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Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
https://cdn.kscope.io/950b891ad5d2e4c7d01d4b320aedbcb5-cumminslogoa02.jpg
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 29, 2019
 
Commission File Number 1-4949
CUMMINS INC.
(Exact name of registrant as specified in its charter)
Indiana
 
35-0257090
(State of Incorporation)
 
 (IRS Employer Identification No.)
500 Jackson Street
Box 3005
Columbus, Indiana 47202-3005
(Address of principal executive offices)
 
Telephone (812377-5000
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading symbol(s)
 
Name of each exchange on which registered
Common stock, $2.50 par value
 
CMI
 
New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No 
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that registrant was required to submit such files).  Yes x  No 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.  (Check one):
Large Accelerated Filer
x
 
Accelerated filer
 
Non-accelerated filer
Smaller reporting company
 
Emerging growth company
 
 
 
 
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.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No x
 
As of September 29, 2019, there were 153,203,601 shares of common stock outstanding with a par value of $2.50 per share.

 


Table of Contents

CUMMINS INC. AND SUBSIDIARIES
TABLE OF CONTENTS
QUARTERLY REPORT ON FORM 10-Q
 
 
 
Page
 
 
 
Condensed Consolidated Statements of Net Income for the three and nine months ended September 29, 2019 and September 30, 2018
 
Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 29, 2019 and September 30, 2018
 
Condensed Consolidated Balance Sheets at September 29, 2019 and December 31, 2018
 
Condensed Consolidated Statements of Cash Flows for the nine months ended September 29, 2019 and September 30, 2018
 
Condensed Consolidated Statements of Changes in Equity for the three and nine months ended September 29, 2019 and September 30, 2018
 
 
 
 

2

Table of Contents

PART I.  FINANCIAL INFORMATION 
ITEM 1.  Condensed Consolidated Financial Statements 
CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF NET INCOME
(Unaudited)

 
 
Three months ended
 
Nine months ended
In millions, except per share amounts 
 
September 29,
2019
 
September 30,
2018
 
September 29,
2019
 
September 30,
2018
NET SALES (a) (Note 3)
 
$
5,768

 
$
5,943

 
$
17,993

 
$
17,645

Cost of sales
 
4,274

 
4,392

 
13,326

 
13,454

GROSS MARGIN
 
1,494

 
1,551

 
4,667

 
4,191

OPERATING EXPENSES AND INCOME
 
 

 
 

 
 

 
 

Selling, general and administrative expenses
 
600

 
604

 
1,822

 
1,794

Research, development and engineering expenses
 
242

 
229

 
730

 
658

Equity, royalty and interest income from investees (Note 5)
 
68

 
90

 
256

 
315

Other operating income (expense), net
 
(21
)
 
(5
)
 
(25
)
 
1

OPERATING INCOME
 
699

 
803

 
2,346

 
2,055

Interest income
 
14

 
9

 
38

 
26

Interest expense
 
26

 
30

 
87

 
82

Other income, net
 
68

 
23

 
174

 
44

INCOME BEFORE INCOME TAXES
 
755

 
805

 
2,471

 
2,043

Income tax expense (Note 6)
 
139

 
107

 
501

 
466

CONSOLIDATED NET INCOME
 
616

 
698

 
1,970

 
1,577

Less: Net income (loss) attributable to noncontrolling interests
 
(6
)
 
6

 
10

 
15

NET INCOME ATTRIBUTABLE TO CUMMINS INC.
 
$
622

 
$
692

 
$
1,960

 
$
1,562

 
 
 
 
 
 
 
 
 
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
 
 

 
 

 
 

 
 

Basic
 
$
3.99

 
$
4.29

 
$
12.50

 
$
9.57

Diluted
 
$
3.97

 
$
4.28

 
$
12.45

 
$
9.53

 
 
 
 
 
 
 
 
 
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
 
 

 
 

 
 

 
 

Basic
 
155.9

 
161.3

 
156.8

 
163.3

Dilutive effect of stock compensation awards
 
0.7

 
0.5

 
0.6

 
0.6

Diluted
 
156.6

 
161.8

 
157.4

 
163.9

____________________________________
(a) Includes sales to nonconsolidated equity investees of $280 million and $882 million for the three and nine months ended September 29, 2019, compared with $314 million and $951 million for the comparable periods in 2018.
 
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

3

Table of Contents

CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
 
 
Three months ended
 
Nine months ended
In millions 
 
September 29,
2019
 
September 30,
2018
 
September 29,
2019
 
September 30,
2018
CONSOLIDATED NET INCOME
 
$
616

 
$
698

 
$
1,970

 
$
1,577

Other comprehensive income (loss), net of tax (Note 14)
 
 

 
 

 
 

 
 

Change in pension and other postretirement defined benefit plans
 
6

 
13

 
2

 
34

Foreign currency translation adjustments
 
(182
)
 
(159
)
 
(197
)
 
(374
)
Unrealized gain (loss) on derivatives
 
(29
)
 
(3
)
 
(40
)
 
4

Total other comprehensive loss, net of tax
 
(205
)
 
(149
)
 
(235
)
 
(336
)
COMPREHENSIVE INCOME
 
411

 
549

 
1,735

 
1,241

Less: Comprehensive income (loss) attributable to noncontrolling interests
 
(11
)
 
(11
)
 
8

 
(25
)
COMPREHENSIVE INCOME ATTRIBUTABLE TO CUMMINS INC.
 
