SEC Filings


8-K
CUMMINS INC filed this Form 8-K on 10/31/2017
Entire Document
 
Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=11861332&doc=3

FORM 8-K
 
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report:  October 31, 2017
 
  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 31, 2017, 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 2017, 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: 


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 31, 2017
 
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
 
October 1,
2017
 
October 2,
2016
NET SALES
 
$
5,285

 
$
4,187

Cost of sales
 
3,946

 
3,108

GROSS MARGIN
 
1,339

 
1,079

OPERATING EXPENSES AND INCOME
 
 
 
 
Selling, general and administrative expenses
 
624

 
513

Research, development and engineering expenses
 
213

 
157

Equity, royalty and interest income from investees
 
95

 
74

Loss contingency
 

 
99

Other operating income (expense), net
 
32

 

OPERATING INCOME
 
629

 
384

Interest income
 
4

 
6

Interest expense
 
18

 
16

Other income (expense), net
 
7

 
8

INCOME BEFORE INCOME TAXES
 
622

 
382

Income tax expense
 
165

 
82

CONSOLIDATED NET INCOME
 
457

 
300

Less: Net income attributable to noncontrolling interests
 
4

 
11

NET INCOME ATTRIBUTABLE TO CUMMINS INC.
 
$
453

 
$
289

 
 
 
 
 
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
 
 
 
 
Basic
 
$
2.72

 
$
1.72

Diluted
 
$
2.71

 
$
1.72

 
 
 
 
 
WEIGHTED AVERAGE SHARES OUTSTANDING
 
 

 
 
Basic
 
166.3

 
167.8

Diluted
 
167.0

 
168.2

 
 
 
 
 
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.







3

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


 
 
 
Nine months ended
In millions, except per share amounts
 
October 1,
2017
 
October 2,
2016
NET SALES
 
$
14,952

 
$
13,006

Cost of sales
 
11,236

 
9,674

GROSS MARGIN
 
3,716

 
3,332

OPERATING EXPENSES AND INCOME
 
 
 
 
Selling, general and administrative expenses
 
1,757

 
1,527

Research, development and engineering expenses
 
545

 
478

Equity, royalty and interest income from investees
 
301

 
234

Loss contingency
 

 
138

Other operating income (expense), net
 
55

 
(2
)
OPERATING INCOME
 
1,770

 
1,421

Interest income
 
11

 
18

Interest expense
 
57

 
51

Other income (expense), net
 
45

 
34

INCOME BEFORE INCOME TAXES
 
1,769

 
1,422

Income tax expense
 
466

 
362

CONSOLIDATED NET INCOME
 
1,303

 
1,060

Less: Net income attributable to noncontrolling interests
 
30

 
44

NET INCOME ATTRIBUTABLE TO CUMMINS INC.
 
$
1,273

 
$
1,016

 
 
 
 
 
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
 
 
 
 
Basic
 
$
7.62

 
$
5.99

Diluted
 
$
7.60

 
$
5.99

 
 
 
 
 
WEIGHTED AVERAGE SHARES OUTSTANDING
 
 
 
 
Basic
 
167.0

 
169.5

Diluted
 
167.6

 
169.7

 
 
 
 
 
CASH DIVIDENDS DECLARED PER COMMON SHARE
 
$
3.13

 
$
2.975

 
 
 
 
 
(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
 
October 1,
2017
 
December 31,
2016
ASSETS
 
 
 
 
Current assets
 
 
 
 
Cash and cash equivalents
 
$
1,290

 
$
1,120

Marketable securities
 
154

 
260

Total cash, cash equivalents and marketable securities
 
1,444

 
1,380

Accounts and notes receivable, net
 
3,810

 
3,025

Inventories
 
3,146

 
2,675

Prepaid expenses and other current assets
 
656

 
627

Total current assets
 
9,056

 
7,707

Long-term assets
 
 
 
