019 2018 Fair values of total debt (1) $ 2,706 $ 2,679 Carrying values of total debt 2,367 2,476 ___________________________________________ (1) The fair value of debt is derived from Level 2 inputs. |
Loans Payable | |
Short-term Debt [Line Items] | |
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: 2019 2018 2017 Weighted-average interest rate 3.20 % 4.66 % 3.01 % |
Commercial Paper | |
Short-term Debt [Line Items] | |
Weighted-average interest rate | he weighted-average interest rate for commercial paper at December 31 was as follows: 2019 2018 2017 Weighted-average interest rate 1.82 % 2.59 % 1.56 % |
PENSION AND OTHER POSTRETIREM_2
PENSION AND OTHER POSTRETIREMENT BENEFITS (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Pension and other postretirement benefits | |
Schedule of Benefit Obligations in Excess of Fair Value of Plan Assets | The following table presents information regarding the total accumulated benefit obligation (ABO), the ABO and fair value of plan assets for defined benefit pension plans with ABO in excess of plan assets and the PBO and fair value of plan assets for defined benefit pension plans with PBO in excess of plan assets: Qualified and Non-Qualified Pension Plans U.S. Plans U.K. Plans In millions 2019 2018 2019 2018 Total ABO $ 2,894 $ 2,544 $ 1,756 $ 1,473 Plans with ABO in excess of plan assets ABO 379 304 — — Plans with PBO in excess of plan assets PBO 401 322 — — |
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 2019 2018 2019 2018 Change in benefit obligation Benefit obligation at the beginning of the year $ 2,562 $ 2,765 $ 1,550 $ 1,662 Service cost 116 120 26 29 Interest cost 108 98 43 41 Actuarial loss (gain) 296 (212 ) 232 (46 ) Benefits paid from fund (150 ) (193 ) (62 ) (62 ) Benefits paid directly by employer (16 ) (16 ) — — Plan amendment — — — 15 (1) Exchange rate changes — — 62 (89 ) Benefit obligation at end of year $ 2,916 $ 2,562 $ 1,851 $ 1,550 Change in plan assets Fair value of plan assets at beginning of year $ 2,937 $ 3,166 $ 1,782 $ 1,960 Actual return on plan assets 493 (36 ) 193 (33 ) Employer contributions 77 — 28 21 Benefits paid from fund (150 ) (193 ) (62 ) (62 ) Exchange rate changes — — 69 (104 ) Fair value of plan assets at end of year $ 3,357 $ 2,937 $ 2,010 $ 1,782 Funded status (including unfunded plans) at end of year $ 441 $ 375 $ 159 $ 232 Amounts recognized in consolidated balance sheets Pension assets $ 842 $ 697 $ 159 $ 232 Accrued compensation, benefits and retirement costs (16 ) (14 ) — — Pension and other postretirement benefits (385 ) (308 ) — — Net amount recognized $ 441 $ 375 $ 159 $ 232 Amounts recognized in accumulated other comprehensive loss Net actuarial loss $ 611 $ 635 $ 323 $ 230 Prior service cost 7 8 22 16 Net amount recognized $ 618 $ 643 $ 345 $ 246 ___________________________________________________________ (1) Guaranteed minimum pension benefits to equalize certain pension benefits between men and women per the U.K. court decision. |
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 2019 2018 2017 2019 2018 2017 Service cost $ 116 $ 120 $ 107 $ 26 $ 29 $ 26 Interest cost 108 98 106 43 41 40 Expected return on plan assets (189 ) (196 ) (204 ) (70 ) (69 ) (70 ) Amortization of prior service cost 1 1 — 2 — — Recognized net actuarial loss 17 33 37 11 29 40 Net periodic pension cost $ 53 $ 56 $ 46 $ 12 $ 30 $ 36 |
Schedule of Amounts Recognized in Other Comprehensive Income (Loss) | Other changes in benefit obligations and plan assets recognized in other comprehensive loss (income) for the years ended December 31 were as follows: In millions 2019 2018 2017 Amortization of prior service cost $ (3 ) $ — $ — Recognized net actuarial loss (28 ) (62 ) (77 ) Incurred actuarial loss (gain) 101 91 (40 ) Foreign exchange translation adjustments 4 (5 ) 30 Total recognized in other comprehensive loss (income) $ 74 $ 24 $ (87 ) Total recognized in net periodic pension cost and other comprehensive loss (income) $ 139 $ 110 $ (5 ) |
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 2019 2018 2019 2018 Discount rate 3.36 % 4.36 % 2.00 % 2.80 % Cash balance crediting rate 4.11 % 4.03 % — — Compensation increase rate 2.73 % 3.00 % 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 2019 2018 2017 2019 2018 2017 Discount rate 4.36 % 3.66 % 4.12 % 2.80 % 2.55 % 2.70 % Expected return on plan assets 6.25 % 6.50 % 7.25 % 4.00 % 4.00 % 4.50 % Compensation increase rate 2.73 % 3.00 % 4.87 % 3.75 % 3.75 % 3.75 % |
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 2020 2021 2022 2023 2024 2025 - 2029 Expected benefit payments $ 258 $ 256 $ 263 $ 265 $ 271 $ 1,388 |
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 OPEB plans were as follows: December 31, In millions 2019 2018 Change in benefit obligation Benefit obligation at the beginning of the year $ 246 $ 318 Interest cost 10 11 Plan participants' contributions 14 21 Actuarial gain — (51 ) Benefits paid directly by employer (43 ) (53 ) Benefit obligation at end of year $ 227 $ 246 Funded status at end of year $ (227 ) $ (246 ) Amounts recognized in consolidated balance sheets Accrued compensation, benefits and retirement costs $ (21 ) $ (22 ) Pension and other postretirement benefits (206 ) (224 ) Net amount recognized $ (227 ) $ (246 ) Amounts recognized in accumulated other comprehensive loss: Net actuarial gain $ (25 ) $ (24 ) Prior service credit (4 ) (4 ) Net amount recognized $ (29 ) $ (28 ) |
Schedule of Net Benefit Costs | The following table presents the net periodic OPEB cost under our plans: Years ended December 31, In millions 2019 2018 2017 Interest cost $ 10 $ 11 $ 14 Recognized net actuarial loss — — 6 Net periodic OPEB cost $ 10 $ 11 $ 20 |
Schedule of Amounts Recognized in Other Comprehensive Income (Loss) | Other changes in benefit obligations recognized in other comprehensive (income) loss for the years ended December 31 were as follows: Years ended December 31, In millions 2019 2018 2017 Recognized net actuarial loss $ — $ — $ (6 ) Incurred actuarial gain (1 ) (51 ) (35 ) Total recognized in other comprehensive (income) loss $ (1 ) $ (51 ) $ (41 ) Total recognized in net periodic OPEB cost and other comprehensive loss (income) $ 9 $ (40 ) $ (21 ) |
Schedule of Assumptions Used | The table below presents assumptions used in determining the net periodic OPEB cost and reflects weighted-average percentages for the various plans as follows: 2019 2018 2017 Discount rate 4.25 % 3.55 % 4.00 % The table below presents assumptions used in determining the OPEB obligation for each year and reflects weighted-average percentages for our other OPEB plans as follows: 2019 2018 Discount rate 3.15 % 4.25 % |
Schedule of Expected Benefit Payments | The table below presents expected benefit payments under our OPEB plans: In millions 2020 2021 2022 2023 2024 2025 - 2029 Expected benefit payments $ 22 $ 21 $ 21 $ 19 $ 19 $ 77 |
U.S. PENSION PLAN | |
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 5.0 % +5.0/ -5.0% Non-U.S. equities 1.0 % +3.0/ -1.0% Global equities 6.0 % +3.0/ -3.0% Total equities 12.0 % Real assets 6.0 % +4.0/ -6.0% Private equity/venture capital 6.0 % +4.0/ -6.0% Opportunistic credit 4.0 % +6.0/ -4.0% Fixed income 72.0 % +5.0/ -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, 2019 In millions Quoted prices in active Significant other Significant Total Equities U.S. $ 96 $ — $ — $ 96 Non-U.S. 47 — — 47 Fixed income Government debt — 72 — 72 Corporate debt U.S. — 357 — 357 Non-U.S. — 11 — 11 Asset/mortgaged backed securities — 1 — 1 Net cash equivalents (1) 338 33 — 371 Private markets and real assets (2) — — 371 371 Net plan assets subject to leveling $ 481 $ 474 $ 371 $ 1,326 Accruals (3) 5 Investments measured at net asset value 2,026 Net plan assets $ 3,357 Fair Value Measurements at December 31, 2018 In millions Quoted prices in active Significant other Significant unobservable inputs (Level 3) Total Equities U.S. $ 77 $ — $ — $ 77 Non-U.S. 42 — — 42 Fixed income Government debt — 38 — 38 Corporate debt U.S. — 323 — 323 Non-U.S. — 15 — 15 Asset/mortgaged backed securities — 5 — 5 Net cash equivalents (1) 175 17 — 192 Private markets and real assets (2) — — 316 316 Net plan assets subject to leveling $ 294 $ 398 $ 316 $ 1,008 Pending trade/purchases/sales 9 Accruals (3) 5 Investments measured at net asset value 1,915 Net plan assets $ 2,937 ____________________________________________________ (1) Cash equivalents include commercial paper, short-term government/agency, mortgage and credit instruments. (2) The instruments in private markets and real assets, 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. Private markets include equity, venture capital and private credit instruments and funds. Real assets include real estate and infrastructure. (3) 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 Markets Real Assets Total Balance at December 31, 2017 $ 180 $ 66 $ 246 Actual return on plan assets Unrealized gains on assets still held at the reporting date 33 6 39 Purchases, sales and settlements, net 34 (3 ) 31 Balance at December 31, 2018 247 69 316 Actual return on plan assets Unrealized gains on assets still held at the reporting date 24 5 29 Purchases, sales and settlements, net 28 (2 ) 26 Balance at December 31, 2019 $ 299 $ 72 $ 371 |
U.K. PENSION PLAN | |
Pension and other postretirement benefits | |
Schedule of Allocation of Plan Assets | To achieve these objectives we have established the following targets: Asset Class Target Equities 10.0 % Private markets/secure income assets 18.0 % Credit 7.5 % Diversifying strategies 8.0 % Fixed income/insurance annuity 55.5 % Cash 1.0 % 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, 2019 In millions Quoted prices in active Significant other Significant Total Equities U.S. $ — $ 45 $ — $ 45 Non-U.S. — 58 — 58 Fixed income Net cash equivalents (1) 35 — — 35 Insurance annuity (2) — — 476 476 Private markets and real assets (3) — — 259 259 Net plan assets subject to leveling $ 35 $ 103 $ 735 $ 873 Investments measured at net asset value 1,137 Net plan assets $ 2,010 Fair Value Measurements at December 31, 2018 In millions Quoted prices in active markets for identical assets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Total Equities U.S. $ — $ 47 $ — $ 47 Non-U.S. — 61 — 61 Fixed income Net cash equivalents (1) 12 — — 12 Insurance annuity (2) — — 442 442 Private markets and real assets (3) — — 244 244 Net plan assets subject to leveling $ 12 $ 108 $ 686 $ 806 Investments measured at net asset value 976 Net plan assets $ 1,782 _____________________________________________________ (1) Cash equivalents include commercial paper, short-term government/agency, mortgage and credit instruments. (2) 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 . (3) The instruments in private markets and real assets, 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. Private markets include equity, venture capital and private credit instruments and funds. Real assets include real estate and infrastructure. |
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 Annuity Real Assets Private Markets Total Balance at December 31, 2017 $ 477 $ 59 $ 135 $ 671 Actual return on plan assets Unrealized (losses) gains on assets still held at the reporting date (35 ) (2 ) 21 (16 ) Purchases, sales and settlements, net — — 31 31 Balance at December 31, 2018 442 57 187 686 Actual return on plan assets Unrealized gains on assets still held at the reporting date 34 5 14 53 Purchases, sales and settlements, net — (27 ) 23 (4 ) Balance at December 31, 2019 $ 476 $ 35 $ 224 $ 735 |
OTHER LIABILITIES (Tables)
OTHER LIABILITIES (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Other Liabilities Disclosure [Abstract] | |
Schedule of Accrued Liabilities | Other accrued expenses included the following: December 31, In millions 2019 2018 Other taxes payable $ 228 $ 196 Marketing accruals 176 199 Current portion of operating lease liabilities 131 — Income taxes payable 52 97 Other 452 360 Other accrued expenses $ 1,039 $ 852 |
Other Noncurrent Liabilities | Other liabilities included the following: December 31, In millions 2019 2018 Operating lease liabilities $ 370 $ — Deferred income taxes 306 263 One-time transition tax 293 293 Accrued compensation 206 173 Other long-term liabilities 204 163 Other liabilities $ 1,379 $ 892 |
SHAREHOLDERS' EQUITY (Tables)
SHAREHOLDERS' EQUITY (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
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, 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 Shares acquired — 7.9 — Shares issued — (0.2 ) (0.1 ) Balance at December 31, 2018 222.4 64.4 0.4 Shares acquired — 8.1 — Shares issued — (0.8 ) (0.2 ) Balance at December 31, 2019 222.4 71.7 0.2 |
Repurchases of common stock | or the year ended December 31, 2019, we made the following purchases under the 2018 stock repurchase program: In millions (except per share amounts) For each quarter ended 2019 Shares Purchased Average Cost Per Share Total Cost of Repurchases Remaining Authorized Capacity (1) March 31 0.7 $ 137.80 $ 100 $ 1,806 June 30 — — — 1,806 September 29 4.6 152.57 706 1,100 December 31 2.8 167.82 465 635 Total 8.1 156.46 $ 1,271 ___________________________________________ (1) The remaining authorized capacity under these plans 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 2019 2018 2017 First quarter $ 1.14 $ 1.08 $ 1.025 Second quarter 1.14 1.08 1.025 Third quarter 1.311 1.14 1.08 Fourth quarter 1.311 1.14 1.08 Total $ 4.90 $ 4.44 $ 4.21 |
OTHER COMPREHENSIVE INCOME (L_2
OTHER COMPREHENSIVE INCOME (LOSS) (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
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 debt securities (1) Unrealized gain (loss) on derivatives Total attributable to Cummins Inc. Noncontrolling interests Total 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 (2) 62 — — 12 74 — 74 Impact of tax legislation (Note 5) (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 ) Other comprehensive income before reclassifications Before-tax amount (42 ) (333 ) 2 21 (352 ) $ (30 ) $ (382 ) Tax benefit (expense) 7 7 — (7 ) 7 — 7 After-tax amount (35 ) (326 ) 2 14 (345 ) (30 ) (375 ) Amounts reclassified from accumulated other comprehensive income (2) 53 — (3 ) (9 ) 41 1 42 Net current period other comprehensive income (loss) 18 (326 ) (1 ) 5 (304 ) $ (29 ) $ (333 ) Balance at December 31, 2018 $ (671 ) $ (1,138 ) $ — $ 2 $ (1,807 ) Other comprehensive income before reclassifications Before-tax amount (106 ) (153 ) — (12 ) (271 ) $ (5 ) $ (276 ) Tax benefit (expense) 16 6 — 5 27 — 27 After-tax amount (90 ) (147 ) — (7 ) (244 ) (5 ) (249 ) Amounts reclassified from accumulated other comprehensive income (2) 27 — — (4 ) 23 — 23 Net current period other comprehensive income (loss) (63 ) (147 ) — (11 ) (221 ) $ (5 ) $ (226 ) Balance at December 31, 2019 $ (734 ) $ (1,285 ) $ — $ (9 ) $ (2,028 ) _______________________________________________________________________ (1) Effective January 1, 2018 and forward, unrealized gains and losses, net of tax for equity securities are reported in "Other income, net" on the Consolidated Statements of Net Income instead of comprehensive income. (2) Amounts are net of tax. Reclassifications out of accumulated other comprehensive income (loss) and the related tax effects are immaterial for separate disclosure. (3) Impact of tax legislation includes a $126 million loss related to Tax Legislation offset by a $23 million favorable impact related to 2017 activity. See Note 5 , " INCOME TAXES ," to our Consolidated Financial Statements for additional information . |
NONCONTROLLING INTERESTS (Table
NONCONTROLLING INTERESTS (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
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 2019 2018 Eaton Cummins Automated Transmission Technologies $ 581 $ 602 Cummins India Ltd. 302 293 Hydrogenics Corporation (1) 58 — Other 17 16 Total $ 958 $ 911 ____________________________________________________ (1) See Note 21 , " ACQUISITIONS ," for additional information. |
STOCK INCENTIVE AND STOCK OPT_2
STOCK INCENTIVE AND STOCK OPTION PLANS (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Share-based Payment Arrangement [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, 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 Granted 515,320 159.06 Exercised (140,133 ) 88.74 Forfeited (32,894 ) 133.00 Balance at December 31, 2018 3,243,662 130.55 Granted 710,120 163.42 Exercised (652,980 ) 116.76 Forfeited (63,232 ) 139.86 Balance at December 31, 2019 3,237,570 $ 140.36 6.6 $ 125 Exercisable, December 31, 2017 1,063,889 $ 115.26 4.7 $ 66 Exercisable, December 31, 2018 1,366,722 $ 124.97 4.7 $ 18 Exercisable, December 31, 2019 1,665,710 $ 123.55 4.8 $ 92 |
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, 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 Granted 124,700 146.50 — — Vested (80,996 ) 128.47 (2,696 ) 117.68 Forfeited (44,593 ) 127.90 — — Balance at December 31, 2018 410,350 126.36 5,393 117.68 Granted 185,377 141.01 — — Vested (176,613 ) 98.28 (2,696 ) 117.68 Forfeited (23,183 ) 145.26 — — Balance at December 31, 2019 395,931 $ 144.64 2,697 $ 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: 2019 2018 2017 Expected life (years) 6 6 6 Risk-free interest rate 2.41 % 2.72 % 2.08 % Expected volatility 23.79 % 25.40 % 29.97 % Dividend yield 2.68 % 2.48 % 2.28 % |
EARNINGS PER SHARE (Tables)
EARNINGS PER SHARE (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
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, In millions, except per share amounts 2019 2018 2017 Net income attributable to Cummins Inc. $ 2,260 $ 2,141 $ 999 Weighted-average common shares outstanding Basic 155.4 162.2 166.7 Dilutive effect of stock compensation awards 0.7 0.6 0.6 Diluted 156.1 162.8 167.3 Earnings per common share attributable to Cummins Inc. Basic $ 14.54 $ 13.20 $ 5.99 Diluted 14.48 13.15 5.97 |
Options excluded from diluted earnings per share | The options excluded from diluted earnings per share were as follows: Years ended December 31, 2019 2018 2017 Options excluded 473,845 969,385 31,991 |
ACQUISITIONS (Tables)
ACQUISITIONS (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Business Combinations [Abstract] | |
