Market Overview

Cummins Announces Second Quarter Results; Updates Outlook for 2018

Share:
  • Second quarter revenues of $6.1 billion
  • GAAP1 Net Income of $545 million and
    Diluted EPS of $3.32
  • EBITDA of $0.9 billion or 14.6 percent of sales
  • Full year revenues expected to increase 15 to 17 percent
  • EBITDA is expected to be in the range of 14.8 to 15.2 percent of
    sales
  • The Company finalized its plans for a previously disclosed product
    campaign, resulting in a charge of $181 million or $0.85 per diluted
    share in the second quarter

Cummins Inc. (NYSE:CMI) today reported results for the second quarter
of 2018.

Second quarter revenues of $6.1 billion increased 21 percent from the
same quarter in 2017 and reached a new quarterly record. The Company
delivered growth in most major markets as demand for trucks,
construction, mining and power generation equipment all improved.
Currency favorably impacted revenues by 1 percent.

Sales in North America improved by 22 percent while international
revenues increased by 18 percent led by growth in China, Europe and
Latin America.

"As a result of strong customer demand for our products, solid execution
from our global manufacturing and supply chain teams and continued focus
on cost reduction, the Company delivered record quarterly sales and
earnings per share in the second quarter," said Chairman and CEO Tom
Linebarger. "We are on track to deliver record full year sales, earnings
and cash flow. The Company now plans to return 75 percent of Operating
Cash Flow to shareholders in the form of dividends and share repurchases
in 2018, up from our previous plan to return 50 percent."

During the second quarter, the Company finalized its plans for a
previously disclosed product campaign and recorded a pre-tax charge of
$181 million for the expected costs of the campaign. This campaign will
address the performance of an aftertreatment component in certain
on-highway products produced between 2010 and 2015 in North America. The
Company has reached agreement with the appropriate regulatory agencies
regarding our planned actions to execute the campaign and has provided
in full for the estimated costs.

Earnings before interest, taxes, depreciation and amortization (EBITDA)
in the second quarter were $897 million, or 14.6 percent of sales, up
from $764 million or 15.0 percent of sales a year ago.

Net income attributable to Cummins in the second quarter was $545
million ($3.32 per diluted share), compared to net income of $424
million ($2.53 per diluted share) in the second quarter of 2017.

Based on the current forecast, Cummins expects full year 2018 revenues
to be up 15 to 17 percent, compared to prior guidance of up 10 to 14
percent. EBITDA is projected to be in the range of 14.8 to 15.2 percent
of sales, down from 15.4 to 15.8 percent of sales and reflects
approximately $100 million of expense associated with trade tariffs and
increased commodity costs in the second half of the year.

Recent Highlights:

  • Cummins announced that it is acquiring Silicon Valley-based Efficient
    Drivetrains, Inc. (EDI), which designs and produces hybrid and fully-
    electric power solutions for commercial vehicle markets.
  • 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 and Anhui Jianghuai Automobile Co. Ltd. (JAC Motors) announced
    that the two parties will form a 50:50 joint-venture after Cummins
    purchases Navistar's 50 percent equity of the JAC-Navistar Diesel
    Engine Company (JND).
  • The Company returned $393 million to shareholders in the form of
    dividends and share repurchases in the second quarter, and recently
    raised its quarterly dividend by 5.6 percent.

1 Generally Accepted Accounting Principles

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

Engine Segment

  • Sales - $2.7 billion, up 17 percent.
  • Segment EBITDA - $362 million, or 13.4 percent of sales, compared to
    $323 million or 14.0 percent of sales
  • Segment EBITDA reflects a charge of $91 million related to the
    expected costs of a previously disclosed product campaign
  • Revenues increased by 12 percent in North America and 32 percent in
    international markets.