 
Property, plant and equipment
 
7,901

 
7,635

Accumulated depreciation
 
(4,085
)
 
(3,835
)
Property, plant and equipment, net
 
3,816

 
3,800

Investments and advances related to equity method investees
 
1,213

 
946

Goodwill
 
1,036

 
480

Other intangible assets, net
 
964

 
332

Pension assets
 
912

 
731

Other assets
 
995

 
1,015

Total assets
 
$
17,992

 
$
15,011

 
 
 
 
 
LIABILITIES
 
 
 
 
Current liabilities
 
 
 
 
Accounts payable (principally trade)
 
$
2,486

 
$
1,854

Loans payable
 
64

 
41

Commercial paper
 
514

 
212

Accrued compensation, benefits and retirement costs
 
674

 
412

Current portion of accrued product warranty
 
462

 
333

Current portion of deferred revenue
 
528

 
468

Other accrued expenses
 
968

 
970

Current maturities of long-term debt
 
62

 
35

Total current liabilities
 
5,758

 
4,325

Long-term liabilities
 
 
 
 
Long-term debt
 
1,615

 
1,568

Postretirement benefits other than pensions
 
319

 
329

Pensions
 
328

 
326

Other liabilities and deferred revenue
 
1,411

 
1,289

Total liabilities
 
$
9,431

 
$
7,837

 
 
 
 
 
EQUITY
 
 
 
 
Cummins Inc. shareholders’ equity
 
 
 
 
Common stock, $2.50 par value, 500 shares authorized, 222.4 and 222.4 shares issued
 
$
2,198

 
$
2,153

Retained earnings
 
11,791

 
11,040

Treasury stock, at cost, 56.4 and 54.2 shares
 
(4,849
)
 
(4,489
)
Common stock held by employee benefits trust, at cost, 0.6 and 0.7 shares
 
(7
)
 
(8
)
Accumulated other comprehensive loss
 
(1,504
)
 
(1,821
)
Total Cummins Inc. shareholders’ equity
 
7,629

 
6,875

Noncontrolling interests
 
932

 
299

Total equity
 
$
8,561

 
$
7,174

Total liabilities and equity
 
$
17,992

 
$
15,011

 
 
 
 
 
(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
 
October 1,
2017
 
October 2,
2016
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
 
Consolidated net income
 
$
1,303

 
$
1,060

Adjustments to reconcile consolidated net income to net cash provided by operating activities
 
 
 
 
Depreciation and amortization
 
433

 
391

Deferred income taxes
 
26

 
60

Equity in income of investees, net of dividends
 
(166
)
 
(94
)
Pension contributions in excess of expense
 
(63
)
 
(92
)
Other post retirement benefits payments in excess of expense
 
(4
)
 
(16
)
Stock-based compensation expense
 
34

 
28

Restructuring payments
 

 
(53
)
Loss contingency
 

 
138

Translation and hedging activities
 
61

 
(39
)
Changes in current assets and liabilities, net of acquisitions
 
 
 
 
Accounts and notes receivable
 
(722
)
 
(112
)
Inventories
 
(401
)
 
(150
)
Other current assets
 
(28
)
 
138

Accounts payable
 
567

 
101

Accrued expenses
 
369

 
(279
)
Changes in other liabilities and deferred revenue
 
177

 
188

Other, net
 
(115
)
 
45

Net cash provided by operating activities
 
1,471

 
1,314

 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
 
Capital expenditures
 
(282
)
 
(312
)
Investments in internal use software
 
(59
)
 
(42
)
Proceeds from disposals of property, plant and equipment
 
104

 
11

Investments in and advances to equity investees
 
(71
)
 
(29
)
Acquisitions of businesses, net of cash acquired
 
(600
)
 
(1
)
Investments in marketable securities—acquisitions
 
(106
)
 
(447
)
Investments in marketable securities—liquidations
 
218

 
291

Cash flows from derivatives not designated as hedges
 
9

 
(64
)
Other, net
 
1

 
3

Net cash used in investing activities
 
(786
)
 
