EX-99 2 cmi2018q48-kex99.htm EXHIBIT 99 Exhibit

earningsreleasea06.jpg
For Immediate Release

February 6, 2019

Cummins Announces Fourth Quarter and Full Year 2018 Results

•
Fourth quarter revenues of $6.1 billion; GAAP1 Net Income of $579 million
•
EBITDA in the fourth quarter was 14.6 percent of sales; Diluted EPS of $3.63
•
Full year revenues of $23.8 billion; GAAP1 Net Income of $2.1 billion
•
EBITDA for the full year was 14.6 percent of sales; Diluted EPS of $13.15
•
The company expects full year 2019 revenues to be flat to up 4 percent, EBITDA expected to be in the range of 15.75 to 16.25 percent

COLUMBUS, IND. - Cummins Inc. (NYSE: CMI) today reported results for the fourth quarter of 2018.

Fourth quarter revenues of $6.1 billion increased 12 percent from the same quarter in 2017. Increased truck production in North America and stronger demand in global construction and power generation markets drove the majority of the revenue increase. Currency negatively impacted revenues by 2 percent primarily due to a stronger US dollar.

Fourth quarter sales in North America improved by 17 percent while international revenues increased by 6 percent led by growth in Europe, Asia Pacific, and Latin America.

Earnings before interest, taxes, depreciation and amortization (EBITDA) in the fourth quarter were $896 million, or 14.6 percent of sales, compared to $769 million or 14.0 percent of sales a year ago, or $808 million and 14.8 percent of sales excluding the impact of tax legislation. Fourth quarter results included EBITDA loss of $58 million related to a write-off of an investment in an electronic logging device or ELD business, and the mark to market impact on assets related to our non-qualified benefit plans.


1

Net income attributable to Cummins in the fourth quarter was $579 million ($3.63 per diluted share), compared to a net loss of $274 million ($1.65 per diluted share), or $503 million ($3.03 per diluted share) excluding the impact of tax legislation in the fourth quarter of 2017. Fourth quarter results were positively impacted by $25 million in discrete tax items and the impact of tax reform. Excluding these items, net income attributable to Cummins in the fourth quarter was $554 million ($3.48 per diluted share). The tax rate in the fourth quarter was 14.1 percent.

Revenues for the full year were a record $23.8 billion, 16 percent higher than 2017. Revenues in North America increased 19 percent and international sales grew 12 percent, with growth in all major regions.
EBITDA for the year was a record $3.5 billion or 14.6 percent of sales. This compares to $3.0 billion or 14.8 percent of sales in 2017, or $3.1 billion or 15.0 percent of sales excluding the impact of tax legislation.

Net income attributable to Cummins for the full year was $2.1 billion ($13.15 per diluted share), compared to a net income of $999 million ($5.97 per diluted share), or $1.8 billion ($10.62 per diluted share) excluding the impact of tax legislation. The tax rate for the full year was 20.6 percent, or 21.1 percent excluding the favorable impact of discrete tax items.

“I want to thank the more than 60,000 global employees who made our 2018 record sales and profits a reality,” said Chairman and CEO Tom Linebarger. “2019 is a historic year for Cummins as we celebrate the 100th anniversary of our company, and project another record year of financial results. Our financial strength allows us to continue investing and innovating across our broad portfolio of power solutions to remain a global technology leader for the next 100 years while continuing to return significant capital to investors.”

2019 Outlook:

Based on the current forecast, Cummins projects full year 2019 revenues to be flat to up 4 percent, and EBITDA to be in the range of 15.75 to 16.25 percent of sales. The Company expects to return 75 percent of Operating Cash Flow to shareholders in 2019 in the form of dividends and share repurchases.

2018 Highlights:

•
The Company returned $1.9 billion or 78 percent of Operating Cash Flow to shareholders in the form of dividends and share repurchases


2

•
On International Women’s Day 2018, Cummins launched the Cummins Powers Women program, our commitment to the advancement and prosperity of women and girls around the world

•
Cummins was named to Ethisphere’s 2018 list of World’s Most Ethical Companies for a 11th consecutive year by the Ethisphere Institute

•
DiversityInc named Cummins one of the Top 50 Companies for Diversity for a 12th consecutive year. Cummins ranked No. 12 on the 2018 annual list, which included more than 1,000 participating companies

•
Cummins received the highest ranking possible for its environmental and social performance from Institutional Shareholder Services (ISS), a key source of information for institutional investors

•
Announced the creation of the Electrified Power Business Unit and completed the acquisition of Silicon Valley-based Efficient Drivetrains, Inc. (EDI), which designs and produces hybrid and fully- electric power solutions for commercial vehicle markets, and Johnson Matthey Battery Systems.

