SEC Filings


10-K
CUMMINS INC filed this Form 10-K on 02/11/2019
Entire Document
 

On December 22, 2017, the U.S. enacted Tax Legislation which, among other things, changed the U.S. statutory rate to 21 percent effective January 1, 2018. The impact of the Tax Legislation resulted in an incremental tax provision charge of $781 million in 2017.
The change in the effective tax rate for the year ended, December 31, 2018 versus 2017, was primarily due to lower U.S. tax rates in 2018 associated with Tax Legislation and the significant 2017 Tax Legislation expenses in 2017.
We expect our 2019 effective tax rate to be 21.5 percent, excluding any discrete items.
Noncontrolling Interests
Noncontrolling interests eliminate the income or loss attributable to non-Cummins ownership interests in our consolidated entities. Noncontrolling interests in income of consolidated subsidiaries increased $51 million, primarily due to the absence of a $43 million favorable withholding tax adjustment on Cummins India Ltd. in 2017, a $24 million unfavorable Tax Legislation withholding tax adjustment in 2018 and higher earnings in our automated transmission business during 2018. See Note 17, "NONCONTROLLING INTERESTS," to our Consolidated Financial Statements for additional information on the withholding tax adjustments.
 
Net Income Attributable to Cummins Inc. and Diluted Earnings Per Common Share Attributable to Cummins Inc.
Net income and diluted earnings per share attributable to Cummins Inc. increased $1.1 billion and $7.18 per share, respectively, primarily due to significantly higher net sales, Tax Legislation, higher gross margin and increased equity earnings from investees, partially offset by $368 million for an Engine System Campaign, higher research, development and engineering expenses, unfavorable foreign currency impacts (primarily the British pound, Brazilian real and Angolan kwanza partially offset by the Euro) and higher interest expense. See Note 9, "PRODUCT WARRANTY LIABILITY," to the Consolidated Financial Statements for additional information on the the Engine System Campaign.
Tax Legislation resulted in the U.S. statutory rate decreasing from 35 percent to 21 percent, added incremental income tax expense in 2017 of $781 million to our tax provision (excluding the noncontrolling interest and equity investee adjustments) with a net impact of $777 million unfavorable to net income. The 2018 charges reflect final adjustments and subsequent guidance issued by the Internal Revenue Service. The components of the 2018 and 2017 charges were as follows:
 
 
Impact of Tax Legislation(1)
In millions
 
2018
 
2017
Income tax expense
 
$
12

 
$
781

Decrease in equity, royalty and other income from investees
 
3

 
39

Decrease (increase) in income attributable to noncontrolling interests(2)
 
24

 
(43
)
Net impact of Tax Legislation
 
$
39

 
$
777

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(1) See Note 4, "INCOME TAXES," Note 3, "INVESTMENTS IN EQUITY INVESTEES" and Note 17, "NONCONTROLLING INTERESTS," to our Consolidated Financial Statements for additional information.
(2) Noncontrolling interest was adjusted for withholding taxes on foreign earnings which changed the income eliminated for Cummins ownership interest attributable to Cummins India, Ltd.
Diluted earnings per share for 2018 benefited $0.25 per share from fewer weighted average shares outstanding, primarily due to the stock repurchase programs, including shares acquired under the accelerated share repurchase agreement.
2017 vs. 2016
Net Sales
Net sales increased $2.9 billion, primarily driven by the following:
Engine segment sales increased 15 percent, primarily due to higher demand in most North American on-highway markets and improved demand in most global construction markets.
Components segment sales increased 22 percent, due to higher demand across all businesses, especially the emission solutions business, due to strong on-highway sales in India, North America and China.
Distribution segment sales increased 14 percent, primarily due to an increase in organic sales and higher sales related to the acquisition of a North American distributor in the fourth quarter of 2016.

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