Cummins Inc. - SEC Filings

NOTE 4. EQUITY, ROYALTY AND INTEREST INCOME FROM INVESTEES

Equity, royalty and interest income from investees included in our Condensed Consolidated Statements of Income for the reporting periods was as follows:



	Three months ended					Nine months ended
In millions	October 1, 2017			October 2, 2016		October 1, 2017			October 2, 2016
Distribution entities
Komatsu Cummins Chile, Ltda.	$	8		$	8	$	23		$	26
North American distributors	—			7		—			18
All other distributors	(1		)	1		(1		)	2
Manufacturing entities
Beijing Foton Cummins Engine Co., Ltd.	24			19		79			59
Dongfeng Cummins Engine Company, Ltd.	15			10		56			32
Chongqing Cummins Engine Company, Ltd.	11			11		30			28
All other manufacturers	27			8		78			40
Cummins share of net income	84			64		265			205
Royalty and interest income	11			10		36			29
Equity, royalty and interest income from investees	$	95		$	74	$	301		$	234

NOTE 5. MARKETABLE SECURITIES

A summary of marketable securities, all of which are classified as current, was as follows:



	October 1, 2017						December 31, 2016
In millions	Cost		Gross unrealized gains/(losses)		Estimated fair value		Cost		Gross unrealized gains/(losses)		Estimated fair value
Available-for-sale ⁽¹⁾
Debt mutual funds	$	139	$	—	$	139	$	132	$	—	$	132
Bank debentures	—		—		—		114		—		114
Equity mutual funds	12		2		14		12		—		12
Government debt securities	1		—		1		2		—		2
Total marketable securities	$	152	$	2	$	154	$	260	$	—	$	260

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⁽¹⁾All marketable securities are classified as Level 2 securities. The fair value of Level 2 securities is estimated using actively quoted prices for similar instruments from brokers and observable inputs where available, including market transactions and third-party pricing services, or net asset values provided to investors. We do not currently have any Level 3 securities and there were no transfers between Level 2 or 3 during the first nine months of 2017 and for the year ended 2016.

A description of the valuation techniques and inputs used for our Level 2 fair value measures was as follows:


•	Debt mutual funds— The fair value measure for the vast majority of these investments is the daily net asset value published on a regulated governmental website. Daily quoted prices are available from the issuing brokerage and are used on a test basis to corroborate this Level 2 input.

•

Bank debentures— These investments provide us with a contractual rate of return and generally range in maturity from three months to five years. The counterparties to these investments are reputable financial institutions with investment grade credit ratings. Since these instruments are not tradable and must be settled directly by us with the respective financial institution, our fair value measure is the financial institutions’ month-end statement.


•	Equity mutual funds— The fair value measure for these investments is the net asset value published by the issuing brokerage. Daily quoted prices are available from reputable third party pricing services and are used on a test basis to corroborate this Level 2 input measure.


•	Government debt securities— The fair value measure for these securities is broker quotes received from reputable firms. These securities are infrequently traded on a national stock exchange and these values are used on a test basis to corroborate our Level 2 input measure.