Fourth quarter 2018 detail (all comparisons to same period in 2017)

Engine Segment

•
Sales - $2.7 billion, up 18 percent
•
Segment EBITDA - $393 million, or 14.6 percent of sales, compared to $271 million or 11.8 percent of sales
•
On-highway revenues increased 17 percent, and off-highway revenues increased 21 percent primarily due to increased global demand in truck and constructions markets

Distribution Segment

•
Sales - $2.1 billion, up 6 percent
•
Segment EBITDA - $140 million, or 6.8 percent of sales, compared to $123 million or 6.3 percent of sales
•
Revenues in North America increased by 6 percent and international sales grew by 5 percent
•
Strong demand for power generation equipment and growth in parts and service were partially offset by lower demand in oil and gas markets and unfavorable impact of 2 percent from a stronger US dollar


3

Components Segment

•
Sales - $1.8 billion, up 14 percent
•
Segment EBITDA - $278 million, or 15.7 percent of sales, compared to $214 million or 13.7 percent of sales
•
The Eaton Cummins Automated Transmission joint venture recorded sales of $135 million and an EBITDA loss of $7 million in the fourth quarter
•
Revenues in North America increased by 23 percent, and international sales grew by 3 percent

Power Systems Segment

•
Sales - $1.2 billion, up 9 percent
•
Segment EBITDA - $123 million, or 10.3 percent of sales, compared to $125 million, or 11.3 percent of sales
•
Power generation revenues increased by 13 percent while industrial revenues were flat

Electrified Power Segment

•
Sales - $2 million
•
Segment EBITDA loss - $29 million

1 Generally Accepted Accounting Principles

About Cummins
Cummins Inc., a global power leader, is a corporation of complementary business units that design, manufacture, distribute and service a broad portfolio of power solutions. The company’s products range from diesel and natural gas engines to hybrid and electric platforms, as well as related technologies, including battery systems, fuel systems, controls, air handling, filtration, emission solutions and electrical power generation systems. Headquartered in Columbus, Indiana, (USA) Cummins employed 62,610 people committed to powering a more prosperous world as of December 31, 2018. Cummins serves customers in approximately 190 countries and territories through a network of approximately 600 company-owned and independent distributor locations and over 7,600 dealer locations. Cummins earned about $2.1 billion on sales of $23.8 billion in 2018. Press releases can be found on the Web at www.cummins.com. Follow Cummins on Twitter at www.twittter.com/cummins and on YouTube at www.youtube.com/cumminsinc.




4

Forward-looking disclosure statement
Information provided in this release that is not purely historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our forecasts, guidance, preliminary results, expectations, hopes, beliefs and intentions on strategies regarding the future. These forward looking statements include, without limitation, statements relating to our plans and expectations for our revenues and EBITDA percentage for the full year of 2019. Our actual future results could differ materially from those projected in such forward-looking statements because of a number of factors, including, but not limited to: the adoption and implementation of global emission standards; the price and availability of energy; the pace of infrastructure development; increasing global competition among our customers; general economic, business and financing conditions; governmental action; changes in our customers’ business strategies; competitor pricing activity; expense volatility; labor relations; and (i) a sustained slowdown or significant downturn in our markets; (ii) our truck manufacturing and OEM customers discontinuing outsourcing their engine needs; (iii) the development of new technologies; (iv) the discovery of any significant additional problems with our engine platforms or aftertreatment systems in North America; (v) performance or safety-related recalls; (vi) policy changes impacting international trade; (vii) the United Kingdom’s decision to end its membership in the European Union; (viii) lower than anticipated market acceptance of our new or existing products or services; (ix) a slowdown in infrastructure development and/or depressed commodity prices; (x) vulnerability to supply chain shortages from single-sourced suppliers; (xi) potential security breaches or other disruptions to our information technology systems and data security; (xii) financial distress or a change-in-control of one of our large truck OEM customers; (xiii) our reliance on significant earnings from investees that we do not directly control; (xiv) our pursuit of strategic acquisitions and divestitures; and (xv) other risks detailed from time to time in our Securities and Exchange Commission filings, including particularly in the Risk Factors section of our 2017 Annual Report on Form 10-K. Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are made only as of the date of this press release and we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. More detailed information about factors that may affect our performance may be found in our filings with the Securities and Exchange Commission, which are available at http://www.sec.gov or at http://www.cummins.com in the Investor Relations section of our website.

Presentation of Non-GAAP Financial Information
EBITDA is a non-GAAP measure used in this release, and is defined and reconciled to what management believes to be the most comparable GAAP measure in a schedule attached to this release. Cummins presents this information as it believes it is useful to understanding the Company's operating performance, and because EBITDA is a measure used internally to assess the performance of the operating units.

We believe net income and diluted earnings per share attributable to Cummins Inc. excluding Tax Legislation and other discrete tax items is a useful measure of our operating performance without regard to Tax Legislation and discrete tax adjustments. These measures are not in accordance with, or an alternative for GAAP and may not be consistent with measures used by other companies.

Webcast information
Cummins management will host a teleconference to discuss these results today at 10 a.m. EST. This teleconference will be webcast and available on the Investor Relations section of the Cummins website at www.cummins.com. Participants wishing to view the visuals available with the audio are encouraged to sign-in a few minutes prior to the start of the teleconference.


5

CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) (a)


 
 
Three months ended December 31,
In millions, except per share amounts
 
2018
 
2017
NET SALES
 
$
6,126

 
$
5,476

Cost of sales
 
4,580

 
4,100

GROSS MARGIN
 
1,546

 
1,376

OPERATING EXPENSES AND INCOME
 
 
 
 
Selling, general and administrative expenses
 
643

 
643

Research, development and engineering expenses
 
244

 
208

Equity, royalty and interest income from investees
 
79

 
56

Other operating income (expense), net
 
(7
)
 
5

OPERATING INCOME
 
731

 
586

Interest income
 
9

 
7

Interest expense
 
32

 
24

Other income, net
 
2

 
27

INCOME BEFORE INCOME TAXES
 
710

 
596

Income tax expense
 
100

 
905

CONSOLIDATED NET INCOME (LOSS)
 
610

 
(309
)
Less: Net income (loss) attributable to noncontrolling interests
 
31

 
(35
)
NET INCOME (LOSS) ATTRIBUTABLE TO CUMMINS INC.
 