Schedule of Business Acquisitions, by Acquisition | Acquisitions for the years ended December 31, 2019 , 2018 and 2017 were as follows: Entity Acquired (Dollars in millions) Date of Acquisition Percent Interest Acquired Payments to Former Owners Acquisition Related Debt Retirements Total Purchase Consideration (1) Goodwill Recognized Intangibles Recognized (2) Net Sales Previous Fiscal Year Ended 2019 Hydrogenics Corporation 09/09/19 81% $ 235 $ — $ 235 $ 161 $ 161 $ 34 2018 Efficient Drivetrains, Inc. 08/15/18 100% $ 51 $ 2 $ 64 (3) $ 49 $ 15 $ 3 2017 Brammo Inc. 11/01/17 100% $ 60 $ — $ 68 (3) $ 47 $ 23 $ 4 Eaton Cummins Automated Transmission Technologies 07/31/17 50% 600 (4) — 600 544 596 — ____________________________________________________ (1) All results from acquired entities (excluding Brammo Inc. in 2017) were included in segment results subsequent to the acquisition date. Newly consolidated entities were accounted for as business combinations and (excluding Brammo Inc. and Eaton Cummins Automated Transmission Technologies) were included in the New Power Segment on the date of acquisition. The Brammo Inc. acquisition was allocated to the New Power Segment on January 1, 2018. Eaton Cummins Automated Transmission Technologies was included in the Components Segment on the date of acquisition. (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 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 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. |
Schedule of Recognized Identified Assets Acquired and Liabilities Assumed [Table Text Block] | The purchase price allocation was as follows: In millions Inventory $ 21 Other current assets 25 Intangible assets Technology assets 96 Customer relationships 29 In-process research and development 35 Other intangible assets 1 Goodwill 161 Other assets 18 Current liabilities (53 ) Other liabilities (42 ) Total business valuation 291 Less: Noncontrolling interest 56 Total purchase consideration $ 235 |
OPERATING SEGMENTS (Tables)
OPERATING SEGMENTS (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Segment Reporting [Abstract] | |
Financial information regarding reportable operating segments | Restructuring actions were included in our segment and non-segment operating results as follows: In millions Years ended December 31, 2019 Engine $ 18 Distribution 37 Components 20 Power Systems 12 New Power 1 Non-segment 31 Restructuring actions $ 119 Summarized financial information regarding our reportable operating segments at December 31, is shown in the table below: In millions Engine Distribution Components Power Systems New Power Total Segments Intersegment Eliminations (1) Total 2019 External sales $ 7,570 $ 8,040 $ 5,253 $ 2,670 $ 38 $ 23,571 $ — $ 23,571 Intersegment sales 2,486 31 1,661 1,790 — 5,968 (5,968 ) — Total sales 10,056 8,071 6,914 4,460 38 29,539 (5,968 ) 23,571 Research, development and engineering expenses 337 28 300 230 106 1,001 — 1,001 Equity, royalty and interest income from investees 200 52 40 38 — 330 — 330 Interest income 15 15 8 8 — 46 — 46 Segment EBITDA (excluding restructuring actions) 1,472 693 1,117 524 (148 ) 3,658 73 3,731 Restructuring actions (2) 18 37 20 12 1 88 31 119 Segment EBITDA 1,454 656 1,097 512 (149 ) 3,570 42 3,612 Depreciation and amortization (3) 202 115 222 118 12 669 — 669 Net assets 1,094 2,536 2,911 2,245 472 9,258 — 9,258 Investments and advances to equity investees 575 296 193 171 2 1,237 — 1,237 Capital expenditures 240 136 191 107 26 700 — 700 2018 External sales $ 8,002 $ 7,807 $ 5,331 $ 2,625 $ 6 $ 23,771 $ — $ 23,771 Intersegment sales 2,564 21 1,835 2,001 1 6,422 (6,422 ) — Total sales 10,566 7,828 7,166 4,626 7 30,193 (6,422 ) 23,771 Research, development and engineering expenses 311 20 272 230 69 902 — 902 Equity, royalty and interest income from investees 238 46 54 56 — 394 — 394 Interest income 11 13 5 6 — 35 — 35 Segment EBITDA 1,446 563 1,030 614 (90 ) 3,563 (87 ) 3,476 Depreciation and amortization (3) 190 109 185 119 6 609 — 609 Net assets 1,265 2,677 2,878 2,262 138 9,220 — 9,220 Investments and advances to equity investees 561 278 206 177 — 1,222 — 1,222 Capital expenditures 254 133 182 129 11 709 — 709 (Table continued on next page) In millions Engine Distribution Components Power Systems New Power Total Segments Intersegment Eliminations (1) 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 Research, development and engineering expenses 280 19 241 214 — 754 — 754 Equity, royalty and interest income from investees (4) 219 44 40 54 — 357 — 357 Interest income 6 6 3 3 — 18 — 18 Segment EBITDA 1,143 500 917 411 — 2,971 55 3,026 Depreciation and amortization (3) 184 116 163 117 — 580 — 580 Net assets 1,180 2,446 2,811 2,137 — 8,574 — 8,574 Investments and advances to equity investees 531 267 194 164 — 1,156 — 1,156 Capital expenditures 188 101 127 90 — 506 — 506 ____________________________________________________ (1) Includes intersegment sales, intersegment profit in inventory eliminations and unallocated corporate expenses. The year ended December 31, 2019, includes a $31 million restructuring charge related to corporate functions. There were no significant unallocated corporate expenses for the years ended December 31, 2018 and 2017 . (2) See Note 4 " RESTRUCTURING ACTIONS ," for additional information. (3) Depreciation and amortization, as shown on a segment basis, excludes the amortization of debt discount and deferred costs included in the Consolidated Statements of Net Income as "Interest expense." The amortization of debt discount and deferred costs were $3 million , $2 million and $3 million for the years ended 2019, 2018 and 2017, respectively. A portion of depreciation expense is included in "Research, development and engineering expense." (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 5 , " INCOME TAXES ," for additional information. |
Reconciliation of segment information | A reconciliation of our segment information to the corresponding amounts in the Consolidated Statements of Net Income is shown in the table below: Years ended December 31, In millions 2019 2018 2017 Total EBITDA $ 3,612 $ 3,476 $ 3,026 Less: Depreciation and amortization 669 $ 609 580 Interest expense 109 $ 114 $ 81 Income before income taxes $ 2,834 $ 2,753 $ 2,365 |
Reconciliation of segment information from net assets to total assets | A reconciliation of our segment net assets to the corresponding amounts in the Consolidated Balance Sheets is shown in the table below: December 31, In millions 2019 2018 2017 Net assets for operating segments $ 9,258 $ 9,220 $ 8,574 Cash, cash equivalents and marketable securities 1,470 1,525 1,567 Brammo Inc. assets — — 72 (1) Net liabilities deducted in arriving at net assets (2) 8,498 7,836 7,398 Pension and OPEB adjustments excluded from net assets 67 68 156 Deferred tax assets not allocated to segments 441 410 306 Deferred debt costs not allocated to segments 3 3 2 Total assets $ 19,737 $ 19,062 $ 18,075 ____________________________________________________ (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 21 , " ACQUISITIONS ," for additional information. (2) Liabilities deducted in arriving at net assets include certain accounts payable, accrued expenses, long-term liabilities and other items. |
Long-lived assets attributed to geographic areas | Long-lived segment assets by geographic area were as follows: December 31, In millions 2019 2018 2017 United States $ 3,555 $ 3,174 $ 3,157 China 893 823 795 India 616 577 563 United Kingdom 370 337 339 Netherlands 253 234 221 Mexico 175 171 136 Canada 139 114 116 Brazil 106 104 149 Other international countries 489 329 293 Total long-lived assets $ 6,596 $ 5,863 $ 5,769 |
QUARTERLY FINANCIAL INFORMATI_2
QUARTERLY FINANCIAL INFORMATION DISCLOSURE (unaudited) (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Quarterly Financial Information Disclosure [Abstract] | |
Quarterly Financial Information | First Quarter Second Quarter Third Quarter Fourth Quarter In millions, except per share amounts 2019 Net sales $ 6,004 $ 6,221 $ 5,768 $ 5,578 Gross margin 1,532 1,641 1,494 1,313 Net income attributable to Cummins Inc. 663 675 622 300 (1) Earnings per common share attributable to Cummins Inc.—basic (2) $ 4.22 $ 4.29 $ 3.99 $ 1.98 (1) Earnings per common share attributable to Cummins Inc.—diluted (2) 4.20 4.27 3.97 1.97 (1) Cash dividends per share 1.14 1.14 1.311 1.311 Stock price per share High $ 162.34 $ 171.84 $ 175.91 $ 186.73 Low 130.03 150.48 141.14 151.15 2018 Net sales $ 5,570 $ 6,132 $ 5,943 $ 6,126 Gross margin 1,200 (3) 1,440 (3) 1,551 1,546 Net income attributable to Cummins Inc. 325 (3) 545 (3) 692 579 Earnings per common share attributable to Cummins Inc.—basic (2) (4) $ 1.97 (3) $ 3.33 (3) $ 4.29 $ 3.65 Earnings per common share attributable to Cummins Inc.—diluted (2) (4) 1.96 (3) 3.32 (3) 4.28 3.63 Cash dividends per share 1.08 1.08 1.14 1.14 Stock price per share High $ 194.18 $ 172.08 $ 151.87 $ 156.49 Low 154.58 131.58 129.90 124.40 ___________________________________________________ (1) Net income attributable to Cummins Inc. and earnings per share were negatively impacted by $119 million ( $90 million after-tax) of restructuring actions in the fourth quarter of 2019 ( $0.59 per basic share and $0.59 per diluted share). (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) Gross margin, net income attributable to Cummins Inc. and earnings per share in 2018 were negatively impacted by an Engine Campaign charge of $187 million ( $144 million after-tax) in the first quarter ( $0.87 per basic share and $0.87 per diluted share). The second quarter of 2018 was negatively impacted by an additional charge of $181 million ( $139 million after-tax) ( $0.85 per basic share and $0.85 per diluted share). (4) Net income attributable to Cummins Inc., basic and diluted earnings per share were impacted by Tax Legislation adjustments. Net income attributable to Cummins Inc. was reduced by $74 million and $8 million in the first and second quarter, respectively, while it increased in the third and fourth quarter $33 million and $10 million , respectively. Basic and diluted earnings per share were reduced by $0.45 per share and $0.05 per share in the first and second quarters, respectively, while they increased in the third and fourth quarters by $0.20 per share and $0.06 per share , respectively. |
SUMMARY OF SIGNIFICANT ACCOUN_4
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 1) Nature of Operations, Equity Investments | 12 Months Ended |
Dec. 31, 2019countrylocation | |
Accounting Policies [Abstract] | |
Company owned and independent distributor locations | 600 |
Dealer locations | 7,600 |
Countries and territories located in | country | 190 |
Minimum | |
Investments in Equity Investees | |
Percentage of equity method investment ownership | 20.00% |
Maximum | |
Investments in Equity Investees | |
Percentage of equity method investment ownership | 50.00% |
SUMMARY OF SIGNIFICANT ACCOUN_5
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 2) Foreign Currency, Supp. Cash Flow, Allowance, Inventory - USD ($) $ in Millions | 12 Months Ended | ||
Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 | |
Accounting Policies [Abstract] | |||
Foreign Currency Transaction Gain (Loss), before Tax | $ 28 | $ (34) | $ (6) |
Cash payments for income taxes, net of refunds | 691 | 699 | 622 |
Cash payments for interest, net of capitalized interest | 109 | 114 | $ 82 |
Allowance for doubtful accounts receivable | $ 19 | $ 15 | |
Percentage of total inventory values using LIFO | 14.00% | 13.00% |
SUMMARY OF SIGNIFICANT ACCOUN_6
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 3) PP&E - USD ($) $ in Millions | 12 Months Ended | ||
Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 | |
Property, Plant and Equipment | |||
Depreciation expense on property, plant and equipment | $ 494 | $ 455 | $ 467 |
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 ACCOUN_7
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 4) Goodwill - USD ($) $ in Millions | Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 |
Goodwill | |||
Goodwill | $ 1,286 | $ 1,126 | $ 1,082 |
Automated Transmission | |||
Goodwill | |||
Reporting Unit, Percentage of Fair Value in Excess of Carrying Amount | 34.00% | ||
Goodwill | $ 544 | ||
Reporting Unit Carrying Value | $ 1,200 | ||
Percentage of Goodwill Accounted by a Single or aggregated Reporting Unit | 42.00% | ||
Aggregated Emission Solution and Filtration Reporting Unit | |||
Goodwill | |||
Percentage of Goodwill Accounted by a Single or aggregated Reporting Unit | 30.00% | ||
New Power | |||
Goodwill | |||
Percentage of Goodwill Accounted by a Single or aggregated Reporting Unit | 20.00% | ||
Distribution | |||
Goodwill | |||
Percentage of Goodwill Accounted by a Single or aggregated Reporting Unit | 6.00% |
SUMMARY OF SIGNIFICANT ACCOUN_8
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 5) Other Intangibles, Softare and R&D - USD ($) $ in Millions | 12 Months Ended | ||
Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 | |
Research and Development | |||
Research and development expenses, net of contract reimbursements | $ 998 | $ 894 | $ 734 |
Research and Development Arrangement, Contract to Perform for Others, Compensation Earned | $ 90 | $ 120 | $ 137 |
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 ACCOUN_9
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 6) RECENTLY ISSUED AND RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS - USD ($) $ in Millions | Jan. 01, 2019 | Dec. 31, 2019 | Dec. 31, 2018 |
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |||
New Accounting Pronouncement or Change in Accounting Principle, Effect of Adoption, Quantification | $ 30 | ||
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 Financial Accounting Standards Board (FASB) amended its standards related to the accounting for leases. Under the new standard, lessees are now required to recognize substantially all leases on the balance sheet as both a ROU asset and a liability. The standard continues to have two types of leases for income statement recognition purposes: operating leases and finance leases. Operating leases 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 the old standard. Finance leases result in an accelerated expense similar to the accounting for capital leases under the old standard. The determination of a lease classification as operating or finance will occur in a manner similar to the old 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. We adopted the new standard on January 1, 2019, using a modified retrospective approach and as a result did not adjust prior periods. Adoption of the standard resulted in the recording of $450 million of operating lease ROU assets and operating lease liabilities, but did not have a material impact on our net income or cash flows. The cumulative effect adjustment of adopting the new standard was not material. We elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification and to not re-evaluate existing contracts as to whether or not they contained a lease. | ||
New Accounting Pronouncement or Change in Accounting Principle, Effect of Adoption, Quantification | $ 450 | ||
ASU 2017-12 - Hedging | |||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |||
New Accounting Pronouncement or Change in Accounting Principle, Description | On January 1, 2019, we adopted the new FASB standard related to accounting for derivatives and hedging. The new standard allows 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. We adopted the new standard on a modified retrospective basis for existing cash flow hedges and prospectively for disclosures. The amendments did not have a material effect on our Consolidated Financial Statements and no transition adjustment was required upon adoption. | ||
ASU 2018-15 - Cloud Computing | |||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |||
New Accounting Pronouncement or Change in Accounting Principle, Description | In August 2018, the FASB issued a new standard that aligns the accounting for implementation costs incurred in a cloud computing arrangement accounted for as a service contract with the model currently used for internal use software costs. Under the new standard, costs that meet certain criteria will be required to be capitalized on the balance sheet and subsequently amortized over the term of the hosting arrangement. The standard is effective for us beginning on January 1, 2020. We will adopt this standard on a prospective basis as allowed by the standard and as a result the adoption will not have an impact on our Consolidated Financial Statements. | ||
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. We will adopt this standard for 2020 and we do not expect adoption of this standard to have a material impact on our Consolidated Financial Statements. |
REVENUE RECOGNITION LONG-TERM_3
REVENUE RECOGNITION LONG-TERM CONTRACTS AND DEFERRED AND UNBILLED REVENUE REVENUE RECOGNITION LONG-TERM CONTRATS AND DEFERRED AND UNBILLED REVENUE (Details) - USD ($) $ in Millions | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Revenue from Contract with Customer [Abstract] | ||
Revenue, Remaining Performance Obligation, Amount | $ 890 | |
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items] | ||
Unbilled revenue | 68 | $ 64 |
Deferred revenue, primarily extended warranty | 1,354 | 1,156 |
Contract with Customer, Liability, Revenue Recognized | 365 | $ 361 |
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2020-01-01 | ||
Revenue from Contract with Customer [Abstract] | ||
Revenue, Remaining Performance Obligation, Amount | $ 241 | |
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items] | ||
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Period | 12 months | |
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2021-01-01 | ||
Revenue from Contract with Customer [Abstract] | ||
Revenue, Remaining Performance Obligation, Amount | $ 649 | |
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items] | ||
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Period | 10 years |
REVENUE RECOGNITION DISAGGREG_3
REVENUE RECOGNITION DISAGGREGATION OF REVENUES REVENUE RECOGNITION DISAGGREGATION OF REVENUES (Details) - USD ($) $ in Millions | 3 Months Ended | 12 Months Ended | ||||||||||||