Distribution Segment

  • Sales - $2.0 billion, up 16 percent
  • Segment EBITDA - $145 million, or 7.3 percent of sales, compared to
    $127 million or 7.4 percent of sales
  • Revenues in North America increased by 22 percent and international
    sales grew by 8 percent

Components Segment

  • Sales - $1.9 billion, up 30 percent
  • Segment EBITDA - $237 million, or 12.6 percent of sales, compared to
    $228 million or 15.7 percent of sales
  • Segment EBITDA reflects a charge of $90 million related to the
    expected costs of a previously disclosed campaign to address the
    performance of an aftertreatment component
  • The Eaton Cummins Automated Transmission joint venture recorded sales
    of $141 million and an EBITDA loss of $4 million in the second quarter
  • Revenues in North America increased by 36 percent, and international
    sales grew by 22 percent

Power Systems Segment

  • Sales - $1.2 billion, up 23 percent
  • Segment EBITDA - $186 million, or 14.9 percent of sales, compared to
    $90 million, or 8.8 percent of sales
  • Revenues in North America increased by 30 percent and international
    sales grew 18 percent
  • Increased demand in power generation, mining and oil and gas markets
    drove the growth in sales

Electrified Power Segment

  • Sales - $1 million
  • Segment EBITDA loss - $21 million

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
currently employs approximately 58,600 people committed to powering a
more prosperous world. Cummins serves customers in approximately 190
countries and territories through a network of approximately 500
company-owned and independent distributor locations and approximately
7,500 dealer locations. Cummins earned about $1 billion on sales of
$20.4 billion in 2017. 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.

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 2018. 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: (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) lower
than anticipated market acceptance of our new or existing products or
services; (vii) a slowdown in infrastructure development and/or
depressed commodity prices; (viii) unpredictability in the adoption,
implementation and enforcement of increasingly stringent emissions
standards around the world; (ix) our reliance on significant earnings
from investees that we do not directly control; (x) the adoption and
impact of new tax legislation; (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 pursuit of strategic acquisitions and
divestitures; and (xiv) other risks detailed from time to time in our
Securities and Exchange Commission filings, 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.

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.

   
CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) (a)
 
Three months ended
July 1,   July 2,
In millions, except per share amounts 2018 2017
NET SALES $ 6,132 $ 5,078
Cost of sales 4,692 3,827
GROSS MARGIN 1,440 1,251
OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses 613 606
Research, development and engineering expenses 219 175
Equity, royalty and interest income from investees 110 98
Other operating income (expense), net 4 18
OPERATING INCOME 722 586
Interest income 10 5
Interest expense 28 21
Other income, net 11 29
INCOME BEFORE INCOME TAXES 715 599
Income tax expense 161 158
CONSOLIDATED NET INCOME 554 441
Less: Net income attributable to noncontrolling interests 9 17
NET INCOME ATTRIBUTABLE TO CUMMINS INC. $ 545 $ 424
 
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
Basic $ 3.33 $ 2.53
Diluted $ 3.32 $ 2.53
 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic 163.8 167.3
Diluted 164.3 167.8
 
CASH DIVIDENDS DECLARED PER COMMON SHARE $ 1.08 $ 1.025
         

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

 
 

CUMMINS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited) (a)

 
 
Six months ended
July 1,   July 2,
In millions, except per share amounts 2018 2017
NET SALES $ 11,702 $ 9,667
Cost of sales 9,062 7,284
GROSS MARGIN 2,640 2,383
OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses 1,190 1,153
Research, development and engineering expenses 429 333
Equity, royalty and interest income from investees 225 206
Other operating income (expense), net 6 23
OPERATING INCOME 1,252 1,126
Interest income 17 7
Interest expense 52 39
Other income, net 21 53
INCOME BEFORE INCOME TAXES 1,238 1,147
Income tax expense 359 301
CONSOLIDATED NET INCOME 879 846
Less: Net income attributable to noncontrolling interests 9 26
NET INCOME ATTRIBUTABLE TO CUMMINS INC. $ 870 $ 820
 
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
Basic $ 5.30 $ 4.90
Diluted $ 5.27 $ 4.88
 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic 164.3 167.4
Diluted 165.0 167.9
 
CASH DIVIDENDS DECLARED PER COMMON SHARE $ 2.16 $ 2.05
         
(a) Prepared on an unaudited basis in accordance with
accounting principles generally accepted in the United States of
America.
 