(590
)
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
 
Proceeds from borrowings
 
4

 
111

Net borrowings of commercial paper
 
302

 
273

Payments on borrowings and capital lease obligations
 
(38
)
 
(156
)
Net borrowings under short-term credit agreements
 
19

 
25

Distributions to noncontrolling interests
 
(29
)
 
(42
)
Dividend payments on common stock
 
(522
)
 
(505
)
Repurchases of common stock
 
(391
)
 
(745
)
Other, net
 
55

 
(6
)
Net cash used in financing activities
 
(600
)
 
(1,045
)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
 
85

 
(139
)
Net increase (decrease) in cash and cash equivalents
 
170

 
(460
)
Cash and cash equivalents at beginning of year
 
1,120

 
1,711

CASH AND CASH EQUIVALENTS AT END OF PERIOD
 
$
1,290

 
$
1,251

 
 
 
 
 
(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(1)
 
Power Systems
 
Total Segment
 
Intersegment Eliminations (2)
 
Total
 
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

 
Depreciation and amortization (3)
 
47

 
29

 
42

 
30

 
148

 

 
148

 
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

 
EBIT
 
229

 
91

 
217

 
81

 
618

 
22

 
640

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EBIT as a percentage of total sales
 
9.8
%
 
5.2
%
 
14.2
%
 
7.7
%
 
9.3
%
 
 
 
12.1
%
 
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended October 2, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
External sales
 
$
1,357

 
$
1,497

 
$
824

 
$
509

 
$
4,187

 
$

 
$
4,187

 
Intersegment sales
 
502

 
7

 
319

 
347

 
1,175

 
(1,175
)
 

 
Total sales
 
1,859

 
1,504

 
1,143

 
856

 
5,362

 
(1,175
)
 
4,187

 
Depreciation and amortization (3)
 
42

 
28

 
32

 
29

 
131

 

 
131

 
Research, development and engineering expenses
 
56

 
3

 
54

 
44

 
157

 

 
157

 
Equity, royalty and interest income from investees
 
38

 
19

 
9

 
8

 
74

 

 
74

 
Loss contingency
 
99

 

 

 

 
99

 

 
99

 
Interest income
 
3

 
1

 
1

 
1

 
6

 

 
6

 
EBIT
 
89

 
96

 
148

 
59

 
392

 
6

 
398

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EBIT as a percentage of total sales
 
4.8
%
 
6.4
%
 
12.9
%
 
6.9
%
 
7.3
%
 
 
 
9.5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1
)
The 2017 disclosures include Eaton Cummins Automated Transmission Technologies joint venture results consolidated during the third quarter of 2017. See "ACQUISITION," footnote for additional information.
(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 October 1, 2017 and October 2, 2016.
(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."

7

CUMMINS INC. AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
In millions
 
Engine
 
Distribution
 
Components(1)
 
Power Systems
 
Total Segment
 
Intersegment Eliminations (2)
 
Total
 
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

 
Depreciation and amortization (3)
 
137

 
90

 
117

 
87

 
431

 

 
431

 
Research, development and engineering expenses
 
200

 
14

 
170

 
161

 
545

 

 
545

 
Equity, royalty and interest income from investees
 
186

 
35

 
40

 
40

 
301

 

 
301

 
Interest income
 
4

 
4

 
1

 
2

 
11

 

 
11

 
EBIT
 
735

 
287

 
586

 
199

 
1,807

 
19

 
1,826

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EBIT as a percentage of total sales
 
11.0
%
 
5.6
%
 
13.5
%
 
6.7
%
 
9.5
%
 
 
 
12.2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine months ended October 2, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
External sales
 
$
4,350

 
$
4,493

 
$
2,654

 
$
1,509

 
$
13,006

 
$

 
$
13,006

 
Intersegment sales
 
1,487

 
18

 
1,005

 
1,076

 
3,586

 
(3,586
)
 