Dec. 31, 2019 | Sep. 29, 2019 | Jun. 30, 2019 | Mar. 31, 2019 | Dec. 31, 2018 | Sep. 30, 2018 | Jul. 01, 2018 | Apr. 01, 2018 | Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 | ||||
Disaggregation of Revenue [Line Items] | ||||||||||||||
Net sales | $ 5,578 | $ 5,768 | $ 6,221 | $ 6,004 | $ 6,126 | $ 5,943 | $ 6,132 | $ 5,570 | $ 23,571 | [1] | $ 23,771 | [1] | $ 20,428 | [1] |
Heavy-duty truck (EBU market) | ||||||||||||||
Disaggregation of Revenue [Line Items] | ||||||||||||||
Net sales | 2,626 | 2,885 | ||||||||||||
Medium-duty truck and bus (EBU market) | ||||||||||||||
Disaggregation of Revenue [Line Items] | ||||||||||||||
Net sales | 2,244 | 2,536 | ||||||||||||
Light-duty automotive (EBU market) | ||||||||||||||
Disaggregation of Revenue [Line Items] | ||||||||||||||
Net sales | 1,656 | 1,501 | ||||||||||||
On-highway (EBU market) | ||||||||||||||
Disaggregation of Revenue [Line Items] | ||||||||||||||
Net sales | 6,526 | 6,922 | ||||||||||||
Off-highway (EBU market) | ||||||||||||||
Disaggregation of Revenue [Line Items] | ||||||||||||||
Net sales | 1,044 | 1,080 | ||||||||||||
Parts (DBU product line) | ||||||||||||||
Disaggregation of Revenue [Line Items] | ||||||||||||||
Net sales | 3,278 | 3,222 | ||||||||||||
Power Generation (DBU product line) | ||||||||||||||
Disaggregation of Revenue [Line Items] | ||||||||||||||
Net sales | 1,777 | 1,482 | ||||||||||||
Engine (DBU product line) | ||||||||||||||
Disaggregation of Revenue [Line Items] | ||||||||||||||
Net sales | 1,511 | 1,632 | ||||||||||||
Service | ||||||||||||||
Disaggregation of Revenue [Line Items] | ||||||||||||||
Net sales | 1,474 | 1,471 | ||||||||||||
Emission solutions (CBU business) | ||||||||||||||
Disaggregation of Revenue [Line Items] | ||||||||||||||
Net sales | 2,763 | 2,780 | ||||||||||||
Filtration (CBU business) | ||||||||||||||
Disaggregation of Revenue [Line Items] | ||||||||||||||
Net sales | 1,024 | 1,010 | ||||||||||||
Turbo technologies (CBU business) | ||||||||||||||
Disaggregation of Revenue [Line Items] | ||||||||||||||
Net sales | 696 | 761 | ||||||||||||
Automated Transmission | ||||||||||||||
Disaggregation of Revenue [Line Items] | ||||||||||||||
Net sales | 534 | 543 | ||||||||||||
Electronics and Fuel systems (CBU product line) | ||||||||||||||
Disaggregation of Revenue [Line Items] | ||||||||||||||
Net sales | 236 | 237 | ||||||||||||
Power Generation (PSBU product line) | ||||||||||||||
Disaggregation of Revenue [Line Items] | ||||||||||||||
Net sales | 1,414 | 1,467 | ||||||||||||
Industrial (PSBU product line) | ||||||||||||||
Disaggregation of Revenue [Line Items] | ||||||||||||||
Net sales | 908 | 801 | ||||||||||||
Generator technologies (PSBU product lines) | ||||||||||||||
Disaggregation of Revenue [Line Items] | ||||||||||||||
Net sales | 348 | 357 | ||||||||||||
Engine | ||||||||||||||
Disaggregation of Revenue [Line Items] | ||||||||||||||
Net sales | 10,056 | 10,566 | 8,953 | |||||||||||
Distribution | ||||||||||||||
Disaggregation of Revenue [Line Items] | ||||||||||||||
Net sales | 8,071 | 7,828 | 7,058 | |||||||||||
Components | ||||||||||||||
Disaggregation of Revenue [Line Items] | ||||||||||||||
Net sales | 6,914 | 7,166 | 5,889 | |||||||||||
Power Systems | ||||||||||||||
Disaggregation of Revenue [Line Items] | ||||||||||||||
Net sales | 4,460 | 4,626 | 4,058 | |||||||||||
External Sales | ||||||||||||||
Disaggregation of Revenue [Line Items] | ||||||||||||||
Net sales | 23,571 | 23,771 | 20,428 | |||||||||||
External Sales | Engine | ||||||||||||||
Disaggregation of Revenue [Line Items] | ||||||||||||||
Net sales | 7,570 | 8,002 | 6,661 | |||||||||||
External Sales | Distribution | ||||||||||||||
Disaggregation of Revenue [Line Items] | ||||||||||||||
Net sales | 8,040 | 7,807 | 7,029 | |||||||||||
External Sales | Components | ||||||||||||||
Disaggregation of Revenue [Line Items] | ||||||||||||||
Net sales | 5,253 | 5,331 | 4,363 | |||||||||||
External Sales | Power Systems | ||||||||||||||
Disaggregation of Revenue [Line Items] | ||||||||||||||
Net sales | 2,670 | 2,625 | 2,375 | |||||||||||
UNITED STATES | ||||||||||||||
Disaggregation of Revenue [Line Items] | ||||||||||||||
Net sales | 13,519 | 13,218 | 11,010 | |||||||||||
CHINA | ||||||||||||||
Disaggregation of Revenue [Line Items] | ||||||||||||||
Net sales | 2,331 | 2,324 | 2,137 | |||||||||||
CHINA | Distribution | ||||||||||||||
Disaggregation of Revenue [Line Items] | ||||||||||||||
Net sales | 356 | 317 | ||||||||||||
INDIA | ||||||||||||||
Disaggregation of Revenue [Line Items] | ||||||||||||||
Net sales | 848 | 965 | 805 | |||||||||||
INDIA | Distribution | ||||||||||||||
Disaggregation of Revenue [Line Items] | ||||||||||||||
Net sales | 200 | 192 | ||||||||||||
OTHER INTERNATIONAL | ||||||||||||||
Disaggregation of Revenue [Line Items] | ||||||||||||||
Net sales | 6,873 | 7,264 | $ 6,476 | |||||||||||
NORTH AMERICA | Distribution | ||||||||||||||
Disaggregation of Revenue [Line Items] | ||||||||||||||
Net sales | 5,513 | 5,331 | ||||||||||||
ASIA PACIFIC | Distribution | ||||||||||||||
Disaggregation of Revenue [Line Items] | ||||||||||||||
Net sales | 875 | 851 | ||||||||||||
EUROPE | Distribution | ||||||||||||||
Disaggregation of Revenue [Line Items] | ||||||||||||||
Net sales | 528 | 536 | ||||||||||||
AFRICA and MIDDLE EAST | Distribution | ||||||||||||||
Disaggregation of Revenue [Line Items] | ||||||||||||||
Net sales | 235 | 242 | ||||||||||||
LATIN AMERICA | Distribution | ||||||||||||||
Disaggregation of Revenue [Line Items] | ||||||||||||||
Net sales | 176 | 169 | ||||||||||||
RUSSIA | Distribution | ||||||||||||||
Disaggregation of Revenue [Line Items] | ||||||||||||||
Net sales | $ 157 | $ 169 | ||||||||||||
[1] | Includes sales to nonconsolidated equity investees of $1,191 million , $1,267 million and $1,174 million for the years ended December 31, 2019 , 2018 and 2017 , respectively. |
INVESTMENTS IN EQUITY INVESTE_3
INVESTMENTS IN EQUITY INVESTEES (Details 1) Investments in and Earnings from $ in Millions | 3 Months Ended | 12 Months Ended | ||||||||||||
Dec. 31, 2019USD ($)hpl | Sep. 29, 2019USD ($) | Jun. 30, 2019USD ($) | Mar. 31, 2019USD ($) | Dec. 31, 2018USD ($) | Sep. 30, 2018USD ($) | Jul. 01, 2018USD ($) | Apr. 01, 2018USD ($) | Dec. 31, 2019USD ($)hpl | Dec. 31, 2018USD ($) | Dec. 31, 2017USD ($) | ||||
Equity, royalty and interest income from investees | ||||||||||||||
Investments and advances to equity method investees | $ 1,237 | $ 1,222 | $ 1,237 | $ 1,222 | $ 1,156 | |||||||||
Investment account representing cumulative undistributed income in equity investees | 758 | 758 | ||||||||||||
Dividends from the unconsolidated equity investees | 260 | 242 | 219 | |||||||||||
Equity Method Investment, Summarized Financial Information, Net Income (Loss) | 271 | 336 | 308 | |||||||||||
Royalty and interest income | $ 5,578 | $ 5,768 | $ 6,221 | $ 6,004 | 6,126 | $ 5,943 | $ 6,132 | $ 5,570 | 23,571 | [1] | 23,771 | [1] | 20,428 | [1] |
Equity, royalty and interest income from investees | $ 330 | 394 | 357 | [2] | ||||||||||
Minimum | ||||||||||||||
Equity, royalty and interest income from investees | ||||||||||||||
Ownership percentage | 20.00% | 20.00% | ||||||||||||
Maximum | ||||||||||||||
Equity, royalty and interest income from investees | ||||||||||||||
Ownership percentage | 50.00% | 50.00% | ||||||||||||
Manufacturing Entities | Maximum | ||||||||||||||
Equity, royalty and interest income from investees | ||||||||||||||
Ownership percentage | 50.00% | 50.00% | ||||||||||||
Komatsu Manufacturing Alliances | ||||||||||||||
Equity, royalty and interest income from investees | ||||||||||||||
Investments and advances to equity method investees | $ 267 | 238 | $ 267 | 238 | ||||||||||
Komatsu Manufacturing Alliances | Minimum | ||||||||||||||
Equity, royalty and interest income from investees | ||||||||||||||
Ownership percentage | 20.00% | 20.00% | ||||||||||||
Komatsu Manufacturing Alliances | Maximum | ||||||||||||||
Equity, royalty and interest income from investees | ||||||||||||||
Ownership percentage | 50.00% | 50.00% | ||||||||||||
Manufacturing - Beijing Foton Cummins Engine Co., Ltd. | ||||||||||||||
Equity, royalty and interest income from investees | ||||||||||||||
Ownership percentage | 50.00% | 50.00% | ||||||||||||
Investments and advances to equity method investees | $ 193 | 203 | $ 193 | 203 | ||||||||||
Equity Method Investment, Summarized Financial Information, Net Income (Loss) | $ 60 | 72 | 94 | |||||||||||
Beijing Foton Cummins Engine Company (Light-Duty) | Minimum | ||||||||||||||
Equity, royalty and interest income from investees | ||||||||||||||
Capacity of mechanical engines (in liters) | l | 2.8 | 2.8 | ||||||||||||
Beijing Foton Cummins Engine Company (Light-Duty) | Maximum | ||||||||||||||
Equity, royalty and interest income from investees | ||||||||||||||
Capacity of mechanical engines (in liters) | l | 4.5 | 4.5 | ||||||||||||
Beijing Foton Cummins Engine Company (Heavy-Duty) | Minimum | ||||||||||||||
Equity, royalty and interest income from investees | ||||||||||||||
Capacity of mechanical engines (in liters) | l | 10.5 | 10.5 | ||||||||||||
Beijing Foton Cummins Engine Company (Heavy-Duty) | Maximum | ||||||||||||||
Equity, royalty and interest income from investees | ||||||||||||||
Capacity of mechanical engines (in liters) | l | 12.9 | 12.9 | ||||||||||||
Manufacturing - Dongfeng Cummins Engine Company, Ltd. | ||||||||||||||
Equity, royalty and interest income from investees | ||||||||||||||
Ownership percentage | 50.00% | 50.00% | ||||||||||||
Investments and advances to equity method investees | $ 149 | 160 | $ 149 | 160 | ||||||||||
Equity Method Investment, Summarized Financial Information, Net Income (Loss) | $ 52 | 58 | 73 | |||||||||||
Manufacturing - Dongfeng Cummins Engine Company, Ltd. | Minimum | ||||||||||||||
Equity, royalty and interest income from investees | ||||||||||||||
Capacity of mechanical engines (in liters) | l | 3.9 | 3.9 | ||||||||||||
Power of mechanical engines (in horsepower) | hp | 80 | 80 | ||||||||||||
Manufacturing - Dongfeng Cummins Engine Company, Ltd. | Maximum | ||||||||||||||
Equity, royalty and interest income from investees | ||||||||||||||
Capacity of mechanical engines (in liters) | l | 14 | 14 | ||||||||||||
Power of mechanical engines (in horsepower) | hp | 680 | 680 | ||||||||||||
Manufacturing - Chongqing Cummins Engine Company, Ltd. | ||||||||||||||
Equity, royalty and interest income from investees | ||||||||||||||
Ownership percentage | 50.00% | 50.00% | ||||||||||||
Investments and advances to equity method investees | $ 110 | 102 | $ 110 | 102 | ||||||||||
Equity Method Investment, Summarized Financial Information, Net Income (Loss) | $ 41 | 51 | 41 | |||||||||||
Cummins Scania XPI Manufacturing LLC | ||||||||||||||
Equity, royalty and interest income from investees | ||||||||||||||
Ownership percentage | 50.00% | 50.00% | ||||||||||||
Investments and advances to equity method investees | $ 96 | 101 | $ 96 | 101 | ||||||||||
Tata Cummins Ltd | ||||||||||||||
Equity, royalty and interest income from investees | ||||||||||||||
Ownership percentage | 50.00% | 50.00% | ||||||||||||
Investments and advances to equity method investees | $ 60 | 58 | $ 60 | 58 | ||||||||||
Other Distributors and Manufacturers | ||||||||||||||
Equity, royalty and interest income from investees | ||||||||||||||
Investments and advances to equity method investees | $ 362 | $ 360 | 362 | 360 | ||||||||||
Manufacturing - All other manufacturers | ||||||||||||||
Equity, royalty and interest income from investees | ||||||||||||||
Equity Method Investment, Summarized Financial Information, Net Income (Loss) | 88 | 129 | 71 | [3] | ||||||||||
Distribution - Komatsu Cummins Chile, Ltda. | ||||||||||||||
Equity, royalty and interest income from investees | ||||||||||||||
Equity Method Investment, Summarized Financial Information, Net Income (Loss) | 28 | 26 | 30 | |||||||||||
Distribution - All other distributors | ||||||||||||||
Equity, royalty and interest income from investees | ||||||||||||||
Equity Method Investment, Summarized Financial Information, Net Income (Loss) | 2 | (1) | ||||||||||||
Tax Legislation Impact | Manufacturing - All other manufacturers | ||||||||||||||
Equity, royalty and interest income from investees | ||||||||||||||
Tax Legislation Impact to JV Earnings | (39) | |||||||||||||
Royalty | ||||||||||||||
Equity, royalty and interest income from investees | ||||||||||||||
Royalty and interest income | $ 59 | $ 58 | $ 49 | |||||||||||
[1] | Includes sales to nonconsolidated equity investees of $1,191 million , $1,267 million and $1,174 million for the years ended December 31, 2019 , 2018 and 2017 , respectively. | |||||||||||||
[2] | 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 5 , " INCOME TAXES | |||||||||||||
[3] | Tax legislation passed in December 2017 decreased our equity earnings at certain equity investees by $39 million due to withholding tax adjustments on foreign earnings and remeasurement of deferred taxes. See Note 5 , " INCOME TAXES ," to our Consolidated Financial Statements for additional information . |
INVESTMENTS IN EQUITY INVESTE_4
INVESTMENTS IN EQUITY INVESTEES (Details 2) Equity Investee Financial Summary - USD ($) $ in Millions | 12 Months Ended | |||
Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 | ||
Equity Method Investments and Joint Ventures [Abstract] | ||||
Net sales for equity investees | $ 7,068 | $ 7,352 | $ 7,050 | |
Gross margin | 1,274 | 1,373 | 1,422 | |
Net income | 566 | 647 | 680 | |
Cummins share of net income | 271 | 336 | 308 | |
Royalty and interest income | 59 | 58 | 49 | |
Equity, royalty and interest income from investees | 330 | 394 | $ 357 | [1] |
Current assets | 3,282 | 3,401 | ||
Non-current assets | 1,622 | 1,449 | ||
Current liabilities | (2,654) | (2,669) | ||
Non-current liabilities | (326) | (218) | ||
Net assets | 1,924 | 1,963 | ||
Cummins share of net assets | $ 1,159 | $ 1,144 | ||
[1] | 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 5 , " INCOME TAXES |
RESTRUCTURING AND OTHER CHARG_3
RESTRUCTURING AND OTHER CHARGES (Details) $ in Millions | 12 Months Ended | ||||
Dec. 31, 2019USD ($)employee | Dec. 31, 2018USD ($) | Dec. 31, 2017USD ($) | |||
Total Restructuring Charges | |||||
Severance Costs | $ 119 | [1] | $ 0 | $ 0 | |
Restructuring Charges, Net of Tax | $ 90 | ||||
Restructuring and Related Cost, Number of Positions Eliminated | employee | 2,300 | ||||
Payments for Restructuring | $ (4) | ||||
Foreign currency loss | 1 | ||||
Restructuring Reserve | 116 | ||||
Engine | |||||
Total Restructuring Charges | |||||
Severance Costs | [1] | 18 | |||
Distribution | |||||
Total Restructuring Charges | |||||
Severance Costs | [1] | 37 | |||
Components | |||||
Total Restructuring Charges | |||||
Severance Costs | [1] | 20 | |||
Power Systems | |||||
Total Restructuring Charges | |||||
Severance Costs | [1] | 12 | |||
New Power | |||||
Total Restructuring Charges | |||||
Severance Costs | [1] | 1 | |||
Non-Segment Items | |||||
Total Restructuring Charges | |||||
Severance Costs | [1],[2] | $ 31 | |||
[1] | See Note 4 " RESTRUCTURING ACTIONS ," for additional information. | ||||
[2] | Includes intersegment sales, intersegment profit in inventory eliminations and unallocated corporate expenses. The year ended December 31, 2019, includes a $31 million restructuring charge related to corporate functions. There were no significant unallocated corporate expenses for the |
INCOME TAXES (Details 1) Inc. B
INCOME TAXES (Details 1) Inc. Before Taxes, Components of Tax Expense, Rate Recon., Effective Tax rate Discussion - USD ($) $ in Millions | 3 Months Ended | 12 Months Ended | 24 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2018 | |
Income Tax Disclosure [Abstract] | |||||
Tax Cuts and Jobs Act, Incomplete Accounting, Transition Tax for Accumulated Foreign Earnings, Provisional Income Tax Expense | $ 111 | $ 298 | $ 409 | ||
Tax Cuts and Jobs Act, Incomplete Accounting, Provisional Income Tax Expense (Benefit) | 12 | 781 | 793 | ||
Tax Cuts and Jobs Act, Incomplete Accounting, Additional Withholding Taxes on Earnings for Adjusting Permanent Reinvestment Assertions, Provisional Income Tax Expense | (148) | 331 | 183 | ||
Tax Cuts and Jobs Act, Incomplete Accounting, Change in Tax Rate, Deferred Tax Asset, Provisional Income Tax Expense | 7 | 152 | $ 159 | ||
Income before income taxes: | |||||
U.S. income | $ 1,677 | 1,239 | 1,237 | ||
Foreign income | 1,157 | 1,514 | 1,128 | ||
INCOME BEFORE INCOME TAXES | 2,834 | 2,753 | 2,365 | ||
Current: | |||||
U.S. federal and state | 288 | 303 | 355 | ||
Foreign | 282 | 348 | 289 | ||
Current Tax Legislation Impact to Tax Expense | 0 | 153 | 349 | ||
Total current | 570 | 804 | 993 | ||
Deferred: | |||||
U.S. federal and state | (32) | (71) | (42) | ||
Foreign | 28 | (26) | (12) | ||
Impact of tax legislation | 0 | (141) | 432 | ||
Total deferred | (4) | (238) | 378 | ||
Income tax expense | $ 566 | $ 566 | $ 1,371 | ||
Reconciliation of the income tax provision | |||||
Statutory U.S. federal income tax rate | 21.00% | 21.00% | 21.00% | 35.00% | |
State income tax, net of federal effect | 1.10% | 0.90% | 0.60% | ||
Differences in rates and taxability of foreign subsidiaries and joint ventures | 1.50% | (0.20%) | (6.40%) | ||
Research tax credits | (1.50%) | (1.20%) | (1.40%) | ||
Foreign derived intangible income | (1.30%) | (1.30%) | 0.00% | ||
Impact of tax legislation | 0 | 0.005 | 0.331 | ||
Other, net | (0.80%) | 0.90% | (2.90%) | ||
Effective Income Tax Rate Reconciliation, Percent | 20.00% | 20.60% | 58.00% | ||
Income Tax Expense (Benefit), Adjustment of Deferred Tax (Asset) Liability | $ 34 | $ 14 | |||
Deferred Other Tax Expense (Benefit) | $ 26 |
INCOME TAXES (Details 2) Carryf
INCOME TAXES (Details 2) Carryforward Deferred Tax Asset/Liability, BS Disclosure, Recon. of Unrecognized Tax Benefits - USD ($) $ in Millions | 12 Months Ended | ||
Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 | |
Deferred tax assets: | |||
U.S. state carryforward benefits | $ 207 | $ 191 | |
Foreign carryforward benefits | 157 | 149 | |
Employee benefit plans | 279 | 245 | |
Warranty expenses | 427 | 401 | |
Lease liabilities | 122 | 0 | |
Accrued expenses | 76 | 94 | |
Other | 44 | 65 | |
