Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
cumminslogoa02.jpg
FORM 8-K
 
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report:  October 30, 2018
 
  CUMMINS INC.
(Exact name of registrant as specified in its charter)
Indiana
(State or other Jurisdiction of
Incorporation)
1-4949
 (Commission File Number)
35-0257090
 (I.R.S. Employer Identification No.)

500 Jackson Street
P. O. Box 3005
Columbus, IN  47202-3005
(Principal Executive Office)  (Zip Code)

Registrant's telephone number, including area code:  (812) 377-5000
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
 
[ ]
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
[ ]
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
[ ]
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
[ ]
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter)

Emerging growth Company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
 

1


Item 2.02. Results of Operations and Financial Condition.
 
On October 30, 2018, Cummins Inc. (“Cummins,” “the Company,” “the registrant,” “we,” “our,” or “us”) issued the attached press release reporting its financial results for the third quarter of 2018, which is furnished herewith as Exhibit 99.

The information furnished pursuant to this Item 2.02, including Exhibit 99, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities under that Section and shall not be deemed to be incorporated by reference into any filing of the Company under the Securities Act of 1933 or the Exchange Act.


Item 9.01. Financial Statements and Exhibits.
 
(d)
The following exhibit is furnished pursuant to Item 2.02 herewith: 
99-Press Release dated October 30, 2018


SIGNATURE

 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
Date: October 30, 2018
 
CUMMINS INC.
 /s/ CHRISTOPHER C. CLULOW
Christopher C. Clulow
Vice President - Corporate Controller
(Principal Accounting Officer)

 

2

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



 
 
Three months ended
In millions, except per share amounts
 
September 30,
2018
 
October 1,
2017
NET SALES
 
$
5,943

 
$
5,285

Cost of sales
 
4,392

 
3,944

GROSS MARGIN
 
1,551

 
1,341

OPERATING EXPENSES AND INCOME
 
 
 
 
Selling, general and administrative expenses
 
604

 
633

Research, development and engineering expenses
 
229

 
213

Equity, royalty and interest income from investees
 
90

 
95

Other operating income (expense), net
 
(5
)
 
32

OPERATING INCOME
 
803

 
622

Interest income
 
9

 
4

Interest expense
 
30

 
18

Other income, net
 
23

 
14

INCOME BEFORE INCOME TAXES
 
805

 
622

Income tax expense
 
107

 
165

CONSOLIDATED NET INCOME
 
698

 
457

Less: Net income attributable to noncontrolling interests
 
6

 
4

NET INCOME ATTRIBUTABLE TO CUMMINS INC.
 
$
692

 
$
453

 
 
 
 
 
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
 
 
 
 
Basic
 
$
4.29

 
$
2.72

Diluted
 
$
4.28

 
$
2.71

 
 
 
 
 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
 
 

 
 
Basic
 
161.3

 
166.3

Diluted
 
161.8

 
167.0

 
 
 
 
 
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.







3

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


 
 
Nine months ended
In millions, except per share amounts
 
September 30,
2018
 
October 1,
2017
NET SALES
 
$
17,645

 
$
14,952

Cost of sales
 
13,454

 
11,228

GROSS MARGIN
 
4,191

 
3,724

OPERATING EXPENSES AND INCOME
 
 
 
 
Selling, general and administrative expenses
 
1,794

 
1,786

Research, development and engineering expenses
 
658

 
546

Equity, royalty and interest income from investees
 
315

 
301

Other operating income (expense), net
 
1

 
55

OPERATING INCOME
 
2,055

 
1,748

Interest income
 
26

 
11

Interest expense
 
82

 
57

Other income, net
 
44

 
67

INCOME BEFORE INCOME TAXES
 
2,043

 
1,769

Income tax expense
 
466

 
466

CONSOLIDATED NET INCOME
 
1,577

 
1,303

Less: Net income attributable to noncontrolling interests
 
15

 
30

NET INCOME ATTRIBUTABLE TO CUMMINS INC.
 
