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For Immediate Release

July 30, 2019

Cummins Announces Second Quarter Results

•
Second quarter revenues of $6.2 billion; GAAP1 Net Income of $675 million
•
Second quarter EBITDA of 17.0 percent of sales; Diluted EPS of $4.27
•
Expects full year 2019 revenues to be flat, at the low end of our previous guidance
•
The company is maintaining its full year 2019 EBITDA guidance of 16.25 to 16.75 percent

COLUMBUS, IND. - Cummins Inc. (NYSE: CMI) today reported results for the second quarter of 2019.

Second quarter revenues of $6.2 billion increased 1 percent from the same quarter in 2018. Increased truck production in North America and stronger demand in North American power generation markets was partially offset by lower demand in oil and gas and international truck markets. Currency negatively impacted revenues by 2 percent primarily due to a stronger US dollar.

Second quarter sales in North America set a new record and improved by 7 percent while international revenues decreased by 6 percent. Sales in North America increased in all segments except Power Systems, which was negatively impacted by lower demand in oil and gas markets. International revenues declined primarily due to lower truck demand in China, Europe, Brazil, and India.

Earnings before interest, taxes, depreciation and amortization (EBITDA) in the second quarter were a record $1.1 billion, or 17.0 percent of sales, compared to $897 million or 14.6 percent of sales a year ago. Net income attributable to Cummins in the second quarter was $675 million ($4.27 per diluted share), compared to net income of $545 million ($3.32 per diluted share).

“We achieved record revenues, EBITDA, and operating cash flow in the first half of 2019, extending our track record of raising performance cycle over cycle,” said Chairman and CEO Tom Linebarger. “While we do expect to see a moderation in demand in the second half of the year, our financial strength combined with our diversified geographic and end market exposure will enable us to generate strong profits, continue to invest in future growth, and return cash to shareholders.”


1

2019 Outlook:

Cummins now expects 2019 revenue to be flat, which places the forecast at the low end of our previous guidance range of flat to 4 percent.  This lower outlook is driven by reduced truck demand in international markets, moderating parts demand in North America, and the impact of a stronger US dollar. The company continues to expect EBITDA to be in the range of 16.25 to 16.75 percent of sales and plans to return 75 percent of Operating Cash Flow to shareholders in the form of dividends and share repurchases.

Our outlook does not include any potential impact of the company’s review of its emission certification process and compliance with emissions standards or acquisition of Hydrogenics.

Second Quarter 2019 Highlights:

•
The Board of Directors approved a 15 percent increase in the Company's quarterly cash dividend from $1.14 per share to $1.311 per share

•
Cummins entered into a definitive agreement to acquire the majority of shares of fuel cell systems provider Hydrogenics Corporation. The agreement is subject to customary closing conditions and Hydrogenics’ shareholder approval

•
Cummins and Gillig announced that the GILLIG zero-emission battery electric bus, powered by Cummins, is now available for commercial orders by customers

Second quarter 2019 detail (all comparisons to same period in 2018)

Engine Segment

•
Sales - $2.7 billion, flat versus prior year
•
Segment EBITDA - $416 million, or 15.4 percent of sales, compared to $362 million or 13.4 percent of sales
•
On-highway revenues increased 2 percent and off-highway revenues decreased by 7 percent
•
North America revenues increased by 7 percent due to higher demand in on-highway markets while international revenues declined 15 percent primarily due to lower demand in China

Distribution Segment

•
Sales - $2.0 billion, up 2 percent
•
Segment EBITDA - $172 million, or 8.5 percent of sales, compared to $145 million or 7.3 percent of sales
•
Revenues in North America increased by 2 percent and international sales were flat
•
Strong demand for power generation equipment in North America, especially data centers, was partially offset by lower demand in oil and gas markets and the unfavorable impact from a stronger US dollar, which impacted sales by 2 percent