Gross deferred tax assets | 1,312 | 1,145 | |
Valuation allowance | (317) | (327) | |
Total deferred tax assets | 995 | 818 | |
Deferred tax liabilities: | |||
Property, plant and equipment | (260) | (255) | |
Unremitted income of foreign subsidiaries and joint ventures | (181) | (184) | |
Employee benefit plans | (222) | (202) | |
Lease assets | (120) | 0 | |
Other | (77) | (30) | |
Deferred Tax Liabilities, Gross | 860 | 671 | |
Net deferred tax assets | 135 | 147 | |
Net increase (decrease) in valuation allowance | 10 | ||
Balance Sheet Related Disclosures | |||
Refundable income taxes | 191 | 117 | |
Deferred income tax assets | 441 | 410 | $ 306 |
Long-term refundable income taxes | 23 | 6 | |
Taxes Payable, Current | 52 | 97 | |
Taxes Payable, Non-Current | 293 | 293 | |
Deferred tax liabilities | 306 | 263 | |
Reconciliation of unrecognized tax benefits | |||
Beginning balance | 71 | 41 | 59 |
Additions to current year tax positions | 23 | 10 | 11 |
Additions to prior years' tax positions | 5 | 27 | 9 |
Reductions to prior years' tax positions | (11) | (2) | (3) |
Reductions for tax positions due to settlements with taxing authorities | (11) | (5) | (35) |
Ending balance | 77 | 71 | 41 |
Unrecognized tax benefits that would impact effective tax rate | 69 | 62 | 32 |
Unrecognized tax benefits, interest accrued | $ 5 | $ 4 | $ 4 |
INCOME TAXES INCOME TAXES (Deta
INCOME TAXES INCOME TAXES (Details 3) Tax Legislation Summary - USD ($) $ in Millions | 12 Months Ended | 24 Months Ended | ||
Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2018 | ||
Effect of Tax Cuts and Jobs Act [Abstract] | ||||
Tax Cuts and Jobs Act, Incomplete Accounting, Additional Withholding Taxes on Earnings for Adjusting Permanent Reinvestment Assertions, Provisional Income Tax Expense | $ (148) | $ 331 | $ 183 | |
Tax Cuts and Jobs Act, Incomplete Accounting, Change in Tax Rate, Deferred Tax Asset, Provisional Income Tax Expense | 7 | 152 | 159 | |
Tax Cuts and Jobs Act, Incomplete Accounting, Transition Tax for Accumulated Foreign Earnings, Provisional Income Tax Expense | 111 | 298 | 409 | |
Tax Legislation One-time transition tax cash impact | 338 | |||
Tax Legislation Net impact of measurement period changes | (30) | 781 | 751 | |
Tax Legislation Deferred tax charges | [1] | 35 | 0 | 35 |
Tax Legislation Foreign currency adjustment related to Tax Legislation | 7 | 0 | 7 | |
Tax Legislation Net impact of 2018 adjustments | 42 | 0 | 42 | |
Tax Cuts and Jobs Act, Incomplete Accounting, Provisional Income Tax Expense (Benefit) | $ 12 | $ 781 | $ 793 | |
[1] | Charges relate to one-time recognition of deferred tax charges at historical tax rates on intercompany profit in inventory. |
MARKETABLE SECURITIES (Details)
MARKETABLE SECURITIES (Details) - USD ($) $ in Millions | 12 Months Ended | |||
Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 | ||
Schedule of Available-for-sale Securities | ||||
Debt Securities, Available-for-sale, Amortized Cost | $ 1 | $ 1 | ||
Debt Securities, Available-for-sale, Accumulated Gross Unrealized Gain, before Tax | [1] | 0 | 0 | |
Debt Securities, Available-for-sale | 1 | 1 | ||
Total Marketable Securities, Amortized Cost Basis | 334 | 221 | ||
Total Marketable Securities, Accumulated Gross Unrealized Gain(Loss), before tax | [1] | 7 | 1 | |
Total Marketable Securities, Estimated Fair Value | 341 | 222 | ||
Proceeds from sales of marketable securities | 258 | 253 | $ 145 | |
Proceeds from maturities of marketable securities | 131 | 78 | 121 | |
Proceeds from Sale and Maturity of Marketable Securities | 389 | 331 | $ 266 | |
Debt mutual funds | ||||
Schedule of Available-for-sale Securities | ||||
Available-for-sale Equity Securities, Amortized Cost Basis | 180 | 103 | ||
Available-for-sale Equity Securities, Accumulated Gross Unrealized Gain, before Tax | [1] | 3 | 1 | |
Available-for-sale Securities, Equity Securities | 183 | 104 | ||
Certificates of Deposit | ||||
Schedule of Available-for-sale Securities | ||||
Available-for-sale Equity Securities, Amortized Cost Basis | 133 | 101 | ||
Available-for-sale Securities, Equity Securities | 133 | 101 | ||
Equity Mutual Funds | ||||
Schedule of Available-for-sale Securities | ||||
Available-for-sale Equity Securities, Amortized Cost Basis | 19 | 16 | ||
Available-for-sale Equity Securities, Accumulated Gross Unrealized Gain, before Tax | [1] | 4 | ||
Available-for-sale Securities, Equity Securities | 23 | 16 | ||
Bank Time Deposits | ||||
Schedule of Available-for-sale Securities | ||||
Available-for-sale Equity Securities, Amortized Cost Basis | 1 | 0 | ||
Available-for-sale Securities, Equity Securities | $ 1 | $ 0 | ||
Minimum | Certificates of Deposit | ||||
Schedule of Available-for-sale Securities | ||||
Maturities of Time Deposits, Description | P3M | |||
Maximum | Certificates of Deposit | ||||
Schedule of Available-for-sale Securities | ||||
Maturities of Time Deposits, Description | P5Y | |||
[1] | Unrealized gains and losses for debt securities are recorded in other comprehensive income while unrealized gains and losses for equity securities are recorded in "Other income, net" in our Consolidated Statements of Net Income . |
INVENTORIES (Details)
INVENTORIES (Details) - USD ($) $ in Millions | Dec. 31, 2019 | Dec. 31, 2018 |
Inventory Disclosure [Abstract] | ||
Finished products | $ 2,214 | $ 2,405 |
Work-in-process and raw materials | 1,395 | 1,487 |
Inventories at FIFO cost | 3,609 | 3,892 |
Excess of FIFO over LIFO | (123) | (133) |
Total inventories | $ 3,486 | $ 3,759 |
PROPERTY, PLANT AND EQUIPMENT_2
PROPERTY, PLANT AND EQUIPMENT (Details) - USD ($) $ in Millions | Dec. 31, 2019 | Dec. 31, 2018 |
Property, Plant and Equipment | ||
Property, plant and equipment, gross | $ 8,699 | $ 8,319 |
Accumulated depreciation | (4,454) | (4,223) |
Property, plant and equipment, net | 4,245 | 4,096 |
Land and buildings | ||
Property, Plant and Equipment | ||
Property, plant and equipment, gross | 2,487 | 2,398 |
Machinery, equipment and fixtures | ||
Property, Plant and Equipment | ||
Property, plant and equipment, gross | 5,618 | 5,391 |
Construction in process | ||
Property, Plant and Equipment | ||
Property, plant and equipment, gross | $ 594 | $ 530 |
LEASES FOOTNOTE DISCLOSURE LE_3
LEASES FOOTNOTE DISCLOSURE LEASES FOOTNOTE DISCLOSURE (Details 1) | Dec. 31, 2019 |
Real Estate | Minimum | |
Operating Leased Assets [Line Items] | |
Lessee, Operating Lease, Term of Contract | 2 years |
Real Estate | Maximum | |
Operating Leased Assets [Line Items] | |
Lessee, Operating Lease, Term of Contract | 50 years |
Lessee, Operating Lease, Renewal Term | 2 years |
Equipment | Minimum | |
Operating Leased Assets [Line Items] | |
Lessee, Operating Lease, Term of Contract | 2 years |
Equipment | Maximum | |
Operating Leased Assets [Line Items] | |
Lessee, Operating Lease, Term of Contract | 3 years |
LEASES FOOTNOTE DISCLOSURE LE_4
LEASES FOOTNOTE DISCLOSURE LEASES FOOTNOTE DISCLOSURE (Details 2) - USD ($) $ in Millions | 12 Months Ended | ||
Dec. 31, 2019 | Dec. 31, 2018 | ||
Lessee, Lease, Cost | |||
Operating Lease, Cost | $ 208 | ||
Finance Lease, Right-of-Use Asset, Amortization | 18 | ||
Finance Lease, Interest Expense | 9 | ||
Short-term Lease, Cost | 5 | ||
Variable Lease, Cost | 7 | ||
Lease, Cost | 247 | ||
Lessee, Lease, Description [Line Items] | |||
Total leased assets | 586 | ||
Current portion of operating lease liabilities | 131 | $ 0 | |
Operating lease liabilities, long-term | 370 | 0 | |
Total Lease Liabilities | 591 | ||
Finance Lease, Right-of-Use Asset, Accumulated Amortization | 62 | ||
Lessee, Lease, Supplemental Cash Flow Information | |||
Operating cash flows from operating leases | 163 | ||
Operating cash flows from finance leases | 47 | ||
Financing cash flows from finance leases | 9 | ||
Right-of-Use Asset Obtained in Exchange for Operating Lease Liability | 214 | ||
Right-of-Use Asset Obtained in Exchange for Finance Lease Liability | $ 5 | ||
Lessee, Lease, Other Information | |||
Operating Lease, Weighted Average Remaining Lease Term | 5 years 3 months 18 days | ||
Finance Lease, Weighted Average Remaining Lease Term | 12 years 1 month 6 days | ||
Operating Lease, Weighted Average Discount Rate, Percent | 3.30% | ||
Finance Lease, Weighted Average Discount Rate, Percent | 4.40% | ||
Lessee, Lease, Financing | |||
2020 | $ 15 | ||
2021 | 11 | ||
2022 | 10 | ||
2023 | 9 | ||
2024 | 7 | ||
After 2024 | 65 | ||
Total minimum lease payments | 117 | ||
Finance Lease, Liability, Undiscounted Excess Amount | (27) | ||
Present value of net minimum lease payments | 90 | 132 | |
Lessee, Lease, Operating | |||
2020 | 143 | ||
2021 | 117 | ||
2022 | 90 | ||
2023 | 60 | ||
2024 | 47 | ||
After 2024 | 95 | ||
Total minimum lease payments | 552 | ||
Lessee, Operating Lease, Liability, Undiscounted Excess Amount | (51) | ||
Operating Lease, Liability | 501 | ||
Capital Leases, Future Minimum Payments, Net Minimum Payments, Fiscal Year Maturity [Abstract] | |||
2019 | 30 | ||
2020 | 21 | ||
2021 | 16 | ||
2022 | 14 | ||
2023 | 13 | ||
After 2023 | 144 | ||
Total minimum lease payments | 238 | ||
Interest | (106) | ||
Present value of net minimum lease payments | 132 | ||
Operating Leases, Future Minimum Payments Due, Fiscal Year Maturity [Abstract] | |||
2019 | 138 | ||
2020 | 109 | ||
2021 | 81 | ||
2022 | 60 | ||
2023 | 39 | ||
After 2023 | 81 | ||
Total minimum lease payments | $ 508 | ||
Other assets | |||
Lessee, Lease, Description [Line Items] | |||
Operating Lease, Right-of-Use Asset | 496 | ||
Property, plant and equipment, net | |||
Lessee, Lease, Description [Line Items] | |||
Finance Lease, Right-of-Use Asset | [1] | 90 | |
Other accrued expenses | |||
Lessee, Lease, Description [Line Items] | |||
Current portion of operating lease liabilities | 131 | ||
Current maturities of long-term debt | |||
Lessee, Lease, Description [Line Items] | |||
Finance Lease, Liability, Current | 12 | ||
Other liabilities | |||
Lessee, Lease, Description [Line Items] | |||
Operating lease liabilities, long-term | 370 | ||
Long-term debt | |||
Lessee, Lease, Description [Line Items] | |||
Finance Lease, Liability, noncurrent | $ 78 | ||
[1] | Finance lease assets were recorded net of accumulated amortization of $62 million at December 31, 2019 . |
GOODWILL AND OTHER INTANGIBLE_3
GOODWILL AND OTHER INTANGIBLE ASSETS (Details 1) Goodwill rollforward - USD ($) $ in Millions | Jan. 02, 2018 | Dec. 31, 2019 | Dec. 31, 2018 | |
Changes in the carrying amount of goodwill | ||||
Balance at beginning of period | $ 1,082 | $ 1,126 | $ 1,082 | |
Acquisitions | 161 | 49 | ||
Translation and other | (1) | (5) | ||
Goodwill, Transfers | 0 | |||
Balance at end of period | 1,286 | 1,126 | ||
Components | ||||
Changes in the carrying amount of goodwill | ||||
Balance at beginning of period | 940 | 935 | 940 | |
Acquisitions | 0 | 0 | ||
Translation and other | (1) | (5) | ||
Goodwill, Transfers | 0 | |||
Balance at end of period | 934 | 935 | ||
New Power | ||||
Changes in the carrying amount of goodwill | ||||
Balance at beginning of period | 96 | |||
Acquisitions | [1] | 161 | 49 | |
Translation and other | 0 | 0 | ||
Goodwill, Transfers | [2] | 47 | ||
Balance at end of period | 257 | 96 | ||
Distribution | ||||
Changes in the carrying amount of goodwill | ||||
Balance at beginning of period | 79 | 79 | 79 | |
Acquisitions | 0 | 0 | ||
Translation and other | 0 | 0 | ||
Goodwill, Transfers | 0 | |||
Balance at end of period | 79 | 79 | ||
Power Systems | ||||
Changes in the carrying amount of goodwill | ||||
Balance at beginning of period | 10 | 10 | 10 | |
Acquisitions | 0 | 0 | ||
Translation and other | 0 | 0 | ||
Goodwill, Transfers | 0 | |||
Balance at end of period | 10 | 10 | ||
Engine | ||||
Changes in the carrying amount of goodwill | ||||
Balance at beginning of period | 6 | 6 | 6 | |
Acquisitions | 0 | 0 | ||
Translation and other | 0 | 0 | ||
Goodwill, Transfers | 0 | |||
Balance at end of period | 6 | 6 | ||
Allocated to Segments | ||||
Changes in the carrying amount of goodwill | ||||
Balance at beginning of period | 1,035 | 1,126 | 1,035 | |
Acquisitions | 161 | 49 | ||
Translation and other | (1) | (5) | ||
Goodwill, Transfers | 47 | |||
Balance at end of period | 1,286 | 1,126 | ||
Not Yet Allocated to Segment | ||||
Changes in the carrying amount of goodwill | ||||
Balance at beginning of period | [1] | 47 | $ 47 | |
Acquisitions | $ 0 | |||
Goodwill, Transfers | [2] | $ (47) | ||
[1] | See Note 21 , " ACQUISITIONS ," for additional information on acquisition goodwill. | |||
[2] | Goodwill associated with the Brammo Inc. acquisition was presented as an unallocated item as it had not yet been assigned to a reportable segment at December 31, 2017. Effective January 1, 2018, Brammo Inc. was assigned to our New Power segment. See Note 21 , " ACQUISITIONS ," for additional information. |
GOODWILL AND OTHER INTANGIBLE_4
GOODWILL AND OTHER INTANGIBLE ASSETS (Details 2) Intangible Assets and Projected Amortization - USD ($) $ in Millions | 12 Months Ended | ||
Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 | |
Finite Lived Intangible Assets | |||
Intangible asset, Net | $ 1,003 | $ 909 | |
Amortization expense for software and other intangibles | 175 | 153 | $ 112 |
Projected amortization expense | |||
2020 | 136 | ||
2021 | 118 | ||
2022 | 101 | ||
2023 | 84 | ||
2024 | 66 | ||
Software | |||
Finite Lived Intangible Assets | |||
Intangible Assets Gross (software and other intangibles) | 708 | 662 | |
Less: Accumulated amortization | (425) | (372) | |
Intangible asset, Net | 283 | 290 | |
Other Intangible Assets | |||
Finite Lived Intangible Assets | |||
Intangible Assets Gross (software and other intangibles) | 956 | 803 | |
Less: Accumulated amortization | (236) | (184) | |
Intangible asset, Net | $ 720 | $ 619 |
PRODUCT WARRANTY LIABILITY (Det
PRODUCT WARRANTY LIABILITY (Details 1) Warranty Liability Reconciliation, Warranty Related to Deferred Revenues - USD ($) $ in Millions | 12 Months Ended | ||
Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 | |
Product Warranty Liability: | |||
Balance, beginning of year | $ 2,208 | $ 1,687 | $ 1,414 |
Provision for warranties issued | 458 | 437 | 376 |
Deferred revenue on extended warranty contracts sold | 356 | 293 | 240 |
Provision for product campaigns issued | 210 | 481 | 181 |
Payments made during period | (590) | (443) | (398) |
Amortization of deferred revenue on extended warranty contracts | (230) | (244) | (219) |
Changes in estimates for pre-existing warranties | (24) | 3 | 85 |
Foreign currency translation and other | 1 | (6) | 8 |
Balance, end of period | 2,389 | 2,208 | 1,687 |
Product Warranty Liability [Line Items] | |||
Product Liability Contingency, Third Party Recovery | 67 | 26 | $ 16 |
Current portion of deferred revenue | 533 | 498 | |
Long-term portion of deferred revenue | 821 | 658 | |
Deferred revenue related to extended coverage | 941 | 814 | |
Product warranty accrual, current | 803 | 654 | |
Product Warranty Accrual, Non-current | 645 | 740 | |
Standard Product Warranty Accrual | 1,448 | 1,394 | |
Current portion of deferred revenue | |||
Product Warranty Liability [Line Items] | |||
Current portion of deferred revenue | 227 | 227 | |
Deferred revenue | |||
Product Warranty Liability [Line Items] | |||
Long-term portion of deferred revenue | 714 | 587 | |
Current portion of accrued product warranty | |||
Product Warranty Liability [Line Items] | |||
Product warranty accrual, current | 803 | 654 | |
Accrued product warranty | |||
Product Warranty Liability [Line Items] | |||
Product Warranty Accrual, Non-current | $ 645 | $ 740 |
PRODUCT WARRANTY LIABILITY PROD
PRODUCT WARRANTY LIABILITY PRODUCT WARRANTY LIABILITY (Details 2) Engine System Capaign, Customer Loss Contingency - USD ($) $ / shares in Units, $ in Millions | 3 Months Ended | 12 Months Ended | 18 Months Ended | ||
Jul. 01, 2018 | Apr. 01, 2018 | Dec. 31, 2017 | Jul. 01, 2018 | Dec. 31, 2019 | |
Product Warranty Liability [Line Items] | |||||
Product Liability Accrual, Period Expense | $ 181 | $ 187 | $ 36 | $ 410 | |
Income (Loss) from Continuing Operations, Per Diluted Share | $ 0.85 | $ 0.87 | |||
Product Liability Contingency, Accrual, Present Value | $ 247 | ||||
Components | |||||
Product Warranty Liability [Line Items] | |||||
Product Liability Accrual, Period Expense | $ 90 | $ 94 | |||
Engine | |||||
Product Warranty Liability [Line Items] | |||||
Product Liability Accrual, Period Expense | $ 91 | $ 93 |
DEBT (Details)
DEBT (Details) $ in Millions | Aug. 21, 2019USD ($) | Aug. 22, 2018USD ($) | Dec. 31, 2019USD ($)Rate | Dec. 31, 2018USD ($)Rate | Dec. 31, 2017USD ($)Rate | Sep. 19, 2013USD ($)Rate | |
Debt Instruments | |||||||
Loans payable | $ 100 | $ 54 | |||||
Weighted average interest rate (as a percent) | Rate | 3.20% | 4.66% | 3.01% | ||||
Line of Credit Facility, Maximum Borrowing Capacity | $ 3,500 | ||||||
Commercial paper | $ 660 | $ 780 | |||||
Leverage ratio | 0.65 | ||||||
Line of credit facility, remaining borrowing capacity | $ 2,840 | ||||||
Other Long-term Debt | 59 | 64 | |||||
Unamortized discount | (50) | (52) | |||||
Fair value adjustment due to hedge on indebtedness | 35 | 25 | |||||
Finance Lease, Liability | 90 | 132 | |||||
Total long-term debt | 1,607 | 1,642 | |||||
Less: Current maturities of long-term debt | 31 | 45 | |||||
Long-term debt | 1,576 | 1,597 | |||||
Total interest incurred | 112 | 116 | $ 85 | ||||
Interest capitalized | 3 | 2 | 4 | ||||
Principal payments required on long-term debt | |||||||
2020 | 31 | ||||||
2021 | 46 | ||||||
2022 | 9 | ||||||
2023 | 506 | ||||||
2024 | 5 | ||||||
Interest Rate Risk Disclosures | |||||||
Interest Rate Lock, Notional Amount | 350 | ||||||
Unrealized (loss) gain on derivatives | (11) | 5 | 5 | ||||
Gain (Loss) on Swaps | [1] | 16 | (8) | (7) | |||
Gain/(Loss) on Borrowings | [1] | (14) | 7 | $ 8 | |||
Fair value | |||||||
Fair value of total debt | [2] | 2,706 | 2,679 | ||||
Carrying value of total debt | 2,367 | 2,476 | |||||
Senior Notes, 3.65%, due 2023 | |||||||
Debt Instruments | |||||||
Unsecured Debt | $ 500 | 500 | $ 500 | ||||
Debt instrument interest rate (as a percent) | Rate | 3.65% | 3.65% | |||||
Interest Rate Risk Disclosures | |||||||
Hedged Liability, Fair Value Hedge, Cumulative Increase (Decrease) | $ 4 | ||||||