   
CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (a)
 
July 1, December 31,
In millions, except par value 2018 2017
ASSETS
Current assets
Cash and cash equivalents $ 1,318 $ 1,369
Marketable securities 214   198  
Total cash, cash equivalents and marketable securities 1,532 1,567
Accounts and notes receivable, net 4,095 3,618
Inventories 3,559 3,166
Prepaid expenses and other current assets 649   577  
Total current assets 9,835   8,928  
Long-term assets
Property, plant and equipment, net 3,824 3,927
Investments and advances related to equity method investees 1,303 1,156
Goodwill 1,079 1,082
Other intangible assets, net 940 973
Pension assets 1,022 1,043
Other assets 912   966  
Total assets $ 18,915   $ 18,075  
 
LIABILITIES
Current liabilities
Accounts payable (principally trade) $ 2,981 $ 2,579
Loans payable 55 57
Commercial paper 802 298
Accrued compensation, benefits and retirement costs 468 811
Current portion of accrued product warranty 464 454
Current portion of deferred revenue 479 500
Other accrued expenses 806 915
Current maturities of long-term debt 49   63  
Total current liabilities 6,104   5,677  
Long-term liabilities
Long-term debt 1,556 1,588
Postretirement benefits other than pensions 289 289
Pensions 331 330
Other liabilities and deferred revenue 2,441   2,027  
Total liabilities $ 10,721   $ 9,911  
 
EQUITY
Cummins Inc. shareholders' equity
Common stock, $2.50 par value, 500 shares authorized, 222.4 and
222.4 shares issued
$ 2,239 $ 2,210
Retained earnings 12,009 11,464
Treasury stock, at cost, 59.1 and 56.7 shares (5,276 ) (4,905 )
Common stock held by employee benefits trust, at cost, 0.5 and 0.5
shares
(6 ) (7 )
Accumulated other comprehensive loss (1,667 ) (1,503 )
Total Cummins Inc. shareholders' equity 7,299 7,259
Noncontrolling interests 895   905  
Total equity $ 8,194   $ 8,164  
Total liabilities and equity $ 18,915   $ 18,075  
         
(a) Prepared on an unaudited basis in accordance with
accounting principles generally accepted in the United States of
America.
 
 
CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (a)
 
Six months ended
July 1,   July 2,
In millions 2018 2017
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net income $ 879 $ 846
Adjustments to reconcile consolidated net income to net cash
provided by operating activities
Depreciation and amortization 308 284
Deferred income taxes (21 )
Equity in income of investees, net of dividends (163 ) (132 )
Pension contributions under (in excess of) expense, net 25 (44 )
Other post retirement benefits payments in excess of expense, net (8 )
Stock-based compensation expense 28 23
Loss contingency payments (65 )
Translation and hedging activities (21 ) 31
Changes in current assets and liabilities
Accounts and notes receivable (555 ) (488 )
Inventories (475 ) (264 )
Other current assets (42 ) 21
Accounts payable 442 403
Accrued expenses 94 132
Changes in other liabilities and deferred revenue 5 103
Other, net 34   (81 )
Net cash provided by operating activities 473   826  
 
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (186 ) (182 )
Investments in internal use software (35 ) (40 )
Investments in and advances to equity investees (15 ) (64 )
Investments in marketable securities—acquisitions (143 ) (69 )
Investments in marketable securities—liquidations 116 162
Cash flows from derivatives not designated as hedges (9 ) 19
Other, net 36   14  
Net cash used in investing activities (236 ) (160 )
 
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (payments) of commercial paper 504 (78 )
Payments on borrowings and capital lease obligations (33 ) (29 )
Distributions to noncontrolling interests (11 ) (10 )
Dividend payments on common stock (355 ) (343 )
Repurchases of common stock (379 ) (120 )
Other, net 21   36  
Net cash used in financing activities (253 ) (544 )
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (35 ) 51  
Net (decrease) increase in cash and cash equivalents (51 ) 173
Cash and cash equivalents at beginning of year 1,369   1,120  
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,318   $ 1,293  
         
(a) Prepared on an unaudited basis in accordance with
accounting principles generally accepted in the United States of
America.
 
             

CUMMINS INC. AND SUBSIDIARIES

SEGMENT INFORMATION

(Unaudited)

 
Intersegment
In millions Engine Distribution Components Power Systems

Electrified Power (1)

Total Segment

Eliminations(2)

Total
Three months ended July 1, 2018
External sales $ 2,050 $ 1,988 $ 1,402 $ 691 $ 1 $ 6,132 $ $ 6,132
Intersegment sales 646   6   485   555   1,692   (1,692 )  
Total sales 2,696 1,994 1,887 1,246 1 7,824 (1,692 ) 6,132
Research, development and engineering expenses 76 5 62 60 16 219 219
Equity, royalty and interest income from investees 67 11 14 18 110 110
Interest income 3 3 2 2 10 10
Segment EBITDA 362 145 237 186