 
Total sales
 
5,837

 
4,511

 
3,659

 
2,585

 
16,592

 
(3,586
)
 
13,006

 
Depreciation and amortization (3)
 
122

 
85

 
95

 
87

 
389

 

 
389

 
Research, development and engineering expenses
 
166

 
10

 
161

 
141

 
478

 

 
478

 
Equity, royalty and interest income from investees
 
120

 
56

 
29

 
29

 
234

 

 
234

 
Loss contingency
 
138

 

 

 

 
138

 

 
138

 
Interest income
 
8

 
3

  
3

 
4

 
18

 

 
18

 
EBIT
 
492

 
270

 
501

 
195

 
1,458

 
15

 
1,473

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EBIT as a percentage of total sales
 
8.4
%
 
6.0
%
 
13.7
%
 
7.5
%
 
8.8
%
 
 
 
11.3
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1
)
The 2017 disclosures include Eaton Cummins Automated Transmission Technologies joint venture results consolidated during the third quarter of 2017. See "ACQUISITION," footnote for additional information.

(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 October 1, 2017 and October 2, 2016.
(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 $2 million for both of the nine months ended October 1, 2017 and October 2, 2016.


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
 
October 1,
2017
 
October 2,
2016
 
October 1,
2017
 
October 2,
2016
Total EBIT
 
$
640

 
$
398

 
$
1,826

 
$
1,473

Less: Interest expense
 
18

 
16

 
57

 
51

Income before income taxes
 
$
622

 
$
382

 
$
1,769

 
$
1,422



8

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
 
October 1,
2017
 
October 2,
2016
 
October 1,
2017
 
October 2,
2016
Distribution entities
 
 
 
 
 
 
 
 
Komatsu Cummins Chile, Ltda.
 
$
8

 
$
8

 
$
23

 
$
26

North American distributors
 

 
7

 

 
18

All other distributors
 
(1
)
 
1

 
(1
)
 
2

Manufacturing entities
 
 

 
 
 
 

 
 
Beijing Foton Cummins Engine Co., Ltd.
 
24

 
19

 
79

 
59

Dongfeng Cummins Engine Company, Ltd.
 
15

 
10

 
56

 
32

Chongqing Cummins Engine Company, Ltd.
 
11

 
11

 
30

 
28

All other manufacturers
 
27

 
8

 
78

 
40

Cummins share of net income
 
84

 
64

 
265

 
205

Royalty and interest income
 
11

 
10

 
36

 
29

Equity, royalty and interest income from investees
 
$
95

 
$
74

 
$
301

 
$
234

 

ACQUISITION

In April 2017, we entered into an agreement to form a joint venture with Eaton Corporation PLC (Eaton), which closed on July 31, 2017 (the acquisition date). We purchased a 50 percent interest in the new venture named Eaton Cummins Automated Transmission Technologies for $600 million in cash. In addition, each partner contributed $20 million for working capital. The joint venture will design, assemble, sell and support medium-duty and heavy-duty automated transmissions for the commercial vehicle market, including new product launches. We consolidated the results of the joint venture in our Components segment as we have a majority voting interest in the venture by virtue of a tie-breaking vote on the joint venture's board of directors. We do not expect this new venture to have a significant impact on our consolidated results in 2017.