$
579

 
$
(274
)
 
 
 
 
 
EARNINGS (LOSS) PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
 
 
 
 
Basic
 
$
3.65

 
$
(1.66
)
Diluted
 
$
3.63

 
$
(1.65
)
 
 
 
 
 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
 
 

 
 
Basic
 
158.7

 
165.4

Diluted
 
159.3

 
166.2

 
 
 
 
 
CASH DIVIDENDS DECLARED PER COMMON SHARE
 
$
1.14

 
$
1.08

 
 
 
 
 
(a)  Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America.




















6

CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) (a)


 
 
Years ended December 31,
In millions, except per share amounts
 
2018
 
2017
NET SALES
 
$
23,771

 
$
20,428

Cost of sales
 
18,034

 
15,328

GROSS MARGIN
 
5,737

 
5,100

OPERATING EXPENSES AND INCOME
 
 
 
 
Selling, general and administrative expenses
 
2,437

 
2,429

Research, development and engineering expenses
 
902

 
754

Equity, royalty and interest income from investees
 
394

 
357

Other operating income (expense), net
 
(6
)
 
60

OPERATING INCOME
 
2,786

 
2,334

Interest income
 
35

 
18

Interest expense
 
114

 
81

Other income, net
 
46

 
94

INCOME BEFORE INCOME TAXES
 
2,753

 
2,365

Income tax expense
 
566

 
1,371

CONSOLIDATED NET INCOME
 
2,187

 
994

Less: Net income (loss) attributable to noncontrolling interests
 
46

 
(5
)
NET INCOME ATTRIBUTABLE TO CUMMINS INC.
 
$
2,141

 
$
999

 
 
 
 
 
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
 
 
 
 
Basic
 
$
13.20

 
$
5.99

Diluted
 
$
13.15

 
$
5.97

 
 
 
 
 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
 
 
 
 
Basic
 
162.2

 
166.6

Diluted
 
162.8

 
167.3

 
 
 
 
 
CASH DIVIDENDS DECLARED PER COMMON SHARE
 
$
4.44

 
$
4.21

 
 
 
 
 
(a)  Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America.






7

CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (a)


 
 
December 31,
In millions, except par value
 
2018
 
2017
ASSETS
 
 
 
 
Current assets
 
 
 
 
Cash and cash equivalents
 
$
1,303

 
$
1,369

Marketable securities
 
222

 
198

Total cash, cash equivalents and marketable securities
 
1,525

 
1,567

Accounts and notes receivable, net
 
3,866

 
3,618

Inventories
 
3,759

 
3,166

Prepaid expenses and other current assets
 
668

 
577

Total current assets
 
9,818

 
8,928

Long-term assets
 
 
 
 
Property, plant and equipment, net
 
4,096

 
3,927

Investments and advances related to equity method investees
 
1,222

 
1,156

Goodwill
 
1,126

 
1,082

Other intangible assets, net
 
909

 
973

Pension assets
 
929

 
1,043

Other assets
 
962

 
966

Total assets
 
$
19,062

 
$
18,075

 
 
 
 
 
LIABILITIES
 
 
 
 
Current liabilities
 
 
 
 
Accounts payable (principally trade)
 
$
2,822

 
$
2,579

Loans payable
 
54

 
57

Commercial paper
 
780

 
298

Accrued compensation, benefits and retirement costs
 
679

 
811

Current portion of accrued product warranty
 
654

 
454

Current portion of deferred revenue
 
498

 
500

Other accrued expenses
 
852

 
915

Current maturities of long-term debt
 
45

 
63

Total current liabilities
 
6,384

 
5,677

Long-term liabilities
 
 
 
 
Long-term debt
 
1,597

 
1,588

Pensions and other postretirement benefits
 
532

 
619

Accrued product warranty
 
740

 
466

Deferred revenue
 
658

 
604

Other liabilities
 
892

 
957

Total liabilities
 
$
10,803

 
$
9,911

 
 
 
 
 
EQUITY
 
 
 
 
Cummins Inc. shareholders’ equity
 
 
 
 
Common stock, $2.50 par value, 500 shares authorized, 222.4 and 222.4 shares issued
 
$
2,271

 
$
2,210

Retained earnings
 
12,917

 
11,464

Treasury stock, at cost, 64.4 and 56.7 shares
 
(6,028
)
 
(4,905
)
Common stock held by employee benefits trust, at cost, 0.4 and 0.5 shares
 
(5
)
 
(7
)
Accumulated other comprehensive loss
 
(1,807
)
 
(1,503
)
Total Cummins Inc. shareholders’ equity
 
7,348

 
7,259

Noncontrolling interests
 
911

 
905

Total equity
 
$
8,259

 
$
8,164

Total liabilities and equity
 
$
19,062

 
$
18,075

 
 
 
 
 
(a)  Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America.