2

Components Segment

•
Sales - $1.8 billion, down 2 percent
•
Segment EBITDA - $297 million, or 16.1 percent of sales, compared to $237 million or 12.6 percent of sales
•
Revenues in North America increased by 5 percent due to higher heavy and medium-duty truck production while international sales declined by 12 percent due to lower demand in Europe, China, and India

Power Systems Segment

•
Sales - $1.2 billion, down 3 percent
•
Segment EBITDA - $173 million, or 14.4 percent of sales, compared to $186 million or 14.9 percent of sales
•
Industrial revenues decreased 11 percent due to lower demand in North America oil and gas and global mining markets while power generation revenues were flat

Electrified Power Segment

•
Sales - $8 million
•
Segment EBITDA loss - $33 million

1 Generally Accepted Accounting Principles

About Cummins
Cummins Inc., a global technology leader, is a corporation of complementary business segments designing, manufacturing, distributing and servicing 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 transmissions, battery systems, fuel systems, controls, air handling, filtration, emission solutions, and electrical power generation systems. Headquartered in Columbus, Indiana (U.S.), since its founding in 1919, Cummins employs approximately 62,600 people committed to powering a more prosperous world through three global corporate responsibility priorities critical to healthy communities: education, environment and equality of opportunity. 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. In 2018, the company earned about $2.1 billion on sales of $23.8 billion. See how Cummins is powering a world that’s Always On by accessing news releases and more information at https://www.cummins.com/always-on. Follow Cummins on Twitter at www.twitter.com/cummins and on YouTube at www.youtube.com/cumminsinc.



3

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: any adverse results of our internal review into our emissions certification process and compliance with emissions standards; a sustained slowdown or significant downturn in our markets; changes in the engine outsourcing practices of significant customers; the development of new technologies that reduce demand for our current products and services; increased scrutiny from regulatory agencies, as well as unpredictability in the adoption, implementation and enforcement of emissions standards around the world; product recalls; policy changes in international trade; the United Kingdom's (U.K.) decision to end its membership in the European Union; lower than expected acceptance of new or existing products or services; a slowdown in infrastructure development and/or depressed commodity prices; supply shortages and supplier financial risk, particularly from any of our single-sourced suppliers; exposure to potential security breaches or other disruptions to our information technology systems and data security; a major customer experiencing financial distress; the actions of, and income from, joint ventures and other investees that we do not directly control; our plan to reposition our portfolio of product offerings through exploration of strategic acquisitions and divestitures and related uncertainties of entering such transactions; failure to realize expected results from our investment in Eaton Cummins Automated Transmission Technologies joint venture; competitor activity; increasing competition, including increased global competition among our customers in emerging markets; foreign currency exchange rate changes; variability in material and commodity costs; political, economic and other risks from operations in numerous countries; changes in taxation; global legal and ethical compliance costs and risks; aligning our capacity and production with our demand; product liability claims; increasingly stringent environmental laws and regulations; future bans or limitations on the use of diesel-powered products; the price and availability of energy; the performance of our pension plan assets and volatility of discount rates; labor relations; changes in accounting standards; our sales mix of products; protection and validity of our patent and other intellectual property rights; the outcome of pending and future litigation and governmental proceedings; continued availability of financing, financial instruments and financial resources in the amounts, at the times and on the terms required to support our future business; and other risks detailed from time to time in our SEC filings, including particularly in the Risk Factors section of our 2018 Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. 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 SEC, 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.




4

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


 
 
Three months ended
In millions, except per share amounts
 
June 30,
2019
 
July 1,
2018
NET SALES
 
$
6,221

 
$
6,132

Cost of sales
 
4,580

 
4,692

GROSS MARGIN
 
1,641

 
1,440

OPERATING EXPENSES AND INCOME
 
 
 
 
Selling, general and administrative expenses
 
629

 
613

Research, development and engineering expenses
 
251

 
219

Equity, royalty and interest income from investees
 
96

 
110

Other operating income (expense), net
 
(9
)
 
4

OPERATING INCOME
 
848

 
722

Interest income
 
12

 
10

Interest expense
 
29

 
28

Other income, net
 
40

 
11

INCOME BEFORE INCOME TAXES
 
871

 
715

Income tax expense
 
186

 
161

CONSOLIDATED NET INCOME
 
685

 
554

Less: Net income attributable to noncontrolling interests
 
10

 
9

NET INCOME ATTRIBUTABLE TO CUMMINS INC.
 