$
1,562

 
$
1,273

 
 
 
 
 
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
 
 
 
 
Basic
 
$
9.57

 
$
7.62

Diluted
 
$
9.53

 
$
7.60

 
 
 
 
 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
 
 
 
 
Basic
 
163.3

 
167.0

Diluted
 
163.9

 
167.6

 
 
 
 
 
CASH DIVIDENDS DECLARED PER COMMON SHARE
 
$
3.30

 
$
3.13

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




4

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


In millions, except par value
 
September 30,
2018
 
December 31,
2017
ASSETS
 
 
 
 
Current assets
 
 
 
 
Cash and cash equivalents
 
$
1,222

 
$
1,369

Marketable securities
 
185

 
198

Total cash, cash equivalents and marketable securities
 
1,407

 
1,567

Accounts and notes receivable, net
 
3,929

 
3,618

Inventories
 
3,831

 
3,166

Prepaid expenses and other current assets
 
696

 
577

Total current assets
 
9,863

 
8,928

Long-term assets
 
 
 
 
Property, plant and equipment, net
 
3,870

 
3,927

Investments and advances related to equity method investees
 
1,255

 
1,156

Goodwill
 
1,110

 
1,082

Other intangible assets, net
 
950

 
973

Pension assets
 
1,022

 
1,043

Other assets
 
922

 
966

Total assets
 
$
18,992

 
$
18,075

 
 
 
 
 
LIABILITIES
 
 
 
 
Current liabilities
 
 
 
 
Accounts payable (principally trade)
 
$
2,980

 
$
2,579

Loans payable
 
61

 
57

Commercial paper
 
800

 
298

Accrued compensation, benefits and retirement costs
 
576

 
811

Current portion of accrued product warranty
 
624

 
454

Current portion of deferred revenue
 
500

 
500

Other accrued expenses
 
834

 
915

Current maturities of long-term debt
 
41

 
63

Total current liabilities
 
6,416

 
5,677

Long-term liabilities
 
 
 
 
Long-term debt
 
1,563

 
1,588

Postretirement benefits other than pensions
 
281

 
289

Pensions
 
331

 
330

Other liabilities and deferred revenue
 
2,341

 
2,027

Total liabilities
 
$
10,932

 
$
9,911

 
 
 
 
 
EQUITY
 
 
 
 
Cummins Inc. shareholders’ equity
 
 
 
 
Common stock, $2.50 par value, 500 shares authorized, 222.4 and 222.4 shares issued
 
$
2,151

 
$
2,210

Retained earnings
 
12,519

 
11,464

Treasury stock, at cost, 61.9 and 56.7 shares
 
(5,674
)
 
(4,905
)
Common stock held by employee benefits trust, at cost, 0.5 and 0.5 shares
 
(6
)
 
(7
)
Accumulated other comprehensive loss
 
(1,799
)
 
(1,503
)
Total Cummins Inc. shareholders’ equity
 
7,191

 
7,259

Noncontrolling interests
 
869

 
905

Total equity
 
$
8,060

 
$
8,164

Total liabilities and equity
 
$
18,992

 
$
18,075

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



5

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


 
 
Nine months ended
In millions
 
September 30,
2018
 
October 1,
2017
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
 
Consolidated net income
 
$
1,577

 
$
1,303

Adjustments to reconcile consolidated net income to net cash provided by operating activities
 
 
 
 
Depreciation and amortization
 
456

 
433

Deferred income taxes
 
(167
)
 
26

Equity in income of investees, net of dividends
 
(156
)
 
(166
)
Pension contributions under (in excess of) expense, net
 
36

 
(63
)
Other post retirement benefits payments in excess of expense, net
 
(8
)
 
(4
)
Stock-based compensation expense
 
38

 
34

Loss contingency payments
 
(65
)
 

Translation and hedging activities
 
(27
)
 
61

Changes in current assets and liabilities, net of acquisitions
 
 
 
 
Accounts and notes receivable
 
(429
)
 
(722
)
Inventories
 
(773
)
 
(401
)
Other current assets
 
(100
)
 