(21

)

909 (12 ) 897
Depreciation and amortization (3) 47 27 47 32 1 154 154
 
EBITDA as a percentage of total sales 13.4 % 7.3 % 12.6 % 14.9 % NM 11.6 % 14.6 %
 
Three months ended July 2, 2017
External sales $ 1,711 $ 1,716 $ 1,064 $ 587 $ $ 5,078 $ $ 5,078
Intersegment sales 596   6   390   430   1,422   (1,422 )  
Total sales 2,307 1,722 1,454 1,017 6,500 (1,422 ) 5,078
Research, development and engineering expenses 63 4 58 50 175 175
Equity, royalty and interest income from investees 56 13 15 14 98 98
Interest income 2 1 1 1 5 5
Segment EBITDA 323 127 228 90 768 (4 ) 764
Depreciation and amortization (3) 46 31 38 29 144 144
 
EBITDA as a percentage of total sales 14.0 % 7.4 % 15.7 % 8.8 %

%

11.8 % 15.0 %
"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 July 1, 2018 and July 2, 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" above.
               

CUMMINS INC. AND SUBSIDIARIES

SEGMENT INFORMATION

(Unaudited)

 
 
Intersegment
In millions Engine Distribution Components Power Systems

Electrified Power (1)

Total Segment

Eliminations(2)

Total
Six months ended July 1, 2018
External sales $ 3,863 $ 3,835 $ 2,715 $ 1,286 $ 3 $ 11,702 $ $ 11,702
Intersegment sales 1,279   12   925   1,034   3,250  

(3,250

)

 

 
Total sales 5,142 3,847 3,640 2,320 3 14,952

(3,250

)

11,702
Research, development and engineering expenses 155 10 124 117 23 429 429
Equity, royalty and interest income from investees 134 24 30 37 225 225
Interest income 5 5 3 4 17 17
Segment EBITDA 648 268 464 328

(31

)

1,677

(80

)

1,597
Depreciation and amortization (3) 96 54 93 62 2 307 307
 
EBITDA as a percentage of total sales 12.6 % 7.0 % 12.7 % 14.1 % NM 11.2 % 13.6 %
 
Six months ended July 2, 2017
External sales $ 3,168 $ 3,353 $ 2,044 $ 1,102 $ $ 9,667 $

$ 9,667
Intersegment sales 1,162   14   754   797   2,727  

(2,727

)

 
Total sales 4,330 3,367 2,798 1,899 12,394

(2,727

)

9,667
Research, development and engineering expenses 117 8 108 100 333 333
Equity, royalty and interest income from investees 128 24 28 26 206 206
Interest income 3 2 1 1 7 7
Segment EBITDA 596 257 444 175 1,472

(3

)

1,469

Depreciation and amortization (3) 90 61 75 57 283 283
 
EBITDA as a percentage of total sales 13.8 % 7.6 % 15.9 % 9.2 %

%

11.9

%

15.2 %
 
"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 six months ended
July 1, 2018 and July 2, 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 for both six month periods ended July 1, 2018
and July 2, 2017. A portion of depreciation expense is included in
"Research, development and engineering expenses" above.

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 Six months ended
July 1, July 2, July 1, July 2,
In millions 2018 2017 2018 2017
Total EBITDA $ 897 $ 764 $ 1,597 $ 1,469
Less:
Depreciation and amortization 154 144 307 283
Interest expense 28 21 52 39
Income before income taxes $ 715 $ 599 $ 1,238 $ 1,147
 

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 Six months ended
July 1,   July 2, July 1,   July 2,
In millions 2018 2017 2018 2017
Manufacturing entities
Beijing Foton Cummins Engine Co., Ltd. $ 24 $ 22 $ 45 $ 55
Dongfeng Cummins Engine Company, Ltd. 17 19 34 41
Chongqing Cummins Engine Company, Ltd. 15 10 32 19
Cummins Westport, Inc. 6 4 12 5
Dongfeng Cummins Emission Solutions Co., Ltd. 4 4 9 7
All other manufacturers 24 19 49 39
Distribution entities
Komatsu Cummins Chile, Ltda. 6 8 13 15
Cummins share of net income 96 86 194 181
Royalty and interest income 14 12 31 25
Equity, royalty and interest income from investees $ 110 $ 98 $ 225 $ 206
 

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 $   $   $   $   $   $  
 

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
Income
during 2017 for the then expected cost of field campaigns to
repair some of these engine systems. We concluded based upon additional
emission testing performed, and further discussions with the EPA and
CARB in the first quarter of 2018, 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 Condensed
Consolidated Statements of Income
($94 million recorded in the
Components segment and $93 million in the Engine segment) in the first
quarter of 2018.