ENGINE SYSTEM LOSS CONTINGENCY
During 2017, the CARB and U.S. EPA began selecting certain of our pre-2013 model year engine systems for additional emissions testing.  We have been notified that a portion of the CARB and EPA selected engine systems have failed emissions testing due to the unexpected degradation of an aftertreatment component.  Although we have no official notice from the CARB or EPA on these engine systems to date, we are working with the agencies on a resolution of these matters.  We are developing and testing solutions to address the technical issues, which could include a combination of calibration changes, service practices and hardware changes.  We recorded a charge of $29 million to "cost of sales" in our Condensed Consolidated Statements of Income in the third quarter of 2017 for the expected cost of field campaigns to repair some of these engine systems.
In addition, we are currently evaluating other engine systems for model years 2010 through 2015 that could potentially be subject to similar degradation issues.  At this point in time, we have not yet determined the impact to other model years and engine systems or the percentage of the engine system populations affected.
Because this remains under review with a number of yet unresolved variables, we are not yet able to estimate the outcome for these matters. It is possible, however, that they could have a material effect on our results of operations in the periods in which the uncertainties are resolved.
We do not currently expect any fines or penalties from the EPA or CARB related to this matter.

9

CUMMINS INC. AND SUBSIDIARIES
SELECTED FOOTNOTE DATA
(Unaudited)




SUBSEQUENT EVENT

On October 12, 2017, we entered into an asset purchase agreement with Brammo Inc., an engineer and manufacturer of lithium ion batteries primarily related to the utility vehicle markets, for approximately $70 million to be paid in cash at closing.  In addition to the closing consideration, the agreement contains an earnout based on future results of the acquired business, which could result in a maximum additional $100 million payment to the former owners. The majority of the purchase price will likely be assigned to intangible assets and goodwill. We expect the transaction to close in the fourth quarter of 2017.





10

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

 
 
 
 
 
 
 
 
 
 
 
Earnings before interest, income taxes and noncontrolling interests
We define EBIT as earnings before interest expense, income tax expense and noncontrolling interests in income of consolidated subsidiaries. We use EBIT to assess and measure the performance of our operating segments and also as a component in measuring our variable compensation programs. This measure is not in accordance with, or an alternative for, accounting principles generally accepted in the United States and may not be consistent with measures used by other companies. It should be considered supplemental data. Below is a reconciliation of “Net income attributable to Cummins Inc.” to EBIT for each of the applicable periods:
 
 
Three months ended
 
Nine months ended
In millions
 
October 1, 2017
 
October 2, 2016
 
October 1, 2017
 
October 2, 2016
Net income attributable to Cummins Inc.
 
$
453

 
$
289

 
$
1,273

 
$
1,016

 
 
 
 
 
 
 
 
 
Net income attributable to Cummins Inc. as a percentage of net sales
 
8.6
%
 
6.9
%
 
8.5
%
 
7.8
%
 
 
 
 
 
 
 
 
 
Add
 
 
 
 
 
 
 
 
Net income attributable to noncontrolling interests
 
4

 
11

 
30

 
44

Consolidated net income
 
457

 
300

 
1,303

 
1,060

 
 
 
 
 
 
 
 
 
Add
 
 
 
 
 
 
 
 
Interest expense
 
18

 
16

 
57

 
51

Income tax expense
 
165

 
82

 
466

 
362

Earnings before interest expense and income taxes
 
$
640

 
$
398

 
$
1,826

 
$
1,473

 
 
 
 
 
 
 
 
 
EBIT as a percentage of net sales
 
12.1
%
 
9.5
%
 
12.2
%
 
11.3
%
 
 
 
 
 
 
 
 
 

11

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

 
$
714

 
$
776

 
$

 
$
2,110

Medium-duty truck and bus
 
544

 
701

 
625

 

 
1,870

Light-duty automotive
 
423

 
429

 
452

 

 
1,304

Off-highway
 
436

 
463

 
483

 

 
1,382

Total sales
 
$
2,023

 
$
2,307

 
$
2,336

 
$

 
$
6,666

 
 
 
 
 
 
 
 
 
 
 
2016
 
 
 
 
 
 
 
 
 
 
In millions
 
Q1
 
Q2
 
Q3
 
Q4
 
YTD
Heavy-duty truck
 
$
631

 
$
622

 
$
625

 
$
565

 
$
2,443

Medium-duty truck and bus
 
549

 
600

 
517

 
606

 
2,272

Light-duty automotive
 
433

 
394

 
345

 
409

 
1,581

Off-highway
 
363

 
386

 
372

 
387

 
1,508

Total sales
 
$
1,976

 
$
2,002

 
$
1,859

 
$
1,967

 
$
7,804

Unit shipments by engine classification (including unit shipments to Power Systems and off-highway engine units included in their respective classification) were as follows:
2017
 