$
675

 
$
545

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

 
$
3.33

Diluted
 
$
4.27

 
$
3.32

 
 
 
 
 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
 
 

 
 
Basic
 
157.4

 
163.8

Diluted
 
158.0

 
164.3

 
 
 
 
 
(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 NET INCOME
(Unaudited) (a)


 
 
 
Six months ended
In millions, except per share amounts
 
June 30,
2019
 
July 1,
2018
NET SALES
 
$
12,225

 
$
11,702

Cost of sales
 
9,052

 
9,062

GROSS MARGIN
 
3,173

 
2,640

OPERATING EXPENSES AND INCOME
 
 
 
 
Selling, general and administrative expenses
 
1,222

 
1,190

Research, development and engineering expenses
 
488

 
429

Equity, royalty and interest income from investees
 
188

 
225

Other operating income (expense), net
 
(4
)
 
6

OPERATING INCOME
 
1,647

 
1,252

Interest income
 
24

 
17

Interest expense
 
61

 
52

Other income, net
 
106

 
21

INCOME BEFORE INCOME TAXES
 
1,716

 
1,238

Income tax expense
 
362

 
359

CONSOLIDATED NET INCOME
 
1,354

 
879

Less: Net income attributable to noncontrolling interests
 
16

 
9

NET INCOME ATTRIBUTABLE TO CUMMINS INC.
 
$
1,338

 
$
870

 
 
 
 
 
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
 
 
 
 
Basic
 
$
8.51

 
$
5.30

Diluted
 
$
8.47

 
$
5.27

 
 
 
 
 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
 
 
 
 
Basic
 
157.3

 
164.3

Diluted
 
157.9

 
165.0

 
 
 
 
 
(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 BALANCE SHEETS
(Unaudited) (a)


In millions, except par value
 
June 30,
2019
 
December 31,
2018
ASSETS
 
 
 
 
Current assets
 
 
 
 
Cash and cash equivalents
 
$
1,397

 
$
1,303

Marketable securities
 
335

 
222

Total cash, cash equivalents and marketable securities
 
1,732

 
1,525

Accounts and notes receivable, net
 
4,179

 
3,866

Inventories
 
3,896

 
3,759

Prepaid expenses and other current assets
 
643

 
668

Total current assets
 
10,450

 
9,818

Long-term assets
 
 
 
 
Property, plant and equipment, net
 
4,077

 
4,096

Investments and advances related to equity method investees
 
1,274

 
1,222

Goodwill
 
1,125

 
1,126

Other intangible assets, net
 
901

 
909

Pension assets
 
960

 
929

Other assets
 
1,467

 
962

Total assets
 
$
20,254

 
$
19,062

 
 
 
 
 
LIABILITIES
 
 
 
 
Current liabilities
 
 
 
 
Accounts payable (principally trade)
 
$
2,991

 
$
2,822

Loans payable
 
119

 
54

Commercial paper
 
434

 
780

Accrued compensation, benefits and retirement costs
 
465

 
679

Current portion of accrued product warranty
 
809

 
654

Current portion of deferred revenue
 
505

 
498

Other accrued expenses
 
920

 
852

Current maturities of long-term debt
 
46

 
45

Total current liabilities
 
6,289

 
6,384

Long-term liabilities
 
 
 
 
Long-term debt
 
1,624

 
1,597

Pensions and other postretirement benefits
 
522

 
532

Accrued product warranty
 
663

 
740

Deferred revenue
 
726

 
658

Other liabilities
 
1,234

 
892

Total liabilities
 
$
11,058

 
$
10,803

 
 
 
 
 
EQUITY
 
 
 
 
Cummins Inc. shareholders’ equity
 
 
 