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 | [3] | $ 165 | $ 165 | ||||
Debt instrument interest rate (as a percent) | Rate | 5.65% | ||||||
Effective interest rate (as a percent) | Rate | 7.48% | ||||||
Interest rate locks | |||||||
Interest Rate Risk Disclosures | |||||||
Unrealized (loss) gain on derivatives | $ (10) | ||||||
Derivative Instruments, Gain (Loss) Reclassified from Accumulated OCI into Income, Effective Portion, Net | $ 0 | ||||||
London Interbank Offered Rate (LIBOR) | Senior Notes, 3.65%, due 2023 | |||||||
Debt Instruments | |||||||
Debt Instrument, Description of Variable Rate Basis | one-month LIBOR | ||||||
Commercial Paper | |||||||
Debt Instruments | |||||||
Weighted average interest rate (as a percent) | Rate | 1.82% | 2.59% | 1.56% | ||||
Line of Credit Facility, Maximum Borrowing Capacity | $ 3,500 | ||||||
International and other domestic short-term credit facilities | |||||||
Debt Instruments | |||||||
Line of credit facility, remaining borrowing capacity | $ 204 | ||||||
5-year revolving credit agreement | |||||||
Debt Instruments | |||||||
Line of Credit Facility, Maximum Borrowing Capacity | $ 2,000 | ||||||
Debt Instrument, Term | 5 years | ||||||
Debt Instrument, Description of Variable Rate Basis | adjusted LIBOR | ||||||
Percentage added to reference rate to compute the variable interest rate | Rate | 0.75% | ||||||
1-year revolving credit agreement | |||||||
Debt Instruments | |||||||
Line of Credit Facility, Maximum Borrowing Capacity | $ 1,500 | $ 1,500 | |||||
Debt Instrument, Term | 364 days | ||||||
[1] | The difference between the gain/(loss) on swaps and borrowings represents hedge ineffectiveness. | ||||||
[2] | The fair value of debt is derived from Level 2 inputs. | ||||||
[3] | The effective interest rate on this debt is 7.48% . |
PENSION AND OTHER POSTRETIREM_3
PENSION AND OTHER POSTRETIREMENT BENEFITS (Details 1) -Obligations, Assets and Funded Status $ in Millions | 12 Months Ended | |||
Dec. 31, 2019USD ($)country | Dec. 31, 2018USD ($) | Dec. 31, 2017USD ($) | ||
Amounts recognized in consolidated balance sheets | ||||
Pension assets | $ 1,001 | $ 929 | ||
Liability, Defined Benefit Pension Plan, Noncurrent | 591 | 532 | ||
Other Pension Plan | ||||
Change in plan assets | ||||
Employer contributions | $ 15 | 11 | ||
Less Significant Defined Benefit or Other Postretirement 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 | 5.00% | |||
Other Postretirement Benefit Plan | ||||
Change in benefit obligation | ||||
Benefit obligation at the beginning of the year | $ 246 | 318 | ||
Interest cost | 10 | 11 | $ 14 | |
Plan participants' contributions | 14 | 21 | ||
Actuarial loss (gain) | 0 | (51) | ||
Benefits paid directly by employer or from fund | (43) | (53) | ||
Benefit obligation at the end of the year | $ 227 | $ 246 | 318 | |
Change in plan assets | ||||
Less Significant Defined Benefit or Other Postretirement Plans Applicable to Number of Countries | country | 4 | |||
Maximum Percentage of Defined Benefit Plans, Obligations Included in Other Liabilities and Deferred Revenue | 11.00% | 9.00% | ||
Funded status | ||||
Funded status at end of year | $ (227) | $ (246) | ||
Amounts recognized in consolidated balance sheets | ||||
Accrued compensation, benefits and retirement costs | (21) | (22) | ||
Liability, Other Postretirement Defined Benefit Plan, Noncurrent | 206 | 224 | ||
Net amount recognized | (227) | (246) | ||
Amounts recognized in accumulated other comprehensive loss consist of: | ||||
Net actuarial gain | (25) | (24) | ||
Prior service cost (credit) | (4) | (4) | ||
Net amount recognized | (29) | (28) | ||
U.S. PENSION PLAN | ||||
Change in benefit obligation | ||||
Benefit obligation at the beginning of the year | 2,562 | 2,765 | ||
Service cost | 116 | 120 | 107 | |
Interest cost | 108 | 98 | 106 | |
Actuarial loss (gain) | 296 | (212) | ||
Benefits paid directly by employer or from fund | (150) | (193) | ||
Plan amendment | 0 | 0 | ||
Benefit obligation at the end of the year | 2,916 | 2,562 | 2,765 | |
Change in plan assets | ||||
Fair value of plan assets at the beginning of the year | 2,937 | 3,166 | ||
Actual return on plan assets | 493 | (36) | ||
Employer contributions | 77 | 0 | ||
Benefits paid from Fund | (150) | (193) | ||
Exchange rate changes | 0 | 0 | ||
Fair value of plan assets at the end of the year | 3,357 | 2,937 | 3,166 | |
Funded status | ||||
Funded status at end of year | 441 | 375 | ||
Amounts recognized in consolidated balance sheets | ||||
Pension assets | 842 | 697 | ||
Accrued compensation, benefits and retirement costs | (16) | (14) | ||
Liability, Defined Benefit Pension Plan, Noncurrent | 385 | 308 | ||
Net amount recognized | 441 | 375 | ||
Amounts recognized in accumulated other comprehensive loss consist of: | ||||
Net actuarial gain | 611 | 635 | ||
Prior service cost (credit) | 7 | 8 | ||
Net amount recognized | 618 | 643 | ||
U.K. PENSION PLAN | ||||
Change in benefit obligation | ||||
Benefit obligation at the beginning of the year | 1,550 | 1,662 | ||
Service cost | 26 | 29 | 26 | |
Interest cost | 43 | 41 | 40 | |
Actuarial loss (gain) | 232 | (46) | ||
Benefits paid directly by employer or from fund | (62) | (62) | ||
Plan amendment | 0 | 15 | [1] | |
Exchange rate changes | 62 | (89) | ||
Benefit obligation at the end of the year | 1,851 | 1,550 | 1,662 | |
Change in plan assets | ||||
Fair value of plan assets at the beginning of the year | 1,782 | 1,960 | ||
Actual return on plan assets | 193 | (33) | ||
Employer contributions | 28 | 21 | ||
Benefits paid from Fund | (62) | (62) | ||
Exchange rate changes | 69 | (104) | ||
Fair value of plan assets at the end of the year | 2,010 | 1,782 | $ 1,960 | |
Funded status | ||||
Funded status at end of year | 159 | 232 | ||
Amounts recognized in consolidated balance sheets | ||||
Pension assets | 159 | 232 | ||
Net amount recognized | 159 | 232 | ||
Amounts recognized in accumulated other comprehensive loss consist of: | ||||
Net actuarial gain | 323 | 230 | ||
Prior service cost (credit) | 22 | 16 | ||
Net amount recognized | 345 | 246 | ||
Nonqualified Plan | U.S. PENSION PLAN | ||||
Change in benefit obligation | ||||
Benefits paid directly by employer or from fund | $ (16) | $ (16) | ||
[1] | Guaranteed minimum pension benefits to equalize certain pension benefits between men and women per the U.K. court decision. |
PENSION AND OTHER POSTRETIREM_4
PENSION AND OTHER POSTRETIREMENT BENEFITS (Details 2) - Components of Net Periodic Pension Cost - USD ($) $ in Millions | 12 Months Ended | ||
Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 | |
Pension Plan | |||
Changes in benefit obligations and plan assets recognized in other comprehensive income | |||
Amortization of prior service cost | $ (3) | $ 0 | $ 0 |
Recognized net actuarial loss | (28) | (62) | (77) |
Incurred actuarial loss (gain) | 101 | 91 | (40) |
Foreign exchange translation adjustments | 4 | (5) | 30 |
Total recognized in other comprehensive loss (income) | 74 | 24 | (87) |
Total recognized in net periodic pension cost and other comprehensive loss (income) | 139 | 110 | (5) |
Other Postretirement Benefit Plan | |||
Components of Net Periodic Benefit Cost | |||
Interest cost | 10 | 11 | 14 |
Recognized net actuarial loss | 0 | 0 | 6 |
Net periodic pension cost | 10 | 11 | 20 |
Changes in benefit obligations and plan assets recognized in other comprehensive income | |||
Recognized net actuarial loss | 0 | (6) | |
Incurred actuarial loss (gain) | (1) | (51) | (35) |
Total recognized in other comprehensive loss (income) | (1) | (51) | (41) |
Total recognized in net periodic pension cost and other comprehensive loss (income) | 9 | (40) | (21) |
U.S. PENSION PLAN | |||
Pension and other postretirement benefits | |||
Defined Benefit Plan, Accumulated Benefit Obligation | 2,894 | 2,544 | |
Plans with accumulated benefit obligation in excess of plan assets: | |||
ABO | 379 | 304 | |
Plans with projected benefit obligation in excess of plan assets: | |||
PBO | 401 | 322 | |
Components of Net Periodic Benefit Cost | |||
Service cost | 116 | 120 | 107 |
Interest cost | 108 | 98 | 106 |
Expected return on plan assets | (189) | (196) | (204) |
Amortization of prior service cost | 1 | 1 | 0 |
Recognized net actuarial loss | 17 | 33 | 37 |
Net periodic pension cost | 53 | 56 | 46 |
Changes in benefit obligations and plan assets recognized in other comprehensive income | |||
Foreign exchange translation adjustments | 0 | 0 | |
U.K. PENSION PLAN | |||
Pension and other postretirement benefits | |||
Defined Benefit Plan, Accumulated Benefit Obligation | 1,756 | 1,473 | |
Components of Net Periodic Benefit Cost | |||
Service cost | 26 | 29 | 26 |
Interest cost | 43 | 41 | 40 |
Expected return on plan assets | (70) | (69) | (70) |
Amortization of prior service cost | 2 | 0 | 0 |
Recognized net actuarial loss | 11 | 29 | 40 |
Net periodic pension cost | 12 | 30 | $ 36 |
Changes in benefit obligations and plan assets recognized in other comprehensive income | |||
Foreign exchange translation adjustments | $ 69 | $ (104) |
PENSION AND OTHER POSTRETIREM_5
PENSION AND OTHER POSTRETIREMENT BENEFITS (Details 3) - Assumptions and Plan Asset Targets | Jan. 01, 2020Rate | Dec. 31, 2019Rate | Dec. 31, 2018Rate | Dec. 31, 2017Rate |
Other Postretirement Benefit Plan | ||||
Assumptions Used in Determining the Pension Benefit Obligation | ||||
Discount rate PBO (as a percent) | 3.15% | 4.25% | ||
Assumptions Used in Determining the Net Periodic Pension Cost and OPEB | ||||
Discount rate net periodic benefit cost (as a percent) | 4.25% | 3.55% | 4.00% | |
Defined Benefit Plan, Assumed Health Care Cost Trend Rates | ||||
Annual rate of increase in the per capita cost of covered health care benefits | 7.25% | |||
U.S. PENSION PLAN | ||||
Assumptions Used in Determining the Pension Benefit Obligation | ||||
Discount rate PBO (as a percent) | 3.36% | 4.36% | ||
Cash balance crediting rate | 4.11% | 4.03% | ||
Compensation increase rate (as a percent) | 2.73% | 3.00% | ||
Assumptions Used in Determining the Net Periodic Pension Cost and OPEB | ||||
Discount rate net periodic benefit cost (as a percent) | 4.36% | 3.66% | 4.12% | |
Expected return on plan assets (as a percent) | 6.25% | 6.50% | 7.25% | |
Compensation increase rate (as a percent) | 2.73% | 3.00% | 4.87% | |
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 100.00% | |||
U.S. PENSION PLAN | Defined Benefit Plan, Equity Securities, US | ||||
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 5.00% | |||
U.S. PENSION PLAN | Non-U.S. Equity | ||||
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 1.00% | |||
U.S. PENSION PLAN | Global Equities | ||||
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 6.00% | |||
U.S. PENSION PLAN | Equity Securities | ||||
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 12.00% | |||
U.S. PENSION PLAN | Real Assets | ||||
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 6.00% | |||
U.S. PENSION PLAN | Private Markets | ||||
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 6.00% | |||
U.S. PENSION PLAN | Opportunistic credit | ||||
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 4.00% | |||
U.S. PENSION PLAN | Fixed Income Funds | ||||
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 72.00% | |||
Asset allocation covers exposure to changes in portion of discount rate (as a percent) | 100.00% | |||
U.K. PENSION PLAN | ||||
Assumptions Used in Determining the Pension Benefit Obligation | ||||
Discount rate PBO (as a percent) | 2.00% | 2.80% | ||
Cash balance crediting rate | 0.00% | 0.00% | ||
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) | 2.80% | 2.55% | 2.70% | |
Expected return on plan assets (as a percent) | 4.00% | 4.00% | 4.50% | |
Compensation increase rate (as a percent) | 3.75% | 3.75% | 3.75% | |
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 100.00% | |||
U.K. PENSION PLAN | Global Equities | ||||
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 10.00% | |||
U.K. PENSION PLAN | Private Markets | ||||
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 18.00% | |||
U.K. PENSION PLAN | Fixed Income Funds | ||||
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 55.50% | |||
Asset allocation covers exposure to changes in portion of discount rate (as a percent) | 80.00% | |||
U.K. PENSION PLAN | Credit | ||||
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 7.50% | |||
U.K. PENSION PLAN | Diversifying strategies | ||||
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 8.00% | |||
U.K. PENSION PLAN | Cash | ||||
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 1.00% | |||
Minimum | U.S. PENSION PLAN | Defined Benefit Plan, Equity Securities, US | ||||
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 0.00% | |||
Minimum | U.S. PENSION PLAN | Non-U.S. Equity | ||||
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 0.00% | |||
Minimum | U.S. PENSION PLAN | Global Equities | ||||
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 3.00% | |||
Minimum | U.S. PENSION PLAN | Real Assets | ||||
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 0.00% | |||
Minimum | U.S. PENSION PLAN | Private Markets | ||||
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 0.00% | |||
Minimum | U.S. PENSION PLAN | Opportunistic credit | ||||
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 0.00% | |||
Minimum | U.S. PENSION PLAN | Fixed Income Funds | ||||
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 67.00% | |||
Maximum | U.S. PENSION PLAN | Defined Benefit Plan, Equity Securities, US | ||||
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 10.00% | |||
Maximum | U.S. PENSION PLAN | Non-U.S. Equity | ||||
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 4.00% | |||
Maximum | U.S. PENSION PLAN | Global Equities | ||||
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 9.00% | |||
Maximum | U.S. PENSION PLAN | Real Assets | ||||
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 10.00% | |||
Maximum | U.S. PENSION PLAN | Private Markets | ||||
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 10.00% | |||
Maximum | U.S. PENSION PLAN | Opportunistic credit | ||||
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 10.00% | |||
Maximum | U.S. PENSION PLAN | Fixed Income Funds | ||||
Target Allocations | ||||
Defined Benefit Plan, Plan Assets, Target Allocation, Percentage | 77.00% | |||
Scenario, Forecast | Other Postretirement Benefit Plan | ||||
Defined Benefit Plan, Assumed Health Care Cost Trend Rates | ||||
Ultimate per capita trend rate for health care costs | 5.00% | |||
Scenario, Forecast | U.S. PENSION PLAN | ||||
Assumptions Used in Determining the Net Periodic Pension Cost and OPEB | ||||
Expected return on plan assets (as a percent) | 6.25% | |||
Scenario, Forecast | U.K. PENSION PLAN | ||||
Assumptions Used in Determining the Net Periodic Pension Cost and OPEB | ||||
Expected return on plan assets (as a percent) | 4.00% |
PENSION AND OTHER POSTRETIREM_6
PENSION AND OTHER POSTRETIREMENT BENEFITS (Details 4) - Fair Value of Plan Assets - USD ($) $ in Millions | 1 Months Ended | ||||
Jul. 31, 2012 | Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 | ||
U.S. PENSION PLAN | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | $ 3,357 | $ 2,937 | $ 3,166 | ||
Pending Trade Purchases, Sales | 9 | ||||
Accrued Investment Income Receivable | [1] | 5 | 5 | ||
U.S. PENSION PLAN | U.S. Equity | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 96 | 77 | |||
U.S. PENSION PLAN | Non-U.S. Equity | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 47 | 42 | |||
U.S. PENSION PLAN | Government debt | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 72 | 38 | |||
U.S. PENSION PLAN | Domestic Corporate Debt Securities | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 357 | 323 | |||
U.S. PENSION PLAN | Foreign Corporate Debt Securities | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 11 | 15 | |||
U.S. PENSION PLAN | Asset-backed Securities | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 1 | 5 | |||
U.S. PENSION PLAN | Net cash equivalents | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | [2] | 371 | 192 | ||
U.S. PENSION PLAN | Private Equity and Real Estate | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | [3] | 371 | 316 | ||
U.S. PENSION PLAN | Fair Value, Inputs, Level 1 | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 481 | 294 | |||
U.S. PENSION PLAN | Fair Value, Inputs, Level 1 | U.S. Equity | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 96 | 77 | |||
U.S. PENSION PLAN | Fair Value, Inputs, Level 1 | Non-U.S. Equity | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 47 | 42 | |||
U.S. PENSION PLAN | Fair Value, Inputs, Level 1 | Net cash equivalents | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | [2] | 338 | 175 | ||
U.S. PENSION PLAN | Significant other observable inputs Level 2 | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 474 | 398 | |||
U.S. PENSION PLAN | Significant other observable inputs Level 2 | Government debt | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 72 | 38 | |||
U.S. PENSION PLAN | Significant other observable inputs Level 2 | Domestic Corporate Debt Securities | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 357 | 323 | |||
U.S. PENSION PLAN | Significant other observable inputs Level 2 | Foreign Corporate Debt Securities | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 11 | 15 | |||
U.S. PENSION PLAN | Significant other observable inputs Level 2 | Asset-backed Securities | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 1 | 5 | |||
U.S. PENSION PLAN | Significant other observable inputs Level 2 | Net cash equivalents | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | [2] | 33 | 17 | ||
U.S. PENSION PLAN | Fair Value, Inputs, Level 3 | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 371 | 316 | 246 | ||
U.S. PENSION PLAN | Fair Value, Inputs, Level 3 | Real Assets | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 72 | 69 | 66 | ||
U.S. PENSION PLAN | Fair Value, Inputs, Level 3 | Private Equity and Real Estate | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | [3] | 371 | 316 | ||
U.S. PENSION PLAN | Fair Value, Inputs, Level 1, 2 and 3 | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 1,326 | 1,008 | |||