8

CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (a)



 
 
Years ended December 31,
In millions
 
2018
 
2017
NET CASH PROVIDED BY OPERATING ACTIVITIES
 
$
2,378

 
$
2,277

 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
 
Capital expenditures
 
(709
)
 
(506
)
Investments in internal use software
 
(75
)
 
(81
)
Proceeds from disposals of property, plant and equipment
 
20

 
110

Investments in and advances to equity investees
 
(37
)
 
(66
)
Acquisitions of businesses, net of cash acquired
 
(70
)
 
(662
)
Investments in marketable securities—acquisitions
 
(368
)
 
(194
)
Investments in marketable securities—liquidations
 
331

 
266

Cash flows from derivatives not designated as hedges
 
(102
)
 
76

Other, net
 
36

 
5

Net cash used in investing activities
 
(974
)
 
(1,052
)
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
 
Proceeds from borrowings
 
36

 
6

Net borrowings of commercial paper
 
482

 
86

Payments on borrowings and capital lease obligations
 
(62
)
 
(60
)
Net borrowings under short-term credit agreements
 
1

 
12

Distributions to noncontrolling interests
 
(30
)
 
(29
)
Dividend payments on common stock
 
(718
)
 
(701
)
Repurchases of common stock
 
(1,140
)
 
(451
)
Other, net
 
31

 
63

Net cash used in financing activities
 
(1,400
)
 
(1,074
)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
 
(70
)
 
98

Net (decrease) increase in cash and cash equivalents
 
(66
)
 
249

Cash and cash equivalents at beginning of year
 
1,369

 
1,120

CASH AND CASH EQUIVALENTS AT END OF PERIOD
 
$
1,303

 
$
1,369

 
 
 
 
 
(a)  Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America.


9
CUMMINS INC. AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)

 
In millions
 
Engine
 
Distribution
 
Components (1)
 
Power Systems
 
Electrified Power (2)
 
Total Segments
 
Intersegment Eliminations (3)
 
Total
 
Three months ended December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
External sales
 
$
2,057

 
$
2,045

 
$
1,319

 
$
703

 
$
2

 
$
6,126

 
$
—

 
$
6,126

 
Intersegment sales
 
641

 
5

 
453

 
496

 
—

 
1,595

 
(1,595
)
 
—

 
Total sales
 
2,698

 
2,050

 
1,772

 
1,199

 
2

 
7,721

 
(1,595
)
 
6,126

 
Research, development and engineering expenses
 
82

 
5

 
77

 
56

 
24

 
244

 
—

 
244

 
Equity, royalty and interest income from investees
 
49

 
13

 
12

 
5

 
—

 
79

 
—

 
79

 
Interest income
 
3

 
4

 
1

 
1

 
—

 
9

 
—

 
9

 
Segment EBITDA
 
393

 
140

 
278

 
123

 
(29
)
 
905

 
(9
)
 
896

 
Depreciation and amortization (4)
 
48

 
28

 
48

 
28

 
2

 
154

 
—

 
154

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EBITDA as a percentage of total sales
 
14.6
%
 
6.8
%
 
15.7
%
 
10.3
%
 
NM

 
11.7
%
 
 
 
14.6
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
External sales
 
$
1,710

 
$
1,928

 
$
1,180

 
$
658

 
$
—

 
$
5,476

 
$
—

 
$
5,476

 
Intersegment sales
 
577

 
10

 
378

 
445

 
—

 
1,410

 
(1,410
)
 
—

 
Total sales
 
2,287

 
1,938

 
1,558

 
1,103

 
—

 
6,886

 
(1,410
)
 
5,476

 
Research, development and engineering expenses
 
80

 
5

 
70

 
53

 
—

 
208

 
—

 
208

 
Equity, royalty and interest income from investees (5)
 
33

 
9

 
—

 
14

 
—

 
56

 
—

 
56

 
Interest income
 
2

 
2

 
2

 
1

 
—

 
7

 
—

 
7

 
Segment EBITDA
 
271

 
123

 
214

 
125

 
—

 
733

 
36

 
769

 
Depreciation and amortization (4)
 
47

 
26

 
46

 
30

 
—

 
149

 
—

 
149

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EBITDA as a percentage of total sales
 
11.8
%
 
6.3
%
 
13.7
%
 
11.3
%
 
—
%
 
10.6
%
 
 
 
14.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
"NM" - not meaningful information
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1
)
Includes Eaton Cummins Transmission Technologies joint venture consolidated during the third quarter of 2017.
(2
)
We formed the Electrified Power segment, effective January 1, 2018, which designs, manufactures, sells and supports electrified power systems ranging from fully electric to hybrid.
(3
)
Includes intersegment sales, intersegment profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the three months ended December 31, 2018 and 2017.
(4
)
Depreciation and amortization, as shown on a segment basis, excludes the amortization of debt discount and deferred costs included in the Condensed Consolidated Statements of Income as "Interest expense." A portion of depreciation expense is included in "Research, development and engineering expense."
(5
)
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.