 
Common stock, $2.50 par value, 500 shares authorized, 222.4 and 222.4 shares issued
 
$
2,307

 
$
2,271

Retained earnings
 
13,897

 
12,917

Treasury stock, at cost, 64.6 and 64.4 shares
 
(6,082
)
 
(6,028
)
Common stock held by employee benefits trust, at cost, 0.3 and 0.4 shares
 
(4
)
 
(5
)
Accumulated other comprehensive loss
 
(1,840
)
 
(1,807
)
Total Cummins Inc. shareholders’ equity
 
8,278

 
7,348

Noncontrolling interests
 
918

 
911

Total equity
 
$
9,196

 
$
8,259

Total liabilities and equity
 
$
20,254

 
$
19,062

 
 
 
 
 
(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 STATEMENTS OF CASH FLOWS
(Unaudited) (a)



 
 
Six months ended
In millions
 
June 30,
2019
 
July 1,
2018
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
 
Consolidated net income
 
$
1,354

 
$
879

Adjustments to reconcile consolidated net income to net cash provided by operating activities
 
 
 
 
Depreciation and amortization
 
315

 
308

Deferred income taxes
 
17

 
(21
)
Equity in income of investees, net of dividends
 
(43
)
 
(163
)
Pension contributions (in excess of) under expense, net
 
(45
)
 
25

Other postretirement benefits payments in excess of expense, net
 
(10
)
 
—

Stock-based compensation expense
 
28

 
28

Gain on corporate owned life insurance
 
(55
)
 
—

Foreign currency remeasurement and transaction exposure
 
46

 
(21
)
Changes in current assets and liabilities
 
 
 
 
Accounts and notes receivable
 
(312
)
 
(555
)
Inventories
 
(125
)
 
(475
)
Other current assets
 
15

 
(42
)
Accounts payable
 
148

 
442

Accrued expenses
 
(194
)
 
94

Changes in other liabilities
 
120

 
5

Other, net
 
(39
)
 
(31
)
Net cash provided by operating activities
 
1,220

 
473

 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
 
Capital expenditures
 
(242
)
 
(186
)
Investments in internal use software
 
(34
)
 
(35
)
Investments in and advances to equity investees
 
(18
)
 
(15
)
Investments in marketable securities—acquisitions
 
(259
)
 
(143
)
Investments in marketable securities—liquidations
 
153

 
116

Cash flows from derivatives not designated as hedges
 
(26
)
 
(9
)
Other, net
 
15

 
36

Net cash used in investing activities
 
(411
)
 
(236
)
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
 
Net (payments) borrowings of commercial paper
 
(346
)
 
504

Payments on borrowings and finance lease obligations
 
(17
)
 
(33
)
Net borrowings (payments) under short-term credit agreements
 
57

 
(1
)
Distributions to noncontrolling interests
 
(13
)
 
(11
)
Dividend payments on common stock
 
(358
)
 
(355
)
Repurchases of common stock
 
(100
)
 
(379
)
Other, net
 
66

 
22

Net cash used in financing activities
 
(711
)
 
(253
)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
 
(4
)
 
(35
)
Net increase (decrease) in cash and cash equivalents
 
94

 
(51
)
Cash and cash equivalents at beginning of year
 
1,303

 
1,369

CASH AND CASH EQUIVALENTS AT END OF PERIOD
 
$
1,397

 
$
1,318

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


8
CUMMINS INC. AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)

 
In millions
 
Engine
 
Distribution
 
Components
 
Power Systems
 
Electrified Power
 
Total Segments
 
Intersegment Eliminations (1)
 
Total
 
Three months ended June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
External sales
 
$
2,073

 
$
2,015

 
$
1,401

 
$
724

 
$
8

 
$
6,221

 
$
—

 
$
6,221

 
Intersegment sales
 
630

 
13

 
445

 
479

 
—

 
1,567

 
(1,567
)
 
—

 
Total sales
 
2,703

 
2,028

 
1,846

 
1,203

 
8

 
7,788

 
(1,567
)
 