 
 
 
 
 
 
 
 
 
Units
 
Q1
 
Q2
 
Q3
 
Q4
 
YTD
Heavy-duty
 
19,200

 
24,100

 
28,100

 

 
71,400

Medium-duty
 
60,300

 
71,600

 
68,500

 

 
200,400

Light-duty
 
63,100

 
65,600

 
66,300

 

 
195,000

Total units
 
142,600

 
161,300

 
162,900

 

 
466,800

 
 
 
 
 
 
 
 
 
 
 
2016
 
 
 
 
 
 
 
 
 
 
Units
 
Q1
 
Q2
 
Q3
 
Q4
 
YTD
Heavy-duty
 
19,700

 
20,700

 
20,100

 
18,500

 
79,000

Medium-duty
 
55,400

 
62,300

 
53,400

 
58,000

 
229,100

Light-duty
 
61,700

 
57,100

 
49,800

 
60,000

 
228,600

Total units
 
136,800

 
140,100

 
123,300

 
136,500

 
536,700


12

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:
2017
 
 
 
 
 
 
 
 
 
 
In millions
 
Q1
 
Q2
 
Q3
 
Q4
 
YTD
Parts
 
$
745

 
$
759

 
$
768

 
$

 
$
2,272

Service
 
319

 
320

 
326

 

 
965

Power generation
 
306

 
329

 
317

 

 
952

Engines
 
275

 
314

 
342

 

 
931

Total sales
 
$
1,645

 
$
1,722

 
$
1,753

 
$

 
$
5,120

 
 
 
 
 
 
 
 
 
 
 
2016
 
 
 
 
 
 
 
 
 
 
In millions
 
Q1
 
Q2
 
Q3
 
Q4
 
YTD
Parts
 
$
648

 
$
642

 
$
643

 
$
694

 
$
2,627

Service
 
299

 
297

 
299

 
320

 
1,215

Power generation
 
275

 
326

 
291

 
347

 
1,239

Engines
 
241

 
279

 
271

 
309

 
1,100

Total sales
 
$
1,463

 
$
1,544

 
$
1,504

 
$
1,670

 
$
6,181

Component Segment Sales by Business
In the first quarter of 2017, our Components segment reorganized its reporting structure to move an element of the emission solutions business to the fuel systems business to enhance operational, administrative and product development efficiencies. Prior year sales were reclassified to conform with this change.
In the third quarter of 2017, we completed the Eaton Cummins Automated Transmission Technologies joint venture (ECJV), which was consolidated and included in our Components segment as the automated transmissions business.
Sales for our Components segment by product line were as follows:
2017
 
 
 
 
 
 
 
 
 
 
In millions
 
Q1
 
Q2
 
Q3
 
Q4
 
YTD
Emission solutions
 
$
616

 
$
674

 
$
696

 
$

 
$
1,986

Turbo technologies
 
287

 
307

 
297

 

 
891

Filtration
 
277

 
291

 
287

 

 
855

Fuel systems
 
164

 
182

 
184

 

 
530

Automated transmissions
 

 

 
69

 

 
69

Total sales
 
$
1,344

 
$
1,454

 
$
1,533

 
$

 
$
4,331

 
 
 
 
 
 
 
 
 
 
 
2016
 
 
 
 
 
 
 
 
 
 
In millions
 
Q1
 
Q2
 
Q3
 
Q4
 
YTD
Emission solutions
 
$
589

 
$
603

 
$
522

 
$
524

 
$
2,238

Turbo technologies
 
265

 
276

 
241

 
254

 
1,036

Filtration
 
252

 
262

 
244

 
252

 
1,010

Fuel systems
 
131

 
138

 
136

 
147

 
552

Total sales
 
$
1,237

 
$
1,279

 
$
1,143

 
$
1,177

 
$
4,836

 
 