(28
)
Accounts payable
 
467

 
567

Accrued expenses
 
341

 
369

Changes in other liabilities and deferred revenue
 
118

 
177

Other, net
 
80

 
(115
)
Net cash provided by operating activities
 
1,388

 
1,471

 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
 
Capital expenditures
 
(361
)
 
(282
)
Investments in internal use software
 
(55
)
 
(59
)
Proceeds from disposals of property, plant and equipment
 
14

 
104

Investments in and advances to equity investees
 
(9
)
 
(71
)
Acquisitions of businesses, net of cash acquired
 
(70
)
 
(600
)
Investments in marketable securities—acquisitions
 
(316
)
 
(106
)
Investments in marketable securities—liquidations
 
298

 
218

Cash flows from derivatives not designated as hedges
 
(56
)
 
9

Other, net
 
36

 
1

Net cash used in investing activities
 
(519
)
 
(786
)
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
 
Net borrowings of commercial paper
 
502

 
302

Payments on borrowings and capital lease obligations
 
(54
)
 
(38
)
Net borrowings under short-term credit agreements
 
9

 
19

Distributions to noncontrolling interests
 
(30
)
 
(29
)
Dividend payments on common stock
 
(537
)
 
(522
)
Repurchases of common stock
 
(879
)
 
(391
)
Other, net
 
29

 
59

Net cash used in financing activities
 
(960
)
 
(600
)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
 
(56
)
 
85

Net (decrease) increase in cash and cash equivalents
 
(147
)
 
170

Cash and cash equivalents at beginning of year
 
1,369

 
1,120

CASH AND CASH EQUIVALENTS AT END OF PERIOD
 
$
1,222

 
$
1,290

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

6

CUMMINS INC. AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)

 
In millions
 
Engine
 
Distribution
 
Components
 
Power Systems
 
Electrified Power (1)
 
Total Segments
 
Intersegment Eliminations (2)
 
Total
 
Three months ended September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
External sales
 
$
2,082

 
$
1,927

 
$
1,297

 
$
636

 
$
1

 
$
5,943

 
$

 
$
5,943

 
Intersegment sales
 
644

 
4

 
457

 
471

 
1

 
1,577

 
(1,577
)
 

 
Total sales
 
2,726

 
1,931

 
1,754

 
1,107

 
2

 
7,520

 
(1,577
)
 
5,943

 
Research, development and engineering expenses
 
74

 
5

 
71

 
57

 
22

 
229

 

 
229

 
Equity, royalty and interest income from investees
 
55

 
9

 
12

 
14

 

 
90

 

 
90

 
Interest income
 
3

 
4

 
1

 
1

 

 
9

 

 
9

 
Segment EBITDA
 
405

 
155

 
288

 
163

 
(30
)
 
981

 
2

 
983

 
Depreciation and amortization (3)
 
46

 
27

 
44

 
29

 
2

 
148

 

 
148

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EBITDA as a percentage of total sales
 
14.9
%
 
8.0
%
 
16.4
%
 
14.7
%
 
NM

 
13.0
%
 
 
 
16.5
%
 
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended October 1, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
External sales
 
$
1,783

 
$
1,748

 
$
1,139

 
$
615

 
$

 
$
5,285

 
$

 
$
5,285

 
Intersegment sales
 
553

 
5

 
394

 
441

 

 
1,393

 
(1,393
)
 

 
Total sales
 
2,336

 
1,753

 
1,533

 
1,056

 

 
6,678

 
(1,393
)
 
5,285

 
Research, development and engineering expenses
 
83

 
6

 
63

 
61

 

 
213

 

 
213

 
Equity, royalty and interest income from investees
 
58

 
11

 
12

 
14

 

 
95

 

 
95

 
Interest income
 
1

 
2

 

 
1

 

 
4

 

 
4

 
Segment EBITDA
 
276

 
120

 
259

 
111

 

 
766

 
22

 
788

 
Depreciation and amortization (3)
 
47

 
29

 
42

 
30

 

 
148

 

 
148

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EBITDA as a percentage of total sales
 
11.8
%
 
6.8
%
 
16.9
%
 
10.5
%
 
%
 
11.5
%
 
 
 
14.9
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
"NM" - not meaningful information
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1
)
We formed the Electrified Power Segment effective January 1, 2018. Our Electrified Power segment provides fully electric and hybrid powertrain solutions along with innovative components and subsystems to serve all our markets as they adopt electrification, meeting the needs of our original equipment manufacturer partners and end customers.
(2
)
Includes intersegment sales, intersegment profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the three months ended September 30, 2018 and October 1, 2017.
(3
)
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 expenses."