10
CUMMINS INC. AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)

 
In millions
 
Engine
 
Distribution
 
Components (1)
 
Power Systems
 
Electrified Power (2)
 
Total Segments
 
Intersegment Eliminations (3)
 
Total
 
Year ended December 31, 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 (4)
 
190

 
109

 
185

 
119

 
6

 
609

 
—

 
609

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EBITDA as a percentage of total sales
 
13.7
%
 
7.2
%
 
14.4
%
 
13.3
%
 
NM

 
11.8
%
 
 
 
14.6
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Year ended December 31, 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 (5)
 
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 (4)
 
184

 
116

 
163

 
117

 
—

 
580

 
—

 
580

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EBITDA as a percentage of total sales
 
12.8
%
 
7.1
%
 
15.6
%
 
10.1
%
 
—
%
 
11.4
%
 
 
 
14.8
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
"NM" - not meaningful information
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1
)
Includes Eaton Cummins Transmission Technologies joint venture consolidated during the third quarter of 2017.
(2
)
We formed the Electrified Power segment, effective January 1, 2018, which designs, manufactures, sells and supports electrified power systems ranging from fully electric to hybrid.
(3
)
Includes intersegment sales, intersegment profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the years ended December 31, 2018 and 2017.
(4
)
Depreciation and amortization, as shown on a segment basis, excludes the amortization of debt discount and deferred costs included in the Condensed Consolidated Statements of Income as "Interest expense." The amortization of debt discount and deferred costs was $2 million and $3 million for the years ended December 31, 2018 and 2017, respectively. A portion of depreciation expense is included in "Research, development and engineering expense."
(5
)
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.

11

CUMMINS INC. AND SUBSIDIARIES
RECONCILIATION OF SEGMENT INFORMATION
(Unaudited)


A reconciliation of our segment information to the corresponding amounts in the Condensed Consolidated Statements of Income is shown in the table below:
 
 
 
Three months ended December 31,
 
Years ended December 31,
In millions
 
2018
 
2017
 
2018
 
2017
Total EBITDA
 
$
896

 
$
769

 
$
3,476

 
$
3,026

Less:
 
 
 
 
 
 
 
 
Depreciation and amortization
 
154

 
149

 
609

 
580

Interest expense
 
32

 
24

 
114

 
81

Income before income taxes
 
$
710

 
$
596

 
$
2,753

 
$
2,365



12

CUMMINS INC. AND SUBSIDIARIES
SELECT FOOTNOTE DATA
(Unaudited)




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 December 31,
 
Years ended December 31,
 
In millions
 
2018
 
2017
 
2018
 
2017
 
Manufacturing entities
 

 

 

 

 
Dongfeng Cummins Engine Company, Ltd.
 
$
11

 
$
17

 
$
58

 
$
73

 
Beijing Foton Cummins Engine Co., Ltd.
 
9

 
15

 
72

 
94

 
Chongqing Cummins Engine Company, Ltd.
 
8

 
11

 
51

 
41

 
Cummins Westport, Inc.
 
8

 
—

(1) 
28

 
9

(1) 
Tata Cummins, Ltd.
 
4

 
(12
)
(1) 
14

 
(7
)
(1) 
Dongfeng Cummins Emission Solutions Co., Ltd.
 
3

 
3

 
14

 
13

 
All other manufacturers
 
14

 
2

(1) 
73

 
56

(1) 
Distribution entities
 


 


 


 


 
Komatsu Cummins Chile, Ltda.
 
8

 
7

 
26

 
30

 
All other distributors
 
—

 
—

 
—

 
(1
)
 
Cummins share of net income
 
65

 
43

 
336

 
308

 
Royalty and interest income
 
14

 
13

 
58

 
49

 
Equity, royalty and interest income from investees
 
$
79

 
$
56

 
$
394

 
$
357

 
___________________________________________________________
(1) U.S. tax legislation passed in December 2017 decreased our equity earnings at certain equity investees, including a $7 million unfavorable impact to Cummins Westport, Inc. due to the remeasurement of deferred taxes and $15 million unfavorable impact to Tata Cummins, Ltd. and a $17 million unfavorable impact to "All other manufacturers" due to withholding tax adjustments on foreign earnings.

13

CUMMINS INC. AND SUBSIDIARIES
SELECT FOOTNOTE DATA
(Unaudited)


INCOME TAXES
 
Our effective tax rates for the three months and the year ended December 31, 2018, were 14.1 percent and 20.6 percent, respectively.
The three months ended December 31, 2018, contained $51 million, or $0.32 per share, of favorable net discrete tax items, primarily due to $36 million of favorable discrete tax items related to the 2017 Tax Cuts and Jobs Act (Tax Legislation) and $15 million of other favorable discrete tax items. The year ended December 31, 2018, contained $14 million, or $0.09 per share, 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 2017 Tax Legislation.
On December 22, 2017, the U.S. enacted Tax Legislation which, among other things, changed the U.S. statutory rate to 21 percent effective January 1, 2018. The impact of the Tax Legislation resulted in a net incremental charge to our 2017 Condensed Consolidated Statements of Income of $777 million. The 2018 charges reflect final adjustments and subsequent guidance issued by the Internal Revenue Service. The components of the 2018 and 2017 charges were as follows:
 
 
Impact of Tax Legislation
 
 
Three months ended December 31,
 
Years ended December 31,
In millions
 
2018
 
2017
 
2018
 
2017
Income tax (benefit) expense
 
$
(36
)
 
$
781

 
$
12

 
$
781

Decrease in equity, royalty and other income from investees
 
—

 
39

 
3

 
39

Decrease (increase) in income attributable to noncontrolling interests(1)
 