6,221

 
Research, development and engineering expenses
 
88

 
7

 
75

 
57

 
24

 
251

 
—

 
251

 
Equity, royalty and interest income from investees
 
62

 
12

 
11

 
11

 
—

 
96

 
—

 
96

 
Interest income
 
4

 
4

 
2

 
2

 
—

 
12

 
—

 
12

 
Segment EBITDA
 
416

 
172

 
297

 
173

 
(33
)
 
1,025

 
33

 
1,058

 
Depreciation and amortization (2)
 
51

 
28

 
47

 
30

 
2

 
158

 
—

 
158

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EBITDA as a percentage of total sales
 
15.4
%
 
8.5
%
 
16.1
%
 
14.4
%
 
NM

 
13.2
%
 
 
 
17.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 (2)
 
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
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
"NM" - not meaningful information
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1
)
Includes intersegment sales, intersegment profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the three months ended June 30, 2019 and July 1, 2018.
(2
)
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 Net Income as "Interest expense." A portion of depreciation expense is included in "Research, development and engineering expense."








9
CUMMINS INC. AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
In millions
 
Engine
 
Distribution
 
Components
 
Power Systems
 
Electrified Power
 
Total Segments
 
Intersegment Eliminations (1)
 
Total
 
Six months ended June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
External sales
 
$
4,057

 
$
4,008

 
$
2,802

 
$
1,347

 
$
11

 
$
12,225

 
$
—

 
$
12,225

 
Intersegment sales
 
1,299

 
21

 
905

 
933

 
—

 
3,158

 
(3,158
)
 
—

 
Total sales
 
5,356

 
4,029

 
3,707

 
2,280

 
11

 
15,383

 
(3,158
)
 
12,225

 
Research, development and engineering expenses
 
166

 
14

 
150

 
113

 
45

 
488

 
—

 
488

 
Equity, royalty and interest income from investees
 
118

 
23

 
21

 
26

 
—

 
188

 
—

 
188

 
Interest income
 
8

 
8

 
4

 
4

 
—

 
24

 
—

 
24

 
Segment EBITDA
 
854

 
343

 
622

 
311

 
(62
)
 
2,068

 
23

 
2,091

 
Depreciation and amortization (2)
 
101

 
57

 
93

 
59

 
4

 
314

 
—

 
314

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EBITDA as a percentage of total sales
 
15.9
%
 
8.5
%
 
16.8
%
 
13.6
%
 
NM

 
13.4
%
 
 
 
17.1
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 (2)
 
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
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
"NM" - not meaningful information
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1
)
Includes intersegment sales, intersegment profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the six months ended June 30, 2019 and July 1, 2018.
(2
)
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 $1 million for the six months ended June 30, 2019 and July 1, 2018, respectively. A portion of depreciation expense is included in "Research, development and engineering expense."

10

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 Net Income is shown in the table below:
 
 
 
Three months ended
 
Six months ended
In millions
 
June 30,
2019
 
July 1,
2018
 
June 30,
2019
 
July 1,
2018
Total EBITDA
 
$
1,058

 
$
897

 
$
2,091

 
$
1,597

Less:
 
 
 
 
 
 
 
 
Depreciation and amortization
 
158

 
154

 
314

 
307

Interest expense
 
29

 
28

 
61

 
52

Income before income taxes
 
$
871

 
$
715

 
$
1,716

 
$
1,238



11

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 Net Income for the reporting periods was as follows:
 
 
Three months ended
 
Six months ended
 
In millions
 
June 30,
2019
 
July 1,
2018
 
June 30,
2019
 
July 1,
2018
 
Manufacturing entities
 

 

 

 

 
Beijing Foton Cummins Engine Co., Ltd.
 
$
20

 
$
24

 
$
41

 
$
45

 
Dongfeng Cummins Engine Company, Ltd.
 
16

 
17

 
30

 
34

 
Chongqing Cummins Engine Company, Ltd.
 