7

CUMMINS INC. AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
In millions
 
Engine
 
Distribution
 
Components
 
Power Systems
 
Electrified Power (1)
 
Total Segments
 
Intersegment Eliminations (2)
 
Total
 
Nine months ended September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
External sales
 
$
5,945

 
$
5,762

 
$
4,012

 
$
1,922

 
$
4

 
$
17,645

 
$

 
$
17,645

 
Intersegment sales
 
1,923

 
16

 
1,382

 
1,505

 
1

 
4,827

 
(4,827
)
 

 
Total sales
 
7,868

 
5,778

 
5,394

 
3,427

 
5

 
22,472

 
(4,827
)
 
17,645

 
Research, development and engineering expenses
 
229

 
15

 
195

 
174

 
45

 
658

 

 
658

 
Equity, royalty and interest income from investees
 
189

 
33

 
42

 
51

 

 
315

 

 
315

 
Interest income
 
8

 
9

 
4

 
5

 

 
26

 

 
26

 
Segment EBITDA
 
1,053

 
423

 
752

 
491

 
(61
)
 
2,658

 
(78
)
 
2,580

 
Depreciation and amortization (3)
 
142

 
81

 
137

 
91

 
4

 
455

 

 
455

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EBITDA as a percentage of total sales
 
13.4
%
 
7.3
%
 
13.9
%
 
14.3
%
 
NM

 
11.8
%
 
 
 
14.6
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine months ended October 1, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
External sales
 
$
4,951

 
$
5,101

 
$
3,183

 
$
1,717

 
$

 
$
14,952

 
$

 
$
14,952

 
Intersegment sales
 
1,715

 
19

 
1,148

 
1,238

 

 
4,120

 
(4,120
)
 

 
Total sales
 
6,666

 
5,120

 
4,331

 
2,955

 

 
19,072

 
(4,120
)
 
14,952

 
Research, development and engineering expenses
 
200

 
14

 
171

 
161

 

 
546

 

 
546

 
Equity, royalty and interest income from investees
 
186

 
35

 
40

 
40

 

 
301

 

 
301

 
Interest income
 
4

 
4

  
1

 
2

 

 
11

 

 
11

 
Segment EBITDA
 
872

 
377

 
703

 
286

 

 
2,238

 
19

 
2,257

 
Depreciation and amortization (3)
 
137

 
90

 
117

 
87

 

 
431

 

 
431

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EBITDA as a percentage of total sales
 
13.1
%
 
7.4
%
 
16.2
%
 
9.7
%
 
%
 
11.7
%
 
 
 
15.1
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
"NM" - not meaningful information
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1
)
We formed the Electrified Power Segment effective January 1, 2018. Our Electrified Power segment provides fully electric and hybrid powertrain solutions along with innovative components and subsystems to serve all our markets as they adopt electrification, meeting the needs of our original equipment manufacturer partners and end customers.
(2
)
Includes intersegment sales, intersegment profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the nine months ended September 30, 2018 and October 1, 2017.
(3
)
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 $1 million and $2 million for the nine months ended September 30, 2018 and October 1, 2017. A portion of depreciation expense is included in "Research, development and engineering expense."