26

 
(43
)
 
24

 
(43
)
Net impact of Tax Legislation (benefit) expense
 
$
(10
)
 
$
777

 
$
39

 
$
777

_____________________________________________________
(1) Noncontrolling interest was adjusted for withholding taxes on foreign earnings which changed the income eliminated for Cummins ownership interest attributable to Cummins India, Ltd.
The effective tax rates for the three months and year ended December 31, 2017, were 151.8 percent and 58.0 percent,
respectively.
The change in the effective tax rate for the three months and year ended, December 31, 2018, versus the comparable periods in 2017, was primarily due to lower U.S. tax rates in 2018 associated with Tax Legislation and the significant 2017 Tax Legislation expenses in 2017.
We expect our 2019 effective tax rate to be 21.5 percent, excluding any discrete tax items.

PENSIONS AND OTHER POSTRETIREMENT BENEFITS

On January 1, 2018, we retroactively adopted the new accounting standard related to the presentation of pension and other postretirement benefit costs, which resulted in the adjustment of prior period balances in the Condensed Consolidated Statements of Income by the following amounts:

 
 
Favorable / (Unfavorable)
 
 
2017
 
2016
In millions
 
Q1
 
Q2
 
Q3
 
Q4
 
Total
 
Total
Cost of sales
 
$
4

 
$
2

 
$
2

 
$
2

 
$
10

 
$
6

Selling, general and administrative expenses
 
(10
)
 
(10
)
 
(9
)
 
(10
)
 
(39
)
 
(53
)
Research, development and engineering expenses
 
—

 
(1
)
 
—

 
(1
)
 
(2
)
 
(1
)
Total change in operating income
 
(6
)
 
(9
)
 
(7
)
 
(9
)
 
(31
)
 
(48
)
Other non operating income, net
 
6

 
9

 
7

 
9

 
31

 
48

Total change in income before income taxes
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—



14

CUMMINS INC. AND SUBSIDIARIES
FINANCIAL MEASURES THAT SUPPLEMENT GAAP
(Unaudited)


Reconciliation of Non GAAP measures - Earnings before interest, income taxes, noncontrolling interests, depreciation and amortization (EBITDA)
 
 
 
 

Effective January 1, 2018, we use EBITDA as a primary basis for the Chief Operating Decision Maker to evaluate the performance of each of our operating segments and our consolidated results. It is also a component in measuring our variable compensation programs. We believe EBITDA is a useful measure for our operating performance as it assists investors and debt holders in comparing our performance on a consistent basis without regard for financing methods, capital structure, income taxes or depreciation and amortization methods, which can vary significantly depending upon many factors. Our 2017 and 2016 EBITDA measures, as restated, were as follows:

In millions
 
Engine
 
Distribution
 
Components
 
Power Systems
 
Total Segment
 
Intersegment Eliminations
 
 
Total
2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Q1
 
$
273

 
$
130

 
$
216

 
$
85

 
$
704

 
$
1

 
 
$
705

Q2
 
323

 
127

 
228

 
90

 
768

 
(4
)
 
 
764

Q3
 
276

 
120

 
259

 
111

 
766

 
22

 
 
788

Q4
 
271

 
123

 
214

 
125

 
733

 
36

 
 
769

2017 Total
 
$
1,143

 
$
500

 
$
917

 
$
411

 
$
2,971

 
$
55

 
 
$
3,026

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2016 Total
 
$
849

 
$
508

 
$
774

 
$
378

 
$
2,509

 
$
17

 
 
$
2,526

    
EBITDA is not in accordance with, or an alternative for, accounting principles generally accepted in the United States (GAAP) and may not be consistent with measures used by other companies. It should be considered supplemental data; however, the amounts included in the EBITDA calculation are derived from amounts included in the Condensed Consolidated Statements of Income. Below is a reconciliation of “Net income attributable to Cummins Inc.” to EBITDA for each of the applicable periods:
 
 
Three months ended December 31,
 
Years ended December 31,
In millions
 
2018
 
2017
 
2018
 
2017
Net income (loss) attributable to Cummins Inc.
 
$
579

 
$
(274
)
 
$
2,141

 
$
999

 
 
 
 
 
 
 
 
 
Net income (loss) attributable to Cummins Inc. as a percentage of net sales
 
9.5
%
 
(5.0
)%
 
9.0
%
 
4.9
%
 
 
 
 
 
 
 
 
 
Add:
 
 
 
 
 
 
 
 
Net income (loss) attributable to noncontrolling interests
 
31

 
(35
)
 
46

 
(5
)
Consolidated net income (loss)
 
610

 
(309
)
 
2,187

 
994

 
 
 
 
 
 
 
 
 
Add:
 
 
 
 
 
 
 
 
Interest expense
 
32

 
24

 
114

 
81

Income tax expense
 
100

 
905

 
566

 
1,371

Depreciation and amortization
 
154

 
149

 
609

 
580

EBITDA
 
$
896

 
$
769

 
$
3,476

 
$
3,026

 
 
 
 
 
 
 
 
 
EBITDA as a percentage of net sales
 
14.6
%
 
14.0
 %
 
14.6
%
 
14.8
%
 
 
 
 
 
 
 
 
 
Add:
 
 
 