U.S. PENSION PLAN | Fair Value Measured at Net Asset Value Per Share | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 2,026 | 1,915 | |||
U.S. PENSION PLAN | Fair Value Measured at Net Asset Value Per Share | Global Equities | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 367 | 343 | |||
U.S. PENSION PLAN | Fair Value Measured at Net Asset Value Per Share | Real Assets | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 140 | 147 | |||
U.S. PENSION PLAN | Fair Value Measured at Net Asset Value Per Share | Government debt | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 503 | 602 | |||
U.S. PENSION PLAN | Fair Value Measured at Net Asset Value Per Share | Asset-backed Securities | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 77 | 2 | |||
U.S. PENSION PLAN | Fair Value Measured at Net Asset Value Per Share | Corporate Debt Securities | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 939 | 821 | |||
U.K. PENSION PLAN | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 2,010 | 1,782 | 1,960 | ||
U.K. PENSION PLAN | U.S. Equity | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 45 | 47 | |||
U.K. PENSION PLAN | Non-U.S. Equity | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 58 | 61 | |||
U.K. PENSION PLAN | Net cash equivalents | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | [4] | 35 | 12 | ||
U.K. PENSION PLAN | Insurance annuity (2) | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | [5] | 476 | 442 | ||
Insurance Contract Payment Deferment Period | 10 years | ||||
U.K. PENSION PLAN | Private markets and real assets (3) | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | [6] | 259 | 244 | ||
U.K. PENSION PLAN | Fair Value, Inputs, Level 1 | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 35 | 12 | |||
U.K. PENSION PLAN | Fair Value, Inputs, Level 1 | Net cash equivalents | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | [4] | 35 | 12 | ||
U.K. PENSION PLAN | Significant other observable inputs Level 2 | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 103 | 108 | |||
U.K. PENSION PLAN | Significant other observable inputs Level 2 | U.S. Equity | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 45 | 47 | |||
U.K. PENSION PLAN | Significant other observable inputs Level 2 | Non-U.S. Equity | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 58 | 61 | |||
U.K. PENSION PLAN | Fair Value, Inputs, Level 3 | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 735 | 686 | 671 | ||
U.K. PENSION PLAN | Fair Value, Inputs, Level 3 | Real Assets | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 35 | 57 | $ 59 | ||
U.K. PENSION PLAN | Fair Value, Inputs, Level 3 | Insurance annuity (2) | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | [5] | 476 | 442 | ||
U.K. PENSION PLAN | Fair Value, Inputs, Level 3 | Private markets and real assets (3) | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | [6] | 259 | 244 | ||
U.K. PENSION PLAN | Fair Value, Inputs, Level 1, 2 and 3 | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 873 | 806 | |||
U.K. PENSION PLAN | Fair Value Measured at Net Asset Value Per Share | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 1,137 | 976 | |||
U.K. PENSION PLAN | Fair Value Measured at Net Asset Value Per Share | Global Equities | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 160 | 100 | |||
U.K. PENSION PLAN | Fair Value Measured at Net Asset Value Per Share | Asset-backed Securities | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 96 | 0 | |||
U.K. PENSION PLAN | Fair Value Measured at Net Asset Value Per Share | Corporate Debt Securities | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 791 | 753 | |||
U.K. PENSION PLAN | Fair Value Measured at Net Asset Value Per Share | Diversified Strategies | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | 60 | 46 | |||
U.K. PENSION PLAN | Fair Value Measured at Net Asset Value Per Share | Reinsurance | |||||
Pension and other postretirement benefits | |||||
Fair value of plan assets | $ 30 | $ 77 | |||
[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] | The instruments in private markets and real assets, 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. Private markets include equity, venture capital and private credit instruments and funds. Real assets include real estate and infrastructure. | ||||
[4] | Cash equivalents include commercial paper, short-term government/agency, mortgage and credit instruments. | ||||
[5] | 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 . | ||||
[6] | The instruments in private markets and real assets, 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. Private markets include equity, venture capital and private credit instruments and funds. Real assets include real estate and infrastructure. |
PENSION AND OTHER POSTRETIREM_7
PENSION AND OTHER POSTRETIREMENT BENEFITS - (Details 5 ) - Level 3 Fair Value Reconciliation - USD ($) $ in Millions | 12 Months Ended | ||
Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 | |
U.S. PENSION PLAN | |||
Summary of changes in the fair value of level 3 assets | |||
Fair value of plan assets | $ 3,357 | $ 2,937 | $ 3,166 |
U.S. PENSION PLAN | Fair Value, Inputs, Level 3 | |||
Summary of changes in the fair value of level 3 assets | |||
Fair value of plan assets | 371 | 316 | 246 |
Unrealized gains (losses) on assets still held at the reporting date | 29 | 39 | |
Purchases, sales and settlements, net | 26 | 31 | |
U.S. PENSION PLAN | Fair Value, Inputs, Level 3 | Private Markets | |||
Summary of changes in the fair value of level 3 assets | |||
Fair value of plan assets | 299 | 247 | 180 |
Unrealized gains (losses) on assets still held at the reporting date | 24 | 33 | |
Purchases, sales and settlements, net | 28 | 34 | |
U.S. PENSION PLAN | Fair Value, Inputs, Level 3 | Real Assets | |||
Summary of changes in the fair value of level 3 assets | |||
Fair value of plan assets | 72 | 69 | 66 |
Unrealized gains (losses) on assets still held at the reporting date | 5 | 6 | |
Purchases, sales and settlements, net | (2) | (3) | |
U.K. PENSION PLAN | |||
Summary of changes in the fair value of level 3 assets | |||
Fair value of plan assets | 2,010 | 1,782 | 1,960 |
U.K. PENSION PLAN | Fair Value, Inputs, Level 3 | |||
Summary of changes in the fair value of level 3 assets | |||
Fair value of plan assets | 735 | 686 | 671 |
Unrealized gains (losses) on assets still held at the reporting date | 53 | (16) | |
Purchases, sales and settlements, net | (4) | 31 | |
U.K. PENSION PLAN | Fair Value, Inputs, Level 3 | Private Markets | |||
Summary of changes in the fair value of level 3 assets | |||
Fair value of plan assets | 224 | 187 | 135 |
Unrealized gains (losses) on assets still held at the reporting date | 14 | 21 | |
Purchases, sales and settlements, net | 23 | 31 | |
U.K. PENSION PLAN | Fair Value, Inputs, Level 3 | Real Assets | |||
Summary of changes in the fair value of level 3 assets | |||
Fair value of plan assets | 35 | 57 | 59 |
Unrealized gains (losses) on assets still held at the reporting date | 5 | (2) | |
Purchases, sales and settlements, net | (27) | 0 | |
U.K. PENSION PLAN | Fair Value, Inputs, Level 3 | Insurance | |||
Summary of changes in the fair value of level 3 assets | |||
Fair value of plan assets | 476 | 442 | $ 477 |
Unrealized gains (losses) on assets still held at the reporting date | 34 | (35) | |
Purchases, sales and settlements, net | $ 0 | $ 0 |
PENSION AND OTHER POSTRETIREM_8
PENSION AND OTHER POSTRETIREMENT BENEFITS (Details 6) - Defined Benefits Plan Tables - Scenario, Forecast $ in Millions | Jan. 01, 2020USD ($) |
Pension Plan | |
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block | |
Defined Benefit Plan, Expected Future Employer Contributions, Current Fiscal Year | $ 100 |
Expected benefit payments | |
2020 | 258 |
2021 | 256 |
2022 | 263 |
2023 | 265 |
2024 | 271 |
2025 - 2029 | 1,388 |
Other Postretirement Benefit Plan | |
Expected benefit payments | |
2020 | 22 |
2021 | 21 |
2022 | 21 |
2023 | 19 |
2024 | 19 |
2025 - 2029 | $ 77 |
PENSION AND OTHER POSTRETIREM_9
PENSION AND OTHER POSTRETIREMENT BENEFITS (Details 7) - Contribution Plan - USD ($) $ in Millions | 12 Months Ended | ||
Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 | |
Other Pension Plan | |||
Defined Contribution Plan Disclosure [Line Items] | |||
Defined Contribution Plan, Cost | $ 102 | $ 104 | $ 84 |
OTHER LIABILITIES (Details)
OTHER LIABILITIES (Details) - USD ($) $ in Millions | Dec. 31, 2019 | Dec. 31, 2018 |
Other Liabilities Disclosure [Abstract] | ||
Other taxes payable | $ 228 | $ 196 |
Marketing accruals | 176 | 199 |
Current portion of operating lease liabilities | 131 | 0 |
Accrued Income Taxes | 52 | 97 |
Other Accrued Liabilities, Current | 452 | 360 |
Accrued Liabilities, Current | 1,039 | 852 |
Operating lease liabilities | 370 | 0 |
Deferred income taxes | 306 | 263 |
One-time transition tax | 293 | 293 |
Accrued compensation | 206 | 173 |
Other Accrued Liabilities, Noncurrent | 204 | 163 |
Other liabilities | $ 1,379 | $ 892 |
COMMITMENTS AND CONTINGENCIES (
COMMITMENTS AND CONTINGENCIES (Details1) Guarantees and Commitments $ in Millions | 12 Months Ended |
Dec. 31, 2019USD ($) | |
Guarantee Obligations: | |
Guarantee obligations, maximum potential loss | $ 53 |
Cancellation Obligation - Unrecorded Unconditional Purchase Obligation | 48 |
Purchase Obligation | 58 |
Guarantee obligations, current carrying value | $ 96 |
Maximum | |
Guarantee Obligations: | |
Guarantor Obligations, Term | P2Y |
SHAREHOLDERS' EQUITY (Details 1
SHAREHOLDERS' EQUITY (Details 1 ) Pref. Stock, Common Stock, Quarterly Dividends, Emp. Ben. Trust - USD ($) $ / shares in Units, shares in Millions, $ in Millions | 1 Months Ended | 3 Months Ended | 6 Months Ended | 12 Months Ended | |||||||||||||||
Jul. 31, 2019 | Jul. 31, 2018 | Jul. 29, 2017 | Dec. 31, 2019 | Sep. 29, 2019 | Jun. 30, 2019 | Mar. 31, 2019 | Dec. 31, 2018 | Sep. 30, 2018 | Jul. 01, 2018 | Apr. 01, 2018 | Dec. 31, 2017 | Oct. 01, 2017 | Jul. 02, 2017 | Apr. 02, 2017 | Dec. 31, 2018 | Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 | |
Class of Stock | |||||||||||||||||||
Shares acquired (in shares) | 3.5 | ||||||||||||||||||
Dividends Paid | |||||||||||||||||||
Dividend payments on common stock (in dollars) | $ 761 | $ 718 | $ 701 | ||||||||||||||||
Cash dividend (in dollars per share) | $ 1.311 | $ 1.311 | $ 1.14 | $ 1.14 | $ 1.14 | $ 1.14 | $ 1.08 | $ 1.08 | $ 1.08 | $ 1.08 | $ 1.025 | $ 1.025 | $ 4.90 | $ 4.44 | $ 4.21 | ||||
Share-based Payment Arrangement, Expense | $ 1 | $ 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 | 1,000,000 | 1,000,000 | |||||||||||||||||
Common Stock | |||||||||||||||||||
Class of Stock | |||||||||||||||||||
Balance at beginning of period (in shares) | 222.4 | 222.4 | 222.4 | 222.4 | 222.4 | 222.4 | |||||||||||||
Stock Issued During Period, Shares, New Issues | 0 | 0 | 0 | ||||||||||||||||
Balance at the end of the period (in shares) | 222.4 | 222.4 | 222.4 | 222.4 | 222.4 | 222.4 | 222.4 | ||||||||||||
Dividends Paid | |||||||||||||||||||
Percentage increase in cash dividend per common share | 15.00% | 5.60% | 5.40% | ||||||||||||||||
Treasury Stock, Common | |||||||||||||||||||
Class of Stock | |||||||||||||||||||
Balance at beginning of period (in shares) | 64.4 | 56.7 | 54.2 | 64.4 | 56.7 | 54.2 | |||||||||||||
Shares acquired (in shares) | 8.1 | 7.9 | 2.9 | ||||||||||||||||
Stock Issued During Period, Shares, New Issues | (0.8) | (0.2) | (0.4) | ||||||||||||||||
Balance at the end of the period (in shares) | 71.7 | 64.4 | 56.7 | 64.4 | 71.7 | 64.4 | 56.7 | ||||||||||||
Common Stock Held in Trust | |||||||||||||||||||
Class of Stock | |||||||||||||||||||
Balance at beginning of period (in shares) | 0.4 | 0.5 | 0.7 | 0.4 | 0.5 | 0.7 | |||||||||||||
Stock Issued During Period, Shares, New Issues | (0.2) | (0.1) | (0.2) | ||||||||||||||||
Balance at the end of the period (in shares) | 0.2 | 0.4 | 0.5 | 0.4 | 0.2 | 0.4 | 0.5 | ||||||||||||
Dividends Paid | |||||||||||||||||||
Share-based Payment Arrangement, Expense | $ 10 | $ 12 | $ 17 |
SHAREHOLDERS' EQUITY (Details 2
SHAREHOLDERS' EQUITY (Details 2) Treasury Stock - USD ($) $ / shares in Units, shares in Millions, $ in Millions | 3 Months Ended | 6 Months Ended | 12 Months Ended | |||||||
Dec. 31, 2019 | Sep. 29, 2019 | Jun. 30, 2019 | Mar. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 | Aug. 08, 2018 | ||
Share repurchase programs | ||||||||||
Shares acquired | 3.5 | |||||||||
Average Cost Per Share (in dollars per share) | $ 156.46 | |||||||||
Repurchases of common stock | $ 1,271 | $ 1,140 | $ 451 | |||||||
Remaining Authorized Capacity | [1] | $ 635 | $ 1,100 | $ 1,806 | $ 1,806 | $ 635 | ||||
Accelerated Share Repurchases, Settlement (Payment) or Receipt | $ 500 | |||||||||
Accelerated Share Repurchases, Final Price Paid Per Share | $ 144.02 | |||||||||
$2 Billion Share Repurchase Program 2018 | ||||||||||
Share repurchase programs | ||||||||||
Average Cost Per Share (in dollars per share) | $ 167.82 | $ 152.57 | $ 0 | $ 137.80 | ||||||
Repurchases of common stock | $ 465 | $ 706 | $ 0 | $ 100 | ||||||
Treasury Stock, Common | ||||||||||
Share repurchase programs | ||||||||||
Shares acquired | 8.1 | 7.9 | 2.9 | |||||||
Treasury Stock, Common | $2 Billion Share Repurchase Program 2018 | ||||||||||
Share repurchase programs | ||||||||||
Treasury Stock Repurchase Authorization Value | $ 2,000 | |||||||||
Shares acquired | 2.8 | 4.6 | 0 | 0.7 | ||||||
[1] | The remaining authorized capacity under these plans was calculated based on the cost to purchase the shares but excludes commission expenses in accordance with the authorized plan. |
OTHER COMPREHENSIVE INCOME (L_3
OTHER COMPREHENSIVE INCOME (LOSS) (Details) - USD ($) $ in Millions | 12 Months Ended | |||
Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 | ||
Changes in accumulated other comprehensive income (loss) by component: | ||||
Balance at the beginning of period | $ (1,807) | |||
Before tax amount | (276) | $ (382) | $ 418 | |
Tax benefit (expense) | 27 | 7 | (51) | |
After tax amount | (249) | (375) | 367 | |
Amounts reclassified from accumulated other comprehensive income(2) | [1] | 23 | 42 | 74 |
Impact of tax legislation (Note 5) | 103 | |||
Net current period other comprehensive income (loss) | (226) | (333) | 338 | |
Balance at the end of period | (2,028) | (1,807) | ||
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) | (221) | (304) | 318 | |
Total attributable to Cummins Inc. | ||||
Changes in accumulated other comprehensive income (loss) by component: | ||||
Balance at the beginning of period | (1,807) | (1,503) | (1,821) | |
Before tax amount | (271) | (352) | 398 | |
Tax benefit (expense) | 27 | 7 | (51) | |
After tax amount | (244) | (345) | 347 | |
Amounts reclassified from accumulated other comprehensive income(2) | [1] | 23 | 41 | 74 |
Impact of tax legislation (Note 5) | 103 | |||
Net current period other comprehensive income (loss) | (221) | (304) | 318 | |
Balance at the end of period | (2,028) | (1,807) | (1,503) | |
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 | (671) | (689) | (685) | |
Before tax amount | (106) | (42) | 73 | |
Tax benefit (expense) | 16 | 7 | (36) | |
After tax amount | (90) | (35) | 37 | |
Amounts reclassified from accumulated other comprehensive income(2) | [1] | 27 | 53 | 62 |
Impact of tax legislation (Note 5) | [2] | 103 | ||
Net current period other comprehensive income (loss) | (63) | 18 | (4) | |
Balance at the end of period | (734) | (671) | (689) | |
Foreign currency translation adjustment | ||||
Changes in accumulated other comprehensive income (loss) by component: | ||||
Balance at the beginning of period | (1,138) | (812) | (1,127) | |
Before tax amount | (153) | (333) | 335 | |
Tax benefit (expense) | 6 | 7 | (20) | |
After tax amount | (147) | (326) | 315 | |
Amounts reclassified from accumulated other comprehensive income(2) | [1] | 0 | 0 | |
Impact of tax legislation (Note 5) | 0 | |||
Net current period other comprehensive income (loss) | (147) | (326) | 315 | |
Balance at the end of period | (1,285) | (1,138) | (812) | |
Unrealized gain (loss) on debt securities (1) | ||||
Changes in accumulated other comprehensive income (loss) by component: | ||||
Balance at the beginning of period | [3] | 0 | 1 | (1) |
Before tax amount | [3] | 0 | 2 | 2 |
Tax benefit (expense) | [3] | 0 | 0 | |
After tax amount | [3] | 2 | 2 | |
Amounts reclassified from accumulated other comprehensive income(2) | [1],[3] | 0 | (3) | |
Impact of tax legislation (Note 5) | [3] | 0 | ||
Net current period other comprehensive income (loss) | [3] | (1) | 2 | |
Balance at the end of period | [3] | 0 | 0 | 1 |
Unrealized gain (loss) on derivatives | ||||
Changes in accumulated other comprehensive income (loss) by component: | ||||
Balance at the beginning of period | 2 | (3) | (8) | |
Before tax amount | (12) | 21 | (12) | |
Tax benefit (expense) | 5 | (7) | 5 | |
After tax amount | (7) | 14 | (7) | |
Amounts reclassified from accumulated other comprehensive income(2) | [1] | (4) | (9) | 12 |
Impact of tax legislation (Note 5) | 0 | |||
Net current period other comprehensive income (loss) | (11) | 5 | 5 | |
Balance at the end of period | (9) | 2 | (3) | |
Noncontrolling interests | ||||
Changes in accumulated other comprehensive income (loss) by component: | ||||
Before tax amount | (5) | (30) | 20 | |
Tax benefit (expense) | 0 | 0 | ||
After tax amount | (5) | (30) | 20 | |
Amounts reclassified from accumulated other comprehensive income(2) | [1] | 0 | 1 | |
Impact of tax legislation (Note 5) | 0 | |||
Net current period other comprehensive income (loss) | $ (5) | $ (29) | 20 | |
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. Reclassifications out of accumulated other comprehensive income (loss) and the related tax effects are immaterial for separate disclosure. | |||
[2] | Impact of tax legislation includes a $126 million loss related to Tax Legislation offset by a $23 million favorable impact related to 2017 activity. See Note 5 , " INCOME TAXES ," to our Consolidated Financial Statements for additional information . | |||
[3] | Effective January 1, 2018 and forward, unrealized gains and losses, net of tax for equity securities are reported in "Other income, net" on the Consolidated Statements of Net Income instead of comprehensive income. |