8

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
 
Nine months ended
In millions
 
September 30,
2018
 
October 1,
2017
 
September 30,
2018
 
October 1,
2017
Total EBITDA
 
$
983

 
$
788

 
$
2,580

 
$
2,257

Less:
 
 
 
 
 
 
 
 
Depreciation and amortization
 
148

 
148

 
455

 
431

Interest expense
 
30

 
18

 
82

 
57

Income before income taxes
 
$
805

 
$
622

 
$
2,043

 
$
1,769



9

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
 
Nine months ended
In millions
 
September 30,
2018
 
October 1,
2017
 
September 30,
2018
 
October 1,
2017
Manufacturing entities
 
 
 
 
 
 
 
 
Beijing Foton Cummins Engine Co., Ltd.
 
$
18

 
$
24

 
$
63

 
$
79

Dongfeng Cummins Engine Company, Ltd.
 
13

 
15

 
47

 
56

Chongqing Cummins Engine Company, Ltd.
 
11

 
11

 
43

 
30

Cummins Westport, Inc.
 
8

 
4

 
20

 
9

Dongfeng Cummins Emission Solutions Co., Ltd.
 
2

 
3

 
11

 
10

All other manufacturers
 
20

 
20

 
69

 
59

Distribution entities
 


 


 


 


Komatsu Cummins Chile, Ltda.
 
5

 
8

 
18

 
23

All other distributors
 

 
(1
)
 

 
(1
)
Cummins share of net income
 
77

 
84

 
271

 
265

Royalty and interest income
 
13

 
11

 
44

 
36

Equity, royalty and interest income from investees
 
$
90

 
$
95

 
$
315

 
$
301



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
)
 

 
(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
 
$

 
$

 
$

 
$

 
$

 
$

INCOME TAXES
 
Our effective tax rate for the year is expected to approximate 21.0 percent, excluding any discrete tax items that may arise. Our effective tax rates for the three and nine months ended September 30, 2018, were 13.3 percent and 22.8 percent, respectively.
The three months ended September 30, 2018, contained $37 million, or $0.23 per share, of favorable net discrete tax items, primarily due to $34 million of favorable discrete items related to the 2017 Tax Cuts and Jobs Act (Tax Legislation) and $3 million of other favorable discrete items.
The three month effective tax rate of 13.3 percent includes the nine month adjustment for decreasing our expected full year effective tax rate to 21.0 percent and diluted earnings per share benefited $0.26.

10

CUMMINS INC. AND SUBSIDIARIES
SELECT FOOTNOTE DATA
(Unaudited)


The nine months ended September 30, 2018, contained $37 million, or $0.23 per share, of unfavorable net discrete tax items, primarily due to $48 million of unfavorable discrete items related to the Tax Legislation, partially offset by $11 million of other favorable discrete items.
Our effective tax rates for the three and nine months ended October 1, 2017, were 26.5 percent and 26.3 percent, respectively and contained only immaterial discrete tax items.
The change in the effective tax rate for the three months ended September 30, 2018, versus the comparable period in 2017, was primarily due to lower U.S. tax rates and favorable discrete changes associated with the Tax Legislation. The change in the effective tax rate for the nine months ended September 30, 2018, versus the comparable period in 2017, was primarily due to lower U.S. tax rates associated with Tax Legislation.

11

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
 
Nine months ended
In millions
 
September 30, 2018
 
October 1,
2017
 
September 30, 2018
 
October 1,
2017
Net income attributable to Cummins Inc.
 
$
692

 
$
453

 
$
1,562

 
$
1,273

 
 
 
 
 
 
 
 
 
Net income attributable to Cummins Inc. as a percentage of net sales
 
11.6
%
 
8.6
%
 
8.9
%
 
8.5
%
 
 
 
 
 
 
 
 
 
Add:
 
 
 
 
 
 
 
 
Net income attributable to noncontrolling interests
 
6

 
4

 
15

 
30

Consolidated net income
 
698

 
457

 
1,577

 
1,303

 
 
 
 
 
 
 
 
 
Add:
 
 
 
 
 
 
 
 
Interest expense
 
30

 
18

 
82

 
57

Income tax expense
 
107

 
165

 
466

 
466

Depreciation and amortization
 
148

 
148

 
455

 
431

EBITDA
 
$
983

 
$
788

 
$
2,580

 
$
2,257

 
 
 
 
 
 
 
 