 
 
 
 
 
Engine system campaign charge
 
—

 
—

 
368

 
—

Impact of tax legislation on equity investees
 
—

 
39

 
3

 
39

EBITDA, excluding impact of engine system campaign charge and tax legislation on equity investees
 
$
896

 
$
808

 
$
3,847

 
$
3,065

 
 
 
 
 
 
 
 
 
EBITDA, excluding engine system campaign charge and tax legislation on equity investees, as a percentage of net sales
 
14.6
%
 
14.8
 %
 
16.2
%
 
15.0
%


15

CUMMINS INC. AND SUBSIDIARIES
FINANCIAL MEASURES THAT SUPPLEMENT GAAP
(Unaudited)


Net income and diluted earnings per share (EPS) attributable to Cummins Inc. excluding Tax Legislation and other discrete tax items

We believe these are useful measures of our operating performance for the periods presented as they illustrate our operating performance without regard to Tax Legislation and other discrete tax adjustments. These measures are not in accordance with, or an alternative for GAAP and may not be consistent with measures used by other companies. This should be considered supplemental data. The following table reconciles net income and diluted EPS attributable to Cummins Inc. to net income and diluted EPS attributable to Cummins Inc. excluding Tax Legislation and other discrete tax items for the following periods:

 
 
 
Three months ended December 31,
 
 
 
2018
 
2017
In millions, except per share amounts
 
Net Income
 
Diluted EPS
 
Net Income
 
Diluted EPS
Net income (loss) and diluted EPS attributable to Cummins Inc.
 
$
579

 
$
3.63

 
$
(274
)
 
$
(1.65
)
Tax Legislation discrete items
 
(36
)
 
(0.23
)
 
781

 
4.70

Other discrete tax items
 
(15
)
 
(0.09
)
 
—

 
—

Other non-tax provision Tax Legislation impacts (1)
 
26

 
0.17

 
(4
)
 
(0.02
)
Net income and diluted EPS attributable to Cummins Inc. excluding Tax Legislation and other discrete tax items
 
$
554

 
$
3.48

 
$
503

 
$
3.03


 
 
 
Years ended December 31,
 
 
 
2018
 
2017
In millions, except per share amounts
 
Net Income
 
Diluted EPS
 
Net Income
 
Diluted EPS
Net income and diluted EPS attributable to Cummins Inc.
 
$
2,141

 
$
13.15

 
$
999

 
$
5.97

Tax Legislation discrete items
 
12

 
0.07

 
781

 
4.67

Other discrete tax items
 
(26
)
 
(0.16
)
 
—

 
—

Other non-tax provision Tax Legislation impacts (1)
 
27

 
0.17

 
(4
)
 
(0.02
)
Net income and diluted EPS attributable to Cummins Inc. excluding Tax Legislation and other discrete tax items
 
$
2,154

 
$
13.23

 
$
1,776

 
$
10.62

_____________________________________________________
(1) Includes the impact of Tax Legislation on equity income from investees and non-controlling interests.


16

CUMMINS INC. AND SUBSIDIARIES
BUSINESS UNIT SALES DATA
(Unaudited)


Engine Segment Sales by Market and Unit Shipments by Engine Classification
Sales for our Engine segment by market were as follows:
2018
 
 
 
 
 
 
 
 
 
 
In millions
 
Q1
 
Q2
 
Q3
 
Q4
 
YTD
Heavy-duty truck
 
$
815

 
$
920

 
$
958

 
$
959

 
$
3,652

Medium-duty truck and bus
 
692

 
777

 
699

 
687

 
2,855

Light-duty automotive
 
402

 
444

 
517

 
456

 
1,819

Off-highway
 
537

 
555

 
552

 
596

 
2,240

Total sales
 
$
2,446

 
$
2,696

 
$
2,726

 
$
2,698

 
$
10,566

 
 
 
 
 
 
 
 
 
 
 
2017
 
 
 
 
 
 
 
 
 
 
In millions
 
Q1
 
Q2
 
Q3
 
Q4
 
YTD
Heavy-duty truck
 
$
620

 
$
714

 
$
776

 
$
730

 
$
2,840

Medium-duty truck and bus
 
544

 
701

 
625

 
643

 
2,513

Light-duty automotive
 
423

 
429

 
452

 
423

 
1,727

Off-highway
 
436

 
463

 
483

 
491

 
1,873

Total sales
 
$
2,023

 
$
2,307

 
$
2,336

 
$
2,287

 
$
8,953

Unit shipments by engine classification (including unit shipments to Power Systems and off-highway engine units included in their respective classification) were as follows:
2018
 
 
 
 
 
 
 
 
 
 
Units
 
Q1
 
Q2
 
Q3
 
Q4
 
YTD
Heavy-duty
 
26,600

 
32,000

 
34,600

 
35,300

 
128,500

Medium-duty
 
74,000

 
83,500

 
76,000

 
77,600

 
311,100

Light-duty
 
61,900

 
68,500

 
76,800

 
66,200

 
273,400

Total units
 
162,500

 
184,000

 
187,400

 
179,100

 
713,000

 
 
 
 
 
 
 
 
 
 
 
2017
 
 
 
 
 
 
 
 
 