NONCONTROLLING INTERESTS (Detai
NONCONTROLLING INTERESTS (Details) - USD ($) $ in Millions | Dec. 31, 2019 | Dec. 31, 2018 | |
Noncontrolling Interest | |||
Stockholders' Equity Attributable to Noncontrolling Interest | $ 958 | $ 911 | |
Eaton Automated Transmission Technologies | |||
Noncontrolling Interest | |||
Stockholders' Equity Attributable to Noncontrolling Interest | 581 | 602 | |
Cummins India Ltd. | |||
Noncontrolling Interest | |||
Stockholders' Equity Attributable to Noncontrolling Interest | 302 | 293 | |
Hydrogenics Corporation | |||
Noncontrolling Interest | |||
Stockholders' Equity Attributable to Noncontrolling Interest | [1] | 58 | 0 |
Other | |||
Noncontrolling Interest | |||
Stockholders' Equity Attributable to Noncontrolling Interest | $ 17 | $ 16 | |
[1] | See Note 21 , " ACQUISITIONS ," for additional information. |
STOCK INCENTIVE AND STOCK OPT_3
STOCK INCENTIVE AND STOCK OPTION PLANS (Details) Plan Summaries - USD ($) $ in Millions | 12 Months Ended | ||
Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 | |
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 | ||
Vesting period | 2 years | ||
Compensation expense (net of estimated forfeitures) | $ 1 | $ 1 | $ 2 |
Excess tax benefit / (deficiency) associated with share-based plans | 4 | 2 | 2 |
Total unrecognized compensation expense (net of estimated forfeitures) | $ 40 | ||
Minimum | |||
Share-based Compensation Arrangement by Share-based Payment Award | |||
Target award based on the actual performance (as a percent) | 0.00% | ||
Maximum | |||
Share-based Compensation Arrangement by Share-based Payment Award | |||
Target award based on the actual performance (as a percent) | 200.00% | ||
Weighted-average maximum period of recognition of total unrecognized compensation expense related to nonvested awards | 2 years | ||
Employee Stock Option | |||
Share-based Compensation Arrangement by Share-based Payment Award | |||
Vesting period | 3 years | ||
Compensation expense (net of estimated forfeitures) | $ 48 | $ 52 | $ 39 |
STOCK INCENTIVE AND STOCK OPT_4
STOCK INCENTIVE AND STOCK OPTION PLANS (Details 2) Share Based Activity - USD ($) $ / shares in Units, $ in Millions | 12 Months Ended | ||
Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 | |
Stock option plan activity | |||
Balance, at the beginning of the period (in shares) | 3,243,662 | 2,901,369 | 2,734,764 |
Granted (in shares) | 710,120 | 515,320 | 648,900 |
Exercised (in shares) | (652,980) | (140,133) | (355,479) |
Forfeited (in shares) | (63,232) | (32,894) | (126,816) |
Balance, at the end of the period (in shares) | 3,237,570 | 3,243,662 | 2,901,369 |
Weighted average exercise price activity | |||
Weighted-average Exercise Price at the beginning of the period (in dollars per share) | $ 130.55 | $ 123.49 | $ 115.02 |
Weighted-average Exercise Price Granted (in dollars per share) | 163.42 | 159.06 | 149.98 |
Weighted-average Exercise Price Exercised (in dollars per share) | 116.76 | 88.74 | 105.91 |
Weighted-average Exercise Price Forfeited (in dollars per share) | 139.86 | 133 | 125.65 |
Weighted-average Exercise Price at the end of the period (in dollars per share) | $ 140.36 | $ 130.55 | $ 123.49 |
Weighted-average remaining contractual life of options outstanding | 6 years 7 months 6 days | ||
Aggregate intrinsic value of options outstanding | $ 125 | ||
Exercisable (in shares) | 1,665,710 | 1,366,722 | 1,063,889 |
Weighted-average Exercise Price Exercisable (in dollars per share) | $ 123.55 | $ 124.97 | $ 115.26 |
Weighted-average remaining contractual life of options exercisable | 4 years 9 months 18 days | 4 years 8 months 12 days | 4 years 8 months 12 days |
Aggregate intrinsic value of options exercisable | $ 92 | $ 18 | $ 66 |
Weighted average grant date fair value of options granted (in dollars per share) | $ 31.04 | $ 34.21 | $ 36.86 |
Total intrinsic value of options exercised | $ 35 | $ 9 | $ 19 |
STOCK INCENTIVE AND STOCK OPT_5
STOCK INCENTIVE AND STOCK OPTION PLANS (Details 3) Grant Date Fair Value - USD ($) $ / shares in Units, $ in Millions | 12 Months Ended | ||
Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 | |
Share-based compensation plan, other than stock options, weighted average grant date fair value activity | |||
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period | 2 years | ||
Restricted Shares released after Two Years (percent) | 33.33% | ||
Restricted Shares Released each Year after Two Years (percent) | 33.33% | ||
Black-Scholes option pricing model assumptions | |||
Expected life | 6 years | 6 years | 6 years |
Risk-free interest rate | 2.41% | 2.72% | 2.08% |
Expected volatility | 23.79% | 25.40% | 29.97% |
Dividend yield | 2.68% | 2.48% | 2.28% |
Employee Stock Option | |||
Share-based compensation plan, other than stock options, weighted average grant date fair value activity | |||
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period | 3 years | ||
Performance Shares | |||
Share-based compensation plan, other than stock options, activity | |||
Nonvested at the beginning of the period (in shares) | 410,350 | 411,239 | 404,494 |
Granted (in shares) | 185,377 | 124,700 | 150,225 |
Vested (in shares) | (176,613) | (80,996) | (85,020) |
Forfeited (in shares) | (23,183) | (44,593) | (58,460) |
Nonvested at the end of the period (in shares) | 395,931 | 410,350 | 411,239 |
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) | $ 126.36 | $ 120.84 | $ 120.41 |
Granted (in dollars per share) | 141.01 | 146.50 | 138.23 |
Vested (in dollars per share) | 98.28 | 128.47 | 141.50 |
Forfeited (in dollars per share) | 145.26 | 127.90 | 132.52 |
Weighted-average Nonvested, Outstanding at the end of the period (in dollars per share) | $ 144.64 | $ 126.36 | $ 120.84 |
Total fair value of equity instruments other than options vested in period (in dollars) | $ 27 | $ 13 | $ 13 |
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period | 3 years | ||
Restricted Shares | |||
Share-based compensation plan, other than stock options, activity | |||
Nonvested at the beginning of the period (in shares) | 5,393 | 8,089 | 9,841 |
Granted (in shares) | 0 | 0 | 0 |
Vested (in shares) | (2,696) | (2,696) | (1,752) |
Forfeited (in shares) | 0 | 0 | 0 |
Nonvested at the end of the period (in shares) | 2,697 | 5,393 | 8,089 |
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) | $ 117.68 | $ 117.68 | $ 115.76 |
Granted (in dollars per share) | 0 | 0 | 0 |
Vested (in dollars per share) | 117.68 | 117.68 | 106.89 |
Forfeited (in dollars per share) | 0 | 0 | 0 |
Weighted-average Nonvested, Outstanding at the end of the period (in dollars per share) | $ 117.68 | $ 117.68 | $ 117.68 |
Total fair value of equity instruments other than options vested in period (in dollars) | $ 1 | $ 1 | $ 1 |
EARNINGS PER SHARE (Details)
EARNINGS PER SHARE (Details) - USD ($) $ / shares in Units, $ in Millions | 3 Months Ended | 12 Months Ended | |||||||||||||||||
Dec. 31, 2019 | [1] | Sep. 29, 2019 | Jun. 30, 2019 | Mar. 31, 2019 | Dec. 31, 2018 | Sep. 30, 2018 | Jul. 01, 2018 | [2] | Apr. 01, 2018 | [2] | Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 | ||||||
Earnings Per Share [Abstract] | |||||||||||||||||||
NET INCOME ATTRIBUTABLE TO CUMMINS INC. | $ 300 | $ 622 | $ 675 | $ 663 | $ 579 | $ 692 | $ 545 | $ 325 | $ 2,260 | $ 2,141 | $ 999 | ||||||||
Weighted-average common shares outstanding: | |||||||||||||||||||
Basic (in shares) | 155,400,000 | 162,200,000 | 166,700,000 | ||||||||||||||||
Dilutive effect of stock compensation awards (in shares) | 700,000 | 600,000 | 600,000 | ||||||||||||||||
Diluted (in shares) | 156,100,000 | 162,800,000 | 167,300,000 | ||||||||||||||||
Options excluded (in shares) | 473,845 | 969,385 | 31,991 | ||||||||||||||||
Earnings per common share attributable to Cummins Inc. | |||||||||||||||||||
Basic (in dollars per share) | $ 1.98 | [3] | $ 3.99 | [3] | $ 4.29 | [3] | $ 4.22 | [3] | $ 3.65 | [3],[4] | $ 4.29 | [3],[4] | $ 3.33 | [3],[4] | $ 1.97 | [3],[4] | $ 14.54 | $ 13.20 | $ 5.99 |
Diluted (in dollars per share) | $ 1.97 | [3] | $ 3.97 | [3] | $ 4.27 | [3] | $ 4.20 | [3] | $ 3.63 | [3],[4] | $ 4.28 | [3],[4] | $ 3.32 | [3],[4] | $ 1.96 | [3],[4] | $ 14.48 | $ 13.15 | $ 5.97 |
[1] | Net income attributable to Cummins Inc. and earnings per share were negatively impacted by $119 million ( $90 million after-tax) of restructuring actions in the fourth quarter of 2019 ( $0.59 per basic share and $0.59 per diluted share). | ||||||||||||||||||
[2] | Gross margin, net income attributable to Cummins Inc. and earnings per share in 2018 were negatively impacted by an Engine Campaign charge of $187 million ( $144 million after-tax) in the first quarter ( $0.87 per basic share and $0.87 per diluted share). The second quarter of 2018 was negatively impacted by an additional charge of $181 million ( $139 million after-tax) ( $0.85 per basic share and $0.85 per diluted share). | ||||||||||||||||||
[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] | Net income attributable to Cummins Inc., basic and diluted earnings per share were impacted by Tax Legislation adjustments. Net income attributable to Cummins Inc. was reduced by $74 million and $8 million in the first and second quarter, respectively, while it increased in the third and fourth quarter $33 million and $10 million , respectively. Basic and diluted earnings per share were reduced by $0.45 per share and $0.05 per share in the first and second quarters, respectively, while they increased in the third and fourth quarters by $0.20 per share and $0.06 per share , respectively. |
ACQUISITIONS (Details)
ACQUISITIONS (Details) - USD ($) $ in Millions | Jan. 01, 2020 | Sep. 09, 2019 | Aug. 15, 2018 | Nov. 01, 2017 | Jul. 31, 2017 | Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | |
Business Acquisition [Line Items] | ||||||||||
Goodwill | $ 1,286 | $ 1,126 | $ 1,082 | |||||||
Amortization of Intangible Assets | 175 | 153 | 112 | |||||||
Hydrogenics Corporation | ||||||||||
Business Acquisition [Line Items] | ||||||||||
Business Acquisition, Percentage of Voting Interests Acquired | 81.00% | |||||||||
Cash paid for business acquisition | $ 235 | |||||||||
Payments to Acquire Businesses Liabilities Paid | 0 | |||||||||
Business Combination, Consideration Transferred | [1] | 235 | ||||||||
Goodwill | 161 | |||||||||
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill | [2] | $ 161 | ||||||||
Net sales prior to acquisition | $ 34 | |||||||||
Noncontrolling Interest, Ownership Percentage by Noncontrolling Owners | 19.00% | |||||||||
Business Combination, Acquisition of Less than 100 Percent, Noncontrolling Interest, Fair Value | $ 56 | |||||||||
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Inventory | 21 | |||||||||
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Current Assets | 25 | |||||||||
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Noncurrent Assets | 18 | |||||||||
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Current Liabilities | 53 | |||||||||
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Liabilities | 42 | |||||||||
Business Combination, Recognized Identifiable Assets Acquired, Goodwill, and Liabilities Assumed, Net | 291 | |||||||||
Business Combination, Provisional Information, Initial Accounting Incomplete, Adjustment, Financial Liabilities | 5 | |||||||||
Goodwill, Purchase Accounting Adjustments | $ 5 | |||||||||
Finite-Lived Intangible Asset, Useful Life | 5 years | |||||||||
Efficient Drivetrains, Inc. | ||||||||||
Business Acquisition [Line Items] | ||||||||||
Business Acquisition, Percentage of Voting Interests Acquired | 100.00% | |||||||||
Cash paid for business acquisition | $ 51 | |||||||||
Payments to Acquire Businesses Liabilities Paid | 2 | |||||||||
Business Combination, Consideration Transferred | [1],[3] | 64 | ||||||||
Goodwill | 49 | |||||||||
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill | [2] | $ 15 | ||||||||
Net sales prior to acquisition | $ 3 | |||||||||
Brammo Inc. | ||||||||||
Business Acquisition [Line Items] | ||||||||||
Business Acquisition, Percentage of Voting Interests Acquired | 100.00% | |||||||||
Cash paid for business acquisition | $ 60 | |||||||||
Payments to Acquire Businesses Liabilities Paid | 0 | |||||||||
Business Combination, Consideration Transferred | [1],[3] | 68 | ||||||||
Goodwill | 47 | |||||||||
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill | [2] | $ 23 | ||||||||
Net sales prior to acquisition | $ 4 | |||||||||
Business Combination, Contingent Consideration, Liability | $ 5 | |||||||||
Eaton Automated Transmission Technologies | ||||||||||
Business Acquisition [Line Items] | ||||||||||
Business Acquisition, Percentage of Voting Interests Acquired | 50.00% | |||||||||
Cash paid for business acquisition | [4] | $ 600 | ||||||||
Payments to Acquire Businesses Liabilities Paid | 0 | |||||||||
Business Combination, Consideration Transferred | [1] | 600 | ||||||||
Goodwill | 544 | |||||||||
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill | [2] | $ 596 | ||||||||
Net sales prior to acquisition | $ 0 | |||||||||
Minimum | Hydrogenics Corporation | ||||||||||
Business Acquisition [Line Items] | ||||||||||
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life | 3 years | |||||||||
Maximum | Hydrogenics Corporation | ||||||||||
Business Acquisition [Line Items] | ||||||||||
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life | 20 years | 25 years | ||||||||
Maximum | Brammo Inc. | ||||||||||
Business Acquisition [Line Items] | ||||||||||
Business Combination, Contingent Consideration Arrangements, Range of Outcomes, Value, High | $ 100 | |||||||||
Technology-Based Intangible Assets | Hydrogenics Corporation | ||||||||||
Business Acquisition [Line Items] | ||||||||||
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill | $ 96 | |||||||||
Indefinite-lived Intangible Assets, Purchase Accounting Adjustments | 2 | |||||||||
Customer Relationships | Hydrogenics Corporation | ||||||||||
Business Acquisition [Line Items] | ||||||||||
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill | 29 | |||||||||
Indefinite-lived Intangible Assets, Purchase Accounting Adjustments | $ 1 | |||||||||
Customer Relationships | Minimum | Hydrogenics Corporation | ||||||||||
Business Acquisition [Line Items] | ||||||||||
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life | 15 years | |||||||||
Customer Relationships | Maximum | Hydrogenics Corporation | ||||||||||
Business Acquisition [Line Items] | ||||||||||
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life | 20 years | |||||||||
In Process Research and Development | Hydrogenics Corporation | ||||||||||
Business Acquisition [Line Items] | ||||||||||
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill | $ 35 | |||||||||
Other Intangible Assets | Hydrogenics Corporation | ||||||||||
Business Acquisition [Line Items] | ||||||||||
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill | $ 1 | |||||||||
Other Intangible Assets | Minimum | ||||||||||
Business Acquisition [Line Items] | ||||||||||
Finite-Lived Intangible Asset, Useful Life | 3 years | |||||||||
Other Intangible Assets | Maximum | ||||||||||
Business Acquisition [Line Items] | ||||||||||
Finite-Lived Intangible Asset, Useful Life | 25 years | |||||||||
Scenario, Forecast | Maximum | Hydrogenics Corporation | ||||||||||
Business Acquisition [Line Items] | ||||||||||
Amortization of Intangible Assets | $ 8 | |||||||||
[1] | All results from acquired entities (excluding Brammo Inc. in 2017) were included in segment results subsequent to the acquisition date. Newly consolidated entities were accounted for as business combinations and (excluding Brammo Inc. and Eaton Cummins Automated Transmission Technologies) were included in the New Power Segment on the date of acquisition. The Brammo Inc. acquisition was allocated to the New Power Segment on January 1, 2018. Eaton Cummins Automated Transmission Technologies was included in the Components Segment on the date of acquisition. | |||||||||
[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 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 $5 million) to the former owners. | |||||||||
[4] | This transaction created a newly formed joint venture that we consolidated as we have a majority voting interest in the venture by virtue of a tie-breaking vote on the joint venture's board of directors. |
OPERATING SEGMENTS FINANCIAL IN
OPERATING SEGMENTS FINANCIAL INFORMATION (Details) Reportable Operating Segments, EBITDA Reconciliation to GAAP - USD ($) $ in Millions | 3 Months Ended | 12 Months Ended | |||||||||||||
Dec. 31, 2019 | Sep. 29, 2019 | Jun. 30, 2019 | Mar. 31, 2019 | Dec. 31, 2018 | Sep. 30, 2018 | Jul. 01, 2018 | Apr. 01, 2018 | Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 | |||||
Operating results: | |||||||||||||||
Net sales | $ 5,578 | $ 5,768 | $ 6,221 | $ 6,004 | $ 6,126 | $ 5,943 | $ 6,132 | $ 5,570 | $ 23,571 | [1] | $ 23,771 | [1] | $ 20,428 | [1] | |
Research, development and engineering expenses | 1,001 | 902 | 754 | ||||||||||||
Equity, royalty and interest income from investees | 330 | 394 | 357 | [2] | |||||||||||
Interest income | 46 | 35 | 18 | ||||||||||||
Segment Reporting Information Income (Loss) before Interest Expense and Income Taxes Excluding Asset Impairments and Restructuring Actions and Other Charges | 3,731 | ||||||||||||||
Severance Costs | 119 | [3] | 0 | 0 | |||||||||||
Segment EBITDA | 3,612 | 3,476 | 3,026 | ||||||||||||
Depreciation and Amortization | [4] | 669 | 609 | 580 | |||||||||||
Amortization of Debt Discount | 3 | 2 | 3 | ||||||||||||
Interest Expense | 109 | 114 | 81 | ||||||||||||
Income (Loss) from Continuing Operations before Income Taxes, Noncontrolling Interest | 2,834 | 2,753 | 2,365 | ||||||||||||
Statement of Financial Position [Abstract] | |||||||||||||||
Net assets | 9,258 | 9,220 | 9,258 | 9,220 | 8,574 | ||||||||||
Investments and advances to equity method investees | 1,237 | 1,222 | 1,237 | 1,222 | 1,156 | ||||||||||
Capital expenditures | 700 | 709 | 506 | ||||||||||||
Engine | |||||||||||||||
Operating results: | |||||||||||||||
Net sales | 10,056 | 10,566 | 8,953 | ||||||||||||
Research, development and engineering expenses | 337 | 311 | 280 | ||||||||||||