 
 
 
 
 
 
 
 
 
2015
 
 
 
 
 
 
 
 
 
 
In millions
 
YTD
 
 
 
 
 
 
 
 
Emission solutions
 
$
2,449

 
 
 
 
 
 
 
 
Turbo technologies
 
1,141

 
 
 
 
 
 
 
 
Filtration
 
1,010

 
 
 
 
 
 
 
 
Fuel systems
 
572

 
 
 
 
 
 
 
 
Total sales
 
$
5,172

 
 
 
 
 
 
 
 

13

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


Power Systems Segment Sales by Product Line and Unit Shipments by Engine Classification
In the first quarter of 2017, our Power Systems segment reorganized its product lines to better reflect how the segment is managed. Prior year sales were reclassified to reflect these changes.
Sales for our Power Systems segment by product line were as follows:
2017
 
 
 
 
 
 
 
 
 
 
In millions
 
Q1
 
Q2
 
Q3
 
Q4
 
YTD
Power generation
 
$
526

 
$
570

 
$
580

 
$

 
$
1,676

Industrial
 
275

 
353

 
385

 

 
1,013

Generator technologies
 
81

 
94

 
91

 

 
266

Total sales
 
$
882

 
$
1,017

 
$
1,056

 
$

 
$
2,955

 
 
 
 
 
 
 
 
 
 
 
2016
 
 
 
 
 
 
 
 
 
 
In millions
 
Q1
 
Q2
 
Q3
 
Q4
 
YTD
Power generation
 
$
518

 
$
602

 
$
543

 
$
593

 
$
2,256

Industrial
 
215

 
236

 
235

 
255

 
941

Generator technologies
 
75

 
83

 
78

 
84

 
320

Total sales
 
$
808

 
$
921

 
$
856

 
$
932

 
$
3,517

 
 
 
 
 
 
 
 
 
 
 
2015
 
 
 
 
 
 
 
 
 
 
In millions
 
YTD
 
 
 
 
 
 
 
 
Power generation
 
$
2,588

 
 
 
 
 
 
 
 
Industrial
 
1,121

 
 
 
 
 
 
 
 
Generator technologies
 
358

 
 
 
 
 
 
 
 
Total sales
 
$
4,067

 
 
 
 
 
 
 
 
High-horsepower unit shipments by engine classification were as follows: 
2017
 
 
 
 
 
 
 
 
 
 
Units
 
Q1
 
Q2
 
Q3
 
Q4
 
YTD
Power generation
 
1,900

 
2,100

 
2,200

 

 
6,200

Industrial
 
1,300

 
1,700

 
1,600

 

 
4,600

Total units
 
3,200

 
3,800

 
3,800

 

 
10,800

 
 
 
 
 
 
 
 
 
 
 
2016
 
 
 
 
 
 
 
 
 
 
Units
 
Q1
 
Q2
 
Q3
 
Q4
 
YTD
Power generation
 
1,800

 
2,200

 
2,000

 
1,900

 
7,900

Industrial
 
1,000

 
1,100

 
1,000

 
1,300

 
4,400

Total units
 
2,800

 
3,300

 
3,000

 
3,200

 
12,300




14
Exhibit


http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=11861332&doc=4
For Immediate Release


October 31, 2017

Cummins Reports Third Quarter 2017 Results

Third quarter revenues of $5.3 billion, GAAP1 Net Income of $453 million
EBIT of 12.1% of sales, Diluted EPS of $2.71
Cummins expects full-year 2017 revenues to be up 14% to 15%
EBIT is expected to be in the range of 11.8% to 12.2%


COLUMBUS, IND. - Cummins Inc. (NYSE: CMI) today reported results for the third quarter of 2017.