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 have increased the number of systems to be
addressed through hardware replacement compared to our assumptions last
quarter. As a result of this agreement and considering that the hardware
replacement solution is a higher cost approach than that previously
assumed on some of the engine systems, we recorded an additional charge
of $181 million, or $0.85 per share, to cost of sales in our Condensed
Consolidated Statements of Income
($91 million recorded in the
Engine segment and $90 million in the Components segment) in the second
quarter of 2018. With the additional charge in the second quarter of
2018, the total accrual related to this matter is $404 million, which
represents our best estimate of the cost to execute the campaigns. The
campaigns will launch in phases across the affected population and are
expected to begin in the third quarter of 2018 with a projection to be
substantially completed by December 31, 2020.

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:

               
Power Total Intersegment
In millions Engine Distribution Components Systems Segment 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 Six months ended
July 1,   July 2, July 1,   July 2,
In millions 2018 2017 2018 2017
Net income attributable to Cummins Inc. $ 545 $ 424 $ 870 $ 820
 
Net income attributable to Cummins Inc. as a percentage of net
sales
8.9 % 8.3 % 7.4 %

 

8.5

%
 
Add:
Net income attributable to noncontrolling interests 9   17   9  

 

26

 
Consolidated net income 554   441   879  

 

846

 
 
Add:
Interest expense 28 21 52

 

39

Income tax expense 161 158 359

 

301

Depreciation and amortization 154   144   307  

 

283

 
EBITDA $ 897   $ 764   $ 1,597   $ 1,469  
 
EBITDA as a percentage of net sales 14.6 % 15.0 % 13.6 %

 

15.2

%
 
Add: Engine system campaign charge 181     368  

 

 
 
EBITDA, excluding engine system campaign charge $ 1,078   $ 764   $ 1,965   $ 1,469  
 
EBITDA, excluding engine system campaign charge, as a percentage
of net sales
17.6 % 15.0 % 16.8 %

 

15.2

%
 

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 special items including 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
 
July 1, 2018 July 2, 2017
In millions Net Income   Diluted EPS Net Income   Diluted EPS
Net income attributable to Cummins Inc. $ 545 $ 3.32 $ 424 $ 2.53
Add:
Discrete tax items (4 ) (0.03 )  
Net income attributable to Cummins Inc. excluding discrete tax items $ 541   $ 3.29  

 

$ 424   $ 2.53
 
Six months ended
July 1, 2018 July 2, 2017
In millions Net Income Diluted EPS Net Income Diluted EPS
Net income attributable to Cummins Inc. $ 870 $ 5.27 $ 820 $ 4.88
Add:
Discrete tax items 74   0.45    
Net income attributable to Cummins Inc. excluding discrete tax items $ 944   $ 5.72   $ 820   $ 4.88
 

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 $ $ $ 1,735
Medium-duty truck and bus 692 777 1,469
Light-duty automotive 402 444 846
Off-highway 537   555       1,092
Total sales $ 2,446   $ 2,696   $   $   $ 5,142
 
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

58,600
Medium-duty 74,000 83,500

157,500
Light-duty 61,900 68,500

130,400
Total units 162,500 184,000

346,500
 
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
 

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 $ $ $ 1,625
Engines 367 461 828
Service 352 370 722
Power generation 326   346       672
Total sales $ 1,853   $ 1,994   $   $   $ 3,847
 
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 $ $ $ 1,616
Turbo technologies 340 355 695
Filtration 320 324 644
Electronics and fuel systems 201 226 427
Automated transmissions 117   141       258
Total sales $ 1,753   $ 1,887   $   $   $ 3,640
 
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
 

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 $ $ $ 1,237
Industrial 414 483 897
Generator technologies 89   97       186
Total sales $ 1,074   $ 1,246   $   $   $ 2,320
 
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
 

View Comments and Join the Discussion!