Equity, royalty and interest income from investees | 200 | 238 | 219 | [2] | |||||||||||
Interest income | 15 | 11 | 6 | ||||||||||||
Segment Reporting Information Income (Loss) before Interest Expense and Income Taxes Excluding Asset Impairments and Restructuring Actions and Other Charges | 1,472 | ||||||||||||||
Severance Costs | [3] | 18 | |||||||||||||
Segment EBITDA | 1,454 | 1,446 | 1,143 | ||||||||||||
Depreciation and Amortization | [4] | 202 | 190 | 184 | |||||||||||
Statement of Financial Position [Abstract] | |||||||||||||||
Net assets | 1,094 | 1,265 | 1,094 | 1,265 | 1,180 | ||||||||||
Investments and advances to equity method investees | 575 | 561 | 575 | 561 | 531 | ||||||||||
Capital expenditures | 240 | 254 | 188 | ||||||||||||
Distribution | |||||||||||||||
Operating results: | |||||||||||||||
Net sales | 8,071 | 7,828 | 7,058 | ||||||||||||
Research, development and engineering expenses | 28 | 20 | 19 | ||||||||||||
Equity, royalty and interest income from investees | 52 | 46 | 44 | [2] | |||||||||||
Interest income | 15 | 13 | 6 | ||||||||||||
Segment Reporting Information Income (Loss) before Interest Expense and Income Taxes Excluding Asset Impairments and Restructuring Actions and Other Charges | 693 | ||||||||||||||
Severance Costs | [3] | 37 | |||||||||||||
Segment EBITDA | 656 | 563 | 500 | ||||||||||||
Depreciation and Amortization | [4] | 115 | 109 | 116 | |||||||||||
Statement of Financial Position [Abstract] | |||||||||||||||
Net assets | 2,536 | 2,677 | 2,536 | 2,677 | 2,446 | ||||||||||
Investments and advances to equity method investees | 296 | 278 | 296 | 278 | 267 | ||||||||||
Capital expenditures | 136 | 133 | 101 | ||||||||||||
Components | |||||||||||||||
Operating results: | |||||||||||||||
Net sales | 6,914 | 7,166 | 5,889 | ||||||||||||
Research, development and engineering expenses | 300 | 272 | 241 | ||||||||||||
Equity, royalty and interest income from investees | 40 | 54 | 40 | [2] | |||||||||||
Interest income | 8 | 5 | 3 | ||||||||||||
Segment Reporting Information Income (Loss) before Interest Expense and Income Taxes Excluding Asset Impairments and Restructuring Actions and Other Charges | 1,117 | ||||||||||||||
Severance Costs | [3] | 20 | |||||||||||||
Segment EBITDA | 1,097 | 1,030 | 917 | ||||||||||||
Depreciation and Amortization | [4] | 222 | 185 | 163 | |||||||||||
Statement of Financial Position [Abstract] | |||||||||||||||
Net assets | 2,911 | 2,878 | 2,911 | 2,878 | 2,811 | ||||||||||
Investments and advances to equity method investees | 193 | 206 | 193 | 206 | 194 | ||||||||||
Capital expenditures | 191 | 182 | 127 | ||||||||||||
Power Systems | |||||||||||||||
Operating results: | |||||||||||||||
Net sales | 4,460 | 4,626 | 4,058 | ||||||||||||
Research, development and engineering expenses | 230 | 230 | 214 | ||||||||||||
Equity, royalty and interest income from investees | 38 | 56 | 54 | [2] | |||||||||||
Interest income | 8 | 6 | 3 | ||||||||||||
Segment Reporting Information Income (Loss) before Interest Expense and Income Taxes Excluding Asset Impairments and Restructuring Actions and Other Charges | 524 | ||||||||||||||
Severance Costs | [3] | 12 | |||||||||||||
Segment EBITDA | 512 | 614 | 411 | ||||||||||||
Depreciation and Amortization | [4] | 118 | 119 | 117 | |||||||||||
Statement of Financial Position [Abstract] | |||||||||||||||
Net assets | 2,245 | 2,262 | 2,245 | 2,262 | 2,137 | ||||||||||
Investments and advances to equity method investees | 171 | 177 | 171 | 177 | 164 | ||||||||||
Capital expenditures | 107 | 129 | 90 | ||||||||||||
New Power | |||||||||||||||
Operating results: | |||||||||||||||
Net sales | 38 | 7 | 0 | ||||||||||||
Research, development and engineering expenses | 106 | 69 | 0 | ||||||||||||
Equity, royalty and interest income from investees | 0 | 0 | 0 | [2] | |||||||||||
Interest income | 0 | 0 | 0 | ||||||||||||
Segment Reporting Information Income (Loss) before Interest Expense and Income Taxes Excluding Asset Impairments and Restructuring Actions and Other Charges | (148) | ||||||||||||||
Severance Costs | [3] | 1 | |||||||||||||
Segment EBITDA | (149) | (90) | 0 | ||||||||||||
Depreciation and Amortization | [4] | 12 | 6 | 0 | |||||||||||
Statement of Financial Position [Abstract] | |||||||||||||||
Net assets | 472 | 138 | 472 | 138 | 0 | ||||||||||
Investments and advances to equity method investees | 2 | 0 | 2 | 0 | 0 | ||||||||||
Capital expenditures | 26 | 11 | 0 | ||||||||||||
Total Segment | |||||||||||||||
Operating results: | |||||||||||||||
Net sales | 29,539 | 30,193 | 25,958 | ||||||||||||
Research, development and engineering expenses | 1,001 | 902 | 754 | ||||||||||||
Equity, royalty and interest income from investees | 330 | 394 | 357 | [2] | |||||||||||
Interest income | 46 | 35 | 18 | ||||||||||||
Segment Reporting Information Income (Loss) before Interest Expense and Income Taxes Excluding Asset Impairments and Restructuring Actions and Other Charges | 3,658 | ||||||||||||||
Severance Costs | [3] | 88 | |||||||||||||
Segment EBITDA | 3,570 | 3,563 | 2,971 | ||||||||||||
Depreciation and Amortization | [4] | 669 | 609 | 580 | |||||||||||
Statement of Financial Position [Abstract] | |||||||||||||||
Net assets | 9,258 | 9,220 | 9,258 | 9,220 | 8,574 | ||||||||||
Investments and advances to equity method investees | $ 1,237 | $ 1,222 | 1,237 | 1,222 | 1,156 | ||||||||||
Capital expenditures | 700 | 709 | 506 | ||||||||||||
Intersegment Eliminations | |||||||||||||||
Operating results: | |||||||||||||||
Net sales | [5] | (5,968) | (6,422) | (5,530) | |||||||||||
Non-Segment Items | |||||||||||||||
Operating results: | |||||||||||||||
Segment Reporting Information Income (Loss) before Interest Expense and Income Taxes Excluding Asset Impairments and Restructuring Actions and Other Charges | [5] | 73 | |||||||||||||
Severance Costs | [3],[5] | 31 | |||||||||||||
Segment EBITDA | [5] | 42 | (87) | 55 | |||||||||||
External Sales | |||||||||||||||
Operating results: | |||||||||||||||
Net sales | 23,571 | 23,771 | 20,428 | ||||||||||||
External Sales | Engine | |||||||||||||||
Operating results: | |||||||||||||||
Net sales | 7,570 | 8,002 | 6,661 | ||||||||||||
External Sales | Distribution | |||||||||||||||
Operating results: | |||||||||||||||
Net sales | 8,040 | 7,807 | 7,029 | ||||||||||||
External Sales | Components | |||||||||||||||
Operating results: | |||||||||||||||
Net sales | 5,253 | 5,331 | 4,363 | ||||||||||||
External Sales | Power Systems | |||||||||||||||
Operating results: | |||||||||||||||
Net sales | 2,670 | 2,625 | 2,375 | ||||||||||||
External Sales | New Power | |||||||||||||||
Operating results: | |||||||||||||||
Net sales | 38 | 6 | 0 | ||||||||||||
External Sales | Total Segment | |||||||||||||||
Operating results: | |||||||||||||||
Net sales | 23,571 | 23,771 | 20,428 | ||||||||||||
Intersegment sales | Engine | |||||||||||||||
Operating results: | |||||||||||||||
Net sales | 2,486 | 2,564 | 2,292 | ||||||||||||
Intersegment sales | Distribution | |||||||||||||||
Operating results: | |||||||||||||||
Net sales | 31 | 21 | 29 | ||||||||||||
Intersegment sales | Components | |||||||||||||||
Operating results: | |||||||||||||||
Net sales | 1,661 | 1,835 | 1,526 | ||||||||||||
Intersegment sales | Power Systems | |||||||||||||||
Operating results: | |||||||||||||||
Net sales | 1,790 | 2,001 | 1,683 | ||||||||||||
Intersegment sales | New Power | |||||||||||||||
Operating results: | |||||||||||||||
Net sales | 0 | 1 | 0 | ||||||||||||
Intersegment sales | Total Segment | |||||||||||||||
Operating results: | |||||||||||||||
Net sales | 5,968 | 6,422 | 5,530 | ||||||||||||
Intersegment sales | Intersegment Eliminations | |||||||||||||||
Operating results: | |||||||||||||||
Net sales | [5] | $ (5,968) | $ (6,422) | (5,530) | |||||||||||
Tax Legislation Impact | Engine | |||||||||||||||
Operating results: | |||||||||||||||
Tax Legislation Impact to JV Earnings | (23) | ||||||||||||||
Tax Legislation Impact | Distribution | |||||||||||||||
Operating results: | |||||||||||||||
Tax Legislation Impact to JV Earnings | (4) | ||||||||||||||
Tax Legislation Impact | Components | |||||||||||||||
Operating results: | |||||||||||||||
Tax Legislation Impact to JV Earnings | $ (12) | ||||||||||||||
[1] | Includes sales to nonconsolidated equity investees of $1,191 million , $1,267 million and $1,174 million for the years ended December 31, 2019 , 2018 and 2017 , respectively. | ||||||||||||||
[2] | 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 5 , " INCOME TAXES | ||||||||||||||
[3] | See Note 4 " RESTRUCTURING ACTIONS ," for additional information. | ||||||||||||||
[4] | Depreciation and amortization, as shown on a segment basis, excludes the amortization of debt discount and deferred costs included in the Consolidated Statements of Net Income as "Interest expense." The amortization of debt discount and deferred costs were $3 million , $2 million and $3 million for the years ended 2019, 2018 and 2017, respectively. A portion of depreciation expense is included in "Research, development and engineering expense." | ||||||||||||||
[5] | Includes intersegment sales, intersegment profit in inventory eliminations and unallocated corporate expenses. The year ended December 31, 2019, includes a $31 million restructuring charge related to corporate functions. There were no significant unallocated corporate expenses for the |
OPERATING SEGMENTS - (Details 2
OPERATING SEGMENTS - (Details 2) Geographic Information and Largest Customer - USD ($) $ in Millions | 3 Months Ended | 12 Months Ended | |||||||||||||
Dec. 31, 2019 | Sep. 29, 2019 | Jun. 30, 2019 | Mar. 31, 2019 | Dec. 31, 2018 | Sep. 30, 2018 | Jul. 01, 2018 | Apr. 01, 2018 | Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 | |||||
Segment reporting | |||||||||||||||
Net assets for operating segments | $ 9,258 | $ 9,220 | $ 9,258 | $ 9,220 | $ 8,574 | ||||||||||
Cash, cash equivalents and marketable securities | 1,470 | 1,525 | 1,470 | 1,525 | 1,567 | ||||||||||
Brammo Inc. assets | 0 | 0 | 0 | 0 | 72 | [1] | |||||||||
Net liabilities deducted in arriving at net assets (2) | [2] | 8,498 | 7,836 | 8,498 | 7,836 | 7,398 | |||||||||
Pension and other postretirement adjustments excluded from net assets | 67 | 68 | 67 | 68 | 156 | ||||||||||
Deferred tax assets not allocated to segments | 441 | 410 | 441 | 410 | 306 | ||||||||||
Debt-related costs not allocated to segments | 3 | 3 | 3 | 3 | 2 | ||||||||||
Assets | 19,737 | 19,062 | 19,737 | 19,062 | 18,075 | ||||||||||
Long-lived assets | 6,596 | 5,863 | 6,596 | 5,863 | 5,769 | ||||||||||
Net sales | 5,578 | $ 5,768 | $ 6,221 | $ 6,004 | 6,126 | $ 5,943 | $ 6,132 | $ 5,570 | 23,571 | [3] | 23,771 | [3] | 20,428 | [3] | |
UNITED STATES | |||||||||||||||
Segment reporting | |||||||||||||||
Long-lived assets | 3,555 | 3,174 | 3,555 | 3,174 | 3,157 | ||||||||||
Net sales | 13,519 | 13,218 | 11,010 | ||||||||||||
CHINA | |||||||||||||||
Segment reporting | |||||||||||||||
Long-lived assets | 893 | 823 | 893 | 823 | 795 | ||||||||||
Net sales | 2,331 | 2,324 | 2,137 | ||||||||||||
INDIA | |||||||||||||||
Segment reporting | |||||||||||||||
Long-lived assets | 616 | 577 | 616 | 577 | 563 | ||||||||||
Net sales | 848 | 965 | 805 | ||||||||||||
UNITED KINGDOM | |||||||||||||||
Segment reporting | |||||||||||||||
Long-lived assets | 370 | 337 | 370 | 337 | 339 | ||||||||||
Netherlands | |||||||||||||||
Segment reporting | |||||||||||||||
Long-lived assets | 253 | 234 | 253 | 234 | 221 | ||||||||||
Mexico | |||||||||||||||
Segment reporting | |||||||||||||||
Long-lived assets | 175 | 171 | 175 | 171 | 136 | ||||||||||
Canada | |||||||||||||||
Segment reporting | |||||||||||||||
Long-lived assets | 139 | 114 | 139 | 114 | 116 | ||||||||||
Brazil | |||||||||||||||
Segment reporting | |||||||||||||||
Long-lived assets | 106 | 104 | 106 | 104 | 149 | ||||||||||
Other foreign countries | |||||||||||||||
Segment reporting | |||||||||||||||
Long-lived assets | $ 489 | $ 329 | 489 | 329 | 293 | ||||||||||
Net sales | 6,873 | 7,264 | 6,476 | ||||||||||||
Revenue Benchmark | |||||||||||||||
Segment reporting | |||||||||||||||
Net sales | $ 3,937 | $ 3,643 | $ 2,893 | ||||||||||||
Concentration Risk, Percentage | 17.00% | 15.00% | 14.00% | ||||||||||||
[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 21 , " ACQUISITIONS ," for additional information. | ||||||||||||||
[2] | Liabilities deducted in arriving at net assets include certain accounts payable, accrued expenses, long-term liabilities and other items. | ||||||||||||||
[3] | Includes sales to nonconsolidated equity investees of $1,191 million , $1,267 million and $1,174 million for the years ended December 31, 2019 , 2018 and 2017 , respectively. |
QUARTERLY FINANCIAL INFORMATI_3
QUARTERLY FINANCIAL INFORMATION DISCLOSURE (unaudited) (Details) $ / shares in Units, $ in Millions | 3 Months Ended | 12 Months Ended | 18 Months Ended | ||||||||||||||||||||||||
Dec. 31, 2019USD ($)$ / shares | Sep. 29, 2019USD ($)$ / shares | Jun. 30, 2019USD ($)$ / shares | Mar. 31, 2019USD ($)$ / shares | Dec. 31, 2018USD ($)$ / shares | Sep. 30, 2018USD ($)$ / shares | Jul. 01, 2018USD ($)$ / shares | Apr. 01, 2018USD ($)$ / shares | Dec. 31, 2017$ / shares | Oct. 01, 2017$ / shares | Jul. 02, 2017$ / shares | Apr. 02, 2017$ / shares | Dec. 31, 2019USD ($)$ / shares | Dec. 31, 2018USD ($)$ / shares | Dec. 31, 2017USD ($)$ / shares | Jul. 01, 2018USD ($)$ / shares | ||||||||||||
Effect of Quarterly Events [Line Items] | |||||||||||||||||||||||||||
Net sales | $ | $ 5,578 | $ 5,768 | $ 6,221 | $ 6,004 | $ 6,126 | $ 5,943 | $ 6,132 | $ 5,570 | $ 23,571 | [1] | $ 23,771 | [1] | $ 20,428 | [1] | |||||||||||||
Gross Profit | $ | 1,313 | 1,494 | 1,641 | 1,532 | 1,546 | 1,551 | 1,440 | [2] | 1,200 | [2] | 5,980 | 5,737 | 5,100 | ||||||||||||||
NET INCOME ATTRIBUTABLE TO CUMMINS INC. | $ | $ 300 | [3] | $ 622 | $ 675 | $ 663 | $ 579 | $ 692 | $ 545 | [2] | $ 325 | [2] | $ 2,260 | $ 2,141 | $ 999 | |||||||||||||
Basic (in dollars per share) | $ 1.98 | [3],[4] | $ 3.99 | [4] | $ 4.29 | [4] | $ 4.22 | [4] | $ 3.65 | [4],[5] | $ 4.29 | [4],[5] | $ 3.33 | [2],[4],[5] | $ 1.97 | [2],[4],[5] | $ 14.54 | $ 13.20 | $ 5.99 | ||||||||
Diluted (in dollars per share) | 1.97 | [3],[4] | 3.97 | [4] | 4.27 | [4] | 4.20 | [4] | 3.63 | [4],[5] | 4.28 | [4],[5] | 3.32 | [2],[4],[5] | 1.96 | [2],[4],[5] | 14.48 | 13.15 | 5.97 | ||||||||
Cash dividend (in dollars per share) | $ 1.311 | 1.311 | 1.14 | 1.14 | $ 1.14 | $ 1.14 | $ 1.08 | $ 1.08 | $ 1.08 | $ 1.08 | $ 1.025 | $ 1.025 | $ 4.90 | $ 4.44 | $ 4.21 | ||||||||||||
Severance Costs | $ | $ 119 | [6] | $ 0 | $ 0 | |||||||||||||||||||||||
Restructuring Charges, Net of Tax | $ | $ 90 | ||||||||||||||||||||||||||
Product Liability Accrual, Period Expense | $ | $ 181 | $ 187 | $ 36 | $ 410 | |||||||||||||||||||||||
Product Liability Accrual, Period Expense, Net of Tax | $ | 139 | 144 | |||||||||||||||||||||||||
Total Tax Legislation Impact Net | $ | $ 10 | $ 33 | $ (8) | $ (74) | |||||||||||||||||||||||
Registered Shareholders Total | 3,123 | 3,123 | |||||||||||||||||||||||||
Common Stock, Par or Stated Value Per Share | $ 2.50 | $ 2.50 | $ 2.50 | $ 2.50 | |||||||||||||||||||||||
Maximum | |||||||||||||||||||||||||||
Effect of Quarterly Events [Line Items] | |||||||||||||||||||||||||||
Sale of Stock, Price Per Share | 186.73 | 175.91 | 171.84 | 162.34 | 156.49 | $ 151.87 | $ 172.08 | $ 194.18 | 186.73 | 156.49 | $ 172.08 | ||||||||||||||||
Minimum | |||||||||||||||||||||||||||
Effect of Quarterly Events [Line Items] | |||||||||||||||||||||||||||
Sale of Stock, Price Per Share | 151.15 | $ 141.14 | $ 150.48 | $ 130.03 | 124.40 | 129.90 | 131.58 | 154.58 | $ 151.15 | $ 124.40 | $ 131.58 | ||||||||||||||||
Tax Legislation Impact | |||||||||||||||||||||||||||
Effect of Quarterly Events [Line Items] | |||||||||||||||||||||||||||
Basic (in dollars per share) | 0.06 | 0.20 | (0.05) | (0.45) | |||||||||||||||||||||||
Diluted (in dollars per share) | $ 0.06 | $ 0.20 | (0.05) | (0.45) | |||||||||||||||||||||||
Engine Campaign | |||||||||||||||||||||||||||
Effect of Quarterly Events [Line Items] | |||||||||||||||||||||||||||
Basic (in dollars per share) | (0.85) | (0.87) | |||||||||||||||||||||||||
Diluted (in dollars per share) | $ (0.85) | $ (0.87) | |||||||||||||||||||||||||
Restructuring Charges | |||||||||||||||||||||||||||
Effect of Quarterly Events [Line Items] | |||||||||||||||||||||||||||
Basic (in dollars per share) | 0.59 | ||||||||||||||||||||||||||
Diluted (in dollars per share) | $ 0.59 | ||||||||||||||||||||||||||
[1] | Includes sales to nonconsolidated equity investees of $1,191 million , $1,267 million and $1,174 million for the years ended December 31, 2019 , 2018 and 2017 , respectively. | ||||||||||||||||||||||||||
[2] | Gross margin, net income attributable to Cummins Inc. and earnings per share in 2018 were negatively impacted by an Engine Campaign charge of $187 million ( $144 million after-tax) in the first quarter ( $0.87 per basic share and $0.87 per diluted share). The second quarter of 2018 was negatively impacted by an additional charge of $181 million ( $139 million after-tax) ( $0.85 per basic share and $0.85 per diluted share). | ||||||||||||||||||||||||||
[3] | Net income attributable to Cummins Inc. and earnings per share were negatively impacted by $119 million ( $90 million after-tax) of restructuring actions in the fourth quarter of 2019 ( $0.59 per basic share and $0.59 per diluted share). | ||||||||||||||||||||||||||
[4] | 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. | ||||||||||||||||||||||||||
[5] | Net income attributable to Cummins Inc., basic and diluted earnings per share were impacted by Tax Legislation adjustments. Net income attributable to Cummins Inc. was reduced by $74 million and $8 million in the first and second quarter, respectively, while it increased in the third and fourth quarter $33 million and $10 million , respectively. Basic and diluted earnings per share were reduced by $0.45 per share and $0.05 per share in the first and second quarters, respectively, while they increased in the third and fourth quarters by $0.20 per share and $0.06 per share , respectively. | ||||||||||||||||||||||||||
[6] | See Note 4 " RESTRUCTURING ACTIONS ," for additional information. |