 
Units
 
Q1
 
Q2
 
Q3
 
Q4
 
YTD
Heavy-duty
 
19,200

 
24,100

 
28,100

 
24,500

 
95,900

Medium-duty
 
60,300

 
71,600

 
68,500

 
67,700

 
268,100

Light-duty
 
63,100

 
65,600

 
66,300

 
62,500

 
257,500

Total units
 
142,600

 
161,300

 
162,900

 
154,700

 
621,500


17

CUMMINS INC. AND SUBSIDIARIES
BUSINESS UNIT SALES DATA
(Unaudited)


Distribution Segment Sales by Product Line
Sales for our Distribution segment by product line were as follows:
2018
 
 
 
 
 
 
 
 
 
 
In millions
 
Q1
 
Q2
 
Q3
 
Q4
 
YTD
Parts
 
$
808

 
$
817

 
$
800

 
$
809

 
$
3,234

Engines
 
367

 
461

 
400

 
406

 
1,634

Service
 
352

 
370

 
372

 
380

 
1,474

Power generation
 
326

 
346

 
359

 
455

 
1,486

Total sales
 
$
1,853

 
$
1,994

 
$
1,931

 
$
2,050

 
$
7,828

 
 
 
 
 
 
 
 
 
 
 
2017
 
 
 
 
 
 
 
 
 
 
In millions
 
Q1
 
Q2
 
Q3
 
Q4
 
YTD
Parts
 
$
745

 
$
759

 
$
768

 
$
768

 
$
3,040

Engines
 
275

 
314

 
342

 
438

 
1,369

Service
 
319

 
320

 
326

 
347

 
1,312

Power generation
 
306

 
329

 
317

 
385

 
1,337

Total sales
 
$
1,645

 
$
1,722

 
$
1,753

 
$
1,938

 
$
7,058

Component Segment Sales by Product Line
Sales for our Components segment by product line were as follows:
2018
 
 
 
 
 
 
 
 
 
 
In millions
 
Q1
 
Q2
 
Q3
 
Q4
 
YTD
Emission solutions
 
$
775

 
$
841

 
$
769

 
$
792

 
$
3,177

Turbo technologies
 
340

 
355

 
317

 
331

 
1,343

Filtration
 
320

 
324

 
308

 
313

 
1,265

Electronics and fuel systems
 
201

 
226

 
210

 
201

 
838

Automated transmissions
 
117

 
141

 
150

 
135

 
543

Total sales
 
$
1,753

 
$
1,887

 
$
1,754

 
$
1,772

 
$
7,166

 
 
 
 
 
 
 
 
 
 
 
2017
 
 
 
 
 
 
 
 
 
 
In millions
 
Q1
 
Q2
 
Q3
 
Q4
 
YTD
Emission solutions
 
$
616

 
$
674

 
$
696

 
$
689

 
$
2,675

Turbo technologies
 
287

 
307

 
297

 
288

 
1,179

Filtration
 
277

 
291

 
287

 
298

 
1,153

Electronics and fuel systems
 
164

 
182

 
184

 
188

 
718

Automated transmissions
 
—

 
—

 
69

 
95

 
164

Total sales
 
$
1,344

 
$
1,454

 
$
1,533

 
$
1,558

 
$
5,889


18

CUMMINS INC. AND SUBSIDIARIES
BUSINESS UNIT SALES DATA
(Unaudited)


Power Systems Segment Sales by Product Line
Sales for our Power Systems segment by product line were as follows:
2018
 
 
 
 
 
 
 
 
 
 
In millions
 
Q1
 
Q2
 
Q3
 
Q4
 
YTD
Power generation
 
$
571

 
$
666

 
$
636

 
$
713

 
$
2,586

Industrial
 
414

 
483

 
380

 
386

 
1,663

Generator technologies
 
89

 
97

 
91

 
100

 
377

Total sales
 
$
1,074

 
$
1,246

 
$
1,107

 
$
1,199

 
$
4,626

 
 
 
 
 
 
 
 
 
 
 
2017
 
 
 
 
 
 
 
 
 
 
In millions
 
Q1
 
Q2
 
Q3
 
Q4
 
YTD
Power generation
 
$
526

 
$
570

 
$
580

 
$
629

 
$
2,305

Industrial
 
275

 
353

 
385

 
386

 
1,399

Generator technologies
 
81

 
94

 
91

 
88

 
354

Total sales
 
$
882

 
$
1,017

 
$
1,056

 
$
1,103

 
$
4,058

High-horsepower unit shipments by engine classification were as follows: 
2018
 
 
 
 
 
 
 
 
 
 
Units
 
Q1
 
Q2
 
Q3
 
Q4
 
YTD
Power generation
 
2,100

 
2,300

 
2,400

 
2,300

 
9,100

Industrial
 
1,700

 
2,100

 
1,900

 
1,900

 
7,600

Total units
 
3,800

 
4,400

 
4,300

 
4,200

 
16,700

 
 
 
 
 
 
 
 
 
 
 
2017
 
 
 
 
 
 
 
 
 
 
Units
 
Q1
 
Q2
 
Q3
 
Q4
 
YTD
Power generation
 
1,900

 
2,100

 
2,200

 
2,000

 
8,200

Industrial
 
1,300

 
1,700

 
1,600

 
1,800

 
6,400

Total units
 
3,200

 
3,800

 
3,800

 
3,800

 
14,600

 

19