10

 
15

 
22

 
32

 
All other manufacturers
 
28

 
34

 
55

 
70

 
Distribution entities
 


 


 


 


 
Komatsu Cummins Chile, Ltda.
 
7

 
6

 
13

 
13

 
All other distributors
 
—

 
—

 
(1
)
 
—

 
Cummins share of net income
 
81

 
96

 
160

 
194

 
Royalty and interest income
 
15

 
14

 
28

 
31

 
Equity, royalty and interest income from investees
 
$
96

 
$
110

 
$
188

 
$
225

 


12

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)
 
 
 
 
 
We believe EBITDA is a useful measure of our operating performance as it assists investors and debt holders in comparing our performance on a consistent basis without regard for financing methods, capital structure, income taxes or depreciation and amortization methods, which can vary significantly depending upon many factors.
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 Net 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
In millions
 
June 30,
2019
 
July 1,
2018
 
June 30,
2019
 
July 1,
2018
Net income attributable to Cummins Inc.
 
$
675

 
$
545

 
$
1,338

 
$
870

 
 
 
 
 
 
 
 
 
Net income attributable to Cummins Inc. as a percentage of net sales
 
10.9
%
 
8.9
%
 
10.9
%
 
7.4
%
 
 
 
 
 
 
 
 
 
Add:
 
 
 
 
 
 
 
 
Net income attributable to noncontrolling interests
 
10

 
9

 
16

 
9

Consolidated net income
 
685

 
554

 
1,354

 
879

 
 
 
 
 
 
 
 
 
Add:
 
 
 
 
 
 
 
 
Interest expense
 
29

 
28

 
61

 
52

Income tax expense
 
186

 
161

 
362

 
359

Depreciation and amortization
 
158

 
154

 
314

 
307

EBITDA
 
$
1,058

 
$
897

 
$
2,091

 
$
1,597

 
 
 
 
 
 
 
 
 
EBITDA as a percentage of net sales
 
17.0
%
 
14.6
%
 
17.1
%
 
13.6
%


13

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


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

 
 
 
 
Three months ended
 
 
 
 
June 30,
2019
 
July 1,
2018
 
In millions, except per share amounts
 
Net Income
 
Diluted EPS
 
Net Income
 
Diluted EPS
 
Net income and diluted EPS attributable to Cummins Inc.
 
$
675

 
$
4.27

 
$
545

 
$
3.32

 
Special discrete tax items
 
—

 
—

 
(4
)
 
(0.03
)
 
Net income and diluted EPS attributable to Cummins Inc. excluding special discrete tax items
 
$
675

 
$
4.27

 
$
541

 
$
3.29


 
 
 
 
 
Six months ended
 
 
 
 
 
June 30,
2019
 
July 1,
2018
 
In millions, except per share amounts
 
Net Income
 
Diluted EPS
 
Net Income
 
Diluted EPS
 
Net income and diluted EPS attributable to Cummins Inc.
 
$
1,338

 
$
8.47

 
$
870

 
$
5.27

 
Special discrete tax items (1)
 
—

 
—

 
74

 
0.45

 
Net income and diluted EPS attributable to Cummins Inc. excluding special discrete tax items
 
$
1,338

 
$
8.47

 
$
944

 
$
5.72

 
 
 
 
 
 
 
 
 
 
 
 
(1
)
 
Our effective tax rate for the six months ended July 1, 2018, was 29.0 percent and contained $74 million, or $0.45 per share, of unfavorable discrete tax items, primarily related to a Tax Legislation adjustment of $80 million. This includes $45 million associated with changes related to the Tax Legislation measurement period adjustment and $35 million associated with the one-time recognition of deferred tax charges at historical tax rates on intercompany profit in inventory.