 
EBITDA as a percentage of net sales
 
16.5
%
 
14.9
%
 
14.6
%
 
15.1
%
 
 
 
 
 
 
 
 
 
Add: Engine system campaign charge
 

 

 
368

 

 
 
 
 
 
 
 
 
 
EBITDA, excluding engine system campaign charge
 
$
983

 
$
788

 
$
2,948

 
$
2,257

 
 
 
 
 
 
 
 
 
EBITDA, excluding engine system campaign charge, as a percentage of net sales
 
16.5
%
 
14.9
%
 
16.7
%
 
15.1
%
 

12

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

Net income and diluted earnings per share (EPS) attributable to Cummins Inc. excluding 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 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 attributable to Cummins Inc. to net income attributable to Cummins Inc. excluding discrete tax items for the following periods:

 
 
 
Three months ended
 
 
 
September 30, 2018
 
October 1, 2017
In millions
 
Net Income
 
Diluted EPS
 
Net Income
 
Diluted EPS
Net income attributable to Cummins Inc.
 
$
692

 
$
4.28

 
$
453

 
$
2.71

Tax Legislation
 
(34
)
 
(0.21
)
 

 

Discrete tax items
 
(3
)
 
(0.02
)
 
 
 
 
Net income attributable to Cummins Inc. excluding discrete tax items
 
$
655

 
$
4.05


$
453

 
$
2.71


 
 
 
Nine months ended
 
 
 
September 30, 2018
 
October 1, 2017
In millions
 
Net Income
 
Diluted EPS
 
Net Income
 
Diluted EPS
Net income attributable to Cummins Inc.
 
$
1,562

 
$
9.53

 
$
1,273

 
$
7.60

Tax Legislation
 
48


0.29



 

Discrete tax items
 
(11
)
 
(0.06
)
 
 
 
 
Net income attributable to Cummins Inc. excluding discrete tax items
 
$
1,599

 
$
9.76

 
$
1,273

 
$
7.60


13

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

 
$

 
$
2,693

Medium-duty truck and bus
 
692

 
777

 
699

 

 
2,168

Light-duty automotive
 
402

 
444

 
517

 

 
1,363

Off-highway
 
537

 
555

 
552

 

 
1,644

Total sales
 
$
2,446

 
$
2,696

 
$
2,726

 
$

 
$
7,868

 
 
 
 
 
 
 
 
 
 
 
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

 

 
93,200

Medium-duty
 
74,000

 
83,500

 
76,000

 

 
233,500

Light-duty
 
61,900

 
68,500

 
76,800

 

 
207,200

Total units
 
162,500

 
184,000

 
187,400

 

 
533,900

 
 
 
 
 
 
 
 
 
 
 
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


14

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

 
$

 
$
2,425

Engines
 
367

 
461

 
400

 

 
1,228

Service
 
352

 
370

 
372

 

 
1,094

Power generation
 
326

 
346

 
359

 

 
1,031

Total sales
 
$
1,853

 
$
1,994

 
$
1,931

 
$

 
$
5,778

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

 
$
841

 
$
769

 
$

 
$
2,385

Turbo technologies
 
340

 
355

 
317

 

 
1,012

Filtration
 
320

 
324

 
308

 

 
952

Electronics and fuel systems
 
201

 
226

 
210

 

 
637

Automated transmissions
 
117

 
141

 
150

 

 
408

Total sales
 
$
1,753

 
$
1,887

 
$
1,754

 
$

 
$
5,394

 
 
 
 
 
 
 
 
 
 
 
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


15

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

 
$

 
$
1,873

Industrial
 
414

 
483

 
380

 

 
1,277

Generator technologies
 
89

 
97

 
91

 

 
277

Total sales
 
$
1,074

 
$
1,246

 
$
1,107

 
$

 
$
3,427

 
 
 
 
 
 
 
 
 
 
 
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

 


 
6,800

Industrial
 
1,700

 
2,100

 
1,900

 


 
5,700

Total units
 
3,800

 
4,400

 
4,300

 

 
12,500

 
 
 
 
 
 
 
 
 
 
 
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

 

16