Third quarter revenues of $5.3 billion increased 26% from the same quarter in 2016. Revenues in North America increased 25% due to higher demand in truck, oil and gas and construction markets. International sales grew 28% primarily due to strong truck and construction demand in China, sales of new products in India and increased demand from global mining customers.

Net income attributable to Cummins in the third quarter was $453 million, or $2.71 per diluted share, compared to $289 million, or $1.72 per diluted share. The tax rate in the third quarter of 2017 was 26.5%.

Earnings before interest and taxes (EBIT) was $640 million, or 12.1% of sales, an increase from $398 million, or 9.5% of sales, a year ago.

“Cummins experienced positive momentum in demand in a number of important markets, resulting in strong sales growth in the third quarter,” said Chairman and CEO Tom Linebarger. “Earnings improved over the year-ago period due to stronger volumes and operational improvements that more than offset increased quality costs. Year to date, we have returned $913 million to shareholders in the form of dividends and share repurchases consistent with our plan to return 50% of Operating Cash Flow in 2017.”





Outlook

Based on its current forecast, Cummins expects full-year 2017 revenues to grow 14% to 15%, an increase from the company’s previous projection of 9% to 11% growth. EBIT is expected to be in the range of 11.8% to 12.2% of sales, which is unchanged from the prior guidance except for the inclusion of the impact of the new Eaton Cummins Automated Transmission Technologies joint venture. The joint venture, which is consolidated within the Components segment, is expected to report 2017 sales of approximately $150 million and negative EBIT of $25 million due in part to the amortization of intangible assets.
Third quarter 2017 highlights:

The Company entered into an asset purchase agreement with Brammo, Inc., which designs and develops battery packs for mobile and stationary applications. When complete, this will be an important milestone in Cummins’ efforts to become a global electrified power leader.

The Eaton Cummins Automated Transmission Technologies joint venture became fully operational on schedule on August 1st. The joint venture will capitalize on the secular shift to more automated transmissions in commercial vehicle markets.

Third quarter 2017 detail (all comparisons to same period in 2016)

Engine Segment

Sales - $2.3 billion, up 26%
Segment EBIT - $229 million, or 9.8% of sales, compared to $89 million or 4.8% of sales
EBIT includes a $63 million warranty charge related to a quality campaign
On-highway revenues increased by 25%, and off-highway revenues increased 30% primarily due to increased demand globally in truck and construction markets

Distribution Segment

Sales - $1.8 billion, up 17%
Segment EBIT - $91 million, or 5.2% of sales, compared to $96 million or 6.4% of sales
Organic sales increased 12% due to improved sales to off-highway markets
The impact of acquisitions and the disposal of power generation rental assets in North America resulted in a net percent increase in revenues

Components Segment

Sales - $1.5 billion, up 34%.





Segment EBIT - $217 million , or 14.2% of sales, compared to $148 million or 12.9% of sales
International revenue increased 45%, primarily due to higher truck demand in China and the sale of new products in India
Sales in North America increased 26% due to stronger orders from on-highway customers

Power Systems Segment

Sales - $1.1 billion, up 23%
Segment EBIT - $81 million, or 7.7% of sales, compared to $59 million, or 6.9% of sales
Increased demand for industrial engines from mining and oil & gas customers was the main contributor to the revenue growth

1 Generally Accepted Accounting Principles

About Cummins
Cummins Inc., a global power leader, is a corporation of complementary business units that design, manufacture, distribute and service diesel and natural gas engines and related technologies, including fuel systems, controls, air handling, filtration, emission solutions and electrical power generation systems. Headquartered in Columbus, Indiana, (USA) Cummins currently employs approximately 55,400 people worldwide and serves customers in approximately 190 countries and territories through a network of approximately 600 company-owned and independent distributor locations and approximately 7,400 dealer locations. Cummins earned $1.39 billion on sales of $17.5 billion in 2016. 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 limi