14

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:
2019
 
 
 
 
 
 
 
 
 
 
In millions
 
Q1
 
Q2
 
Q3
 
Q4
 
YTD
Heavy-duty truck
 
$
979

 
$
970

 
$
—

 
$
—

 
$
1,949

Medium-duty truck and bus
 
721

 
739

 
—

 
—

 
1,460

Light-duty automotive
 
382

 
480

 
—

 
—

 
862

Off-highway
 
571

 
514

 
—

 
—

 
1,085

Total sales
 
$
2,653

 
$
2,703

 
$
—

 
$
—

 
$
5,356

 
 
 
 
 
 
 
 
 
 
 
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

Unit shipments by engine classification (including unit shipments to Power Systems and off-highway engine units included in their respective classification) were as follows:
2019
 
 
 
 
 
 
 
 
 
 
Units
 
Q1
 
Q2
 
Q3
 
Q4
 
YTD
Heavy-duty
 
33,900

 
35,000

 
—

 
—

 
68,900

Medium-duty
 
79,000

 
76,400

 
—

 
—

 
155,400

Light-duty
 
56,400

 
64,100

 
—

 
—

 
120,500

Total units
 
169,300

 
175,500

 
—

 
—

 
344,800

 
 
 
 
 
 
 
 
 
 
 
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


15

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:
2019
 
 
 
 
 
 
 
 
 
 
In millions
 
Q1
 
Q2
 
Q3
 
Q4
 
YTD
Parts
 
$
844

 
$
833

 
$
—

 
$
—

 
$
1,677

Power generation
 
403

 
427

 
—

 
—

 
830

Engines
 
391

 
395

 
—

 
—

 
786

Service
 
363

 
373

 
—

 
—

 
736

Total sales
 
$
2,001

 
$
2,028

 
$
—

 
$
—

 
$
4,029

 
 
 
 
 
 
 
 
 
 
 
2018
 
 
 
 
 
 
 
 
 
 
In millions
 
Q1
 
Q2
 
Q3
 
Q4
 
YTD
Parts
 
$
808

 
$
817

 
$
800

 
$
809

 
$
3,234

Power generation
 
326

 
346

 
359

 
455

 
1,486

Engines
 
367

 
461

 
400

 
406

 
1,634

Service
 
352

 
370

 
372

 
380

 
1,474

Total sales
 
$
1,853

 
$
1,994

 
$
1,931

 
$
2,050

 
$
7,828

Component Segment Sales by Product Line
Sales for our Components segment by product line were as follows:
2019
 
 
 
 
 
 
 
 
 
 
In millions
 
Q1
 
Q2
 
Q3
 
Q4
 
YTD
Emission solutions
 
$
854

 
$
828

 
$
—

 
$
—

 
$
1,682

Turbo technologies
 
335

 
319

 
—

 
—

 
654

Filtration
 
325

 
331

 
—

 
—

 
656

Electronics and fuel systems
 
198

 
212

 
—

 
—

 
410

Automated transmissions
 
149

 
156

 
—

 
—

 
305

Total sales
 
$
1,861

 
$
1,846

 
$
—

 
$
—

 
$
3,707

 
 
 
 
 
 
 
 
 
 
 
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


16

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


Power Systems Segment Sales by Product Line and Unit Shipments by Engine Classification
Sales for our Power Systems segment by product line were as follows:
2019
 
 
 
 
 
 
 
 
 
 
In millions
 
Q1
 
Q2
 
Q3
 
Q4
 
YTD
Power generation
 
$
567

 
$
668

 
$
—

 
$
—

 
$
1,235

Industrial
 
420

 
432

 
—

 
—

 
852

Generator technologies
 
90

 
103

 
—

 
—

 
193

Total sales
 
$
1,077

 
$
1,203

 
$
—

 
$
—

 
$
2,280

 
 
 
 
 
 
 
 
 
 
 
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

High-horsepower unit shipments by engine classification were as follows:
2019
 
 
 
 
 
 
 
 
 
 
Units
 
Q1
 
Q2
 
Q3
 
Q4
 
YTD
Power generation
 
2,100

 
2,300

 
—

 
—

 
4,400

Industrial
 
1,600

 
1,600

 
—

 
—

 
3,200

Total units
 
3,700

 
3,900

 
—

 
—

 
7,600

 
 
 
 
 
 
 
 
 
 
 
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

 

17