$
422

 
$
560

 
$
1,727

 
$
1,266

 
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

4

Table of Contents

CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
In millions, except par value
 
September 29,
2019
 
December 31,
2018
ASSETS
 
 

 
 

Current assets
 
 

 
 

Cash and cash equivalents
 
$
1,560

 
$
1,303

Marketable securities (Note 7)
 
303

 
222

Total cash, cash equivalents and marketable securities
 
1,863

 
1,525

Accounts and notes receivable, net
 
 
 
 
Trade and other
 
3,677

 
3,635

Nonconsolidated equity investees
 
257

 
231

Inventories (Note 8)
 
3,821

 
3,759

Prepaid expenses and other current assets
 
610

 
668

Total current assets
 
10,228

 
9,818

Long-term assets
 
 

 
 

Property, plant and equipment
 
8,452

 
8,319

Accumulated depreciation
 
(4,396
)
 
(4,223
)
Property, plant and equipment, net
 
4,056

 
4,096

Investments and advances related to equity method investees
 
1,250

 
1,222

Goodwill
 
1,288

 
1,126

Other intangible assets, net
 
1,022

 
909

Pension assets
 
970

 
929

Other assets
 
1,532

 
962

Total assets
 
$
20,346

 
$
19,062

 
 
 
 
 
LIABILITIES
 
 

 
 

Current liabilities
 
 

 
 

Accounts payable (principally trade)
 
$
2,830

 
$
2,822

Loans payable (Note 10)
 
103

 
54

Commercial paper (Note 10)
 
902

 
780

Accrued compensation, benefits and retirement costs
 
494

 
679

Current portion of accrued product warranty (Note 11)
 
817

 
654

Current portion of deferred revenue (Note 3)
 
545

 
498

Other accrued expenses (Note 12)
 
997

 
852

Current maturities of long-term debt (Note 10)
 
37

 
45

Total current liabilities
 
6,725

 
6,384

Long-term liabilities
 
 

 
 

Long-term debt (Note 10)
 
1,619

 
1,597

Pensions and other postretirement benefits
 
521

 
532

Accrued product warranty (Note 11)
 
645

 
740

Deferred revenue (Note 3)
 
769

 
658

Other liabilities (Note 12)
 
1,314

 
892

Total liabilities
 
$
11,593

 
$
10,803

 
 
 
 
 
Commitments and contingencies (Note 13)
 


 


 
 
 

 
 

EQUITY
 
 
 
 
Cummins Inc. shareholders’ equity
 
 

 
 

Common stock, $2.50 par value, 500 shares authorized, 222.4 and 222.4 shares issued
 
$
2,322

 
$
2,271

Retained earnings
 
14,315

 
12,917

Treasury stock, at cost, 69.2 and 64.4 shares
 
(6,784
)
 
(6,028
)
Common stock held by employee benefits trust, at cost, 0.3 and 0.4 shares
 
(3
)
 
(5
)
Accumulated other comprehensive loss (Note 14)
 
(2,040
)
 
(1,807
)
Total Cummins Inc. shareholders’ equity
 
7,810

 
7,348

Noncontrolling interests
 
943

 
911

Total equity
 
$
8,753

 
$
8,259

Total liabilities and equity
 
$
20,346

 
$
19,062


The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

5

Table of Contents

CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
Nine months ended
In millions
 
September 29,
2019
 
September 30,
2018
CASH FLOWS FROM OPERATING ACTIVITIES
 
 

 
 

Consolidated net income
 
$
1,970

 
$
1,577

Adjustments to reconcile consolidated net income to net cash provided by operating activities
 
 

 
 

Depreciation and amortization
 
493

 
456

Deferred income taxes
 
(14
)
 
(167
)
Equity in income of investees, net of dividends
 
(44
)
 
(156
)
Pension contributions (in excess of) under expense, net (Note 4)
 
(62
)
 
36

Other postretirement benefits payments in excess of expense, net (Note 4)
 
(12
)
 
(8
)
Stock-based compensation expense
 
37

 
38

Gain on corporate owned life insurance
 
(64
)
 
(8
)
Foreign currency remeasurement and transaction exposure
 
(54
)
 
(27
)
Changes in current assets and liabilities, net of acquisitions
 
 
 
 

Accounts and notes receivable
 
(101
)
 
(429
)
Inventories
 
(62
)
 
(773
)
Other current assets
 
48

 
(100
)
Accounts payable
 
(3
)
 
467

Accrued expenses
 
(74
)
 
276

Changes in other liabilities
 
168

 
118

Other, net
 
117

 
88

Net cash provided by operating activities
 
2,343

 
1,388

 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 

 
 

Capital expenditures
 
(395
)
 
(361
)
Investments in internal use software
 
(50
)
 
(55
)
Investments in and advances to equity investees
 
(16
)
 
(9
)
Acquisitions of businesses, net of cash acquired (Note 15)
 
(237
)
 
(70
)
Investments in marketable securities—acquisitions
 
(367
)
 
(316
)
Investments in marketable securities—liquidations (Note 7)
 
296

 
298

Cash flows from derivatives not designated as hedges
 
(86
)
 
(56
)
Other, net
 
26

 
50

Net cash used in investing activities
 
(829
)
 
(519
)
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
 
 

 
 

Net borrowings of commercial paper (Note 10)
 
122

 
502

Payments on borrowings and finance lease obligations
 
(47
)
 
(54
)
Net borrowings under short-term credit agreements
 
53

 
9

Distributions to noncontrolling interests
 
(33
)
 
(30
)
Dividend payments on common stock
 
(562
)
 
(537
)
Repurchases of common stock
 
(806
)
 
(879
)
Other, net
 
75

 
29

Net cash used in financing activities
 
(1,198
)
 
(960
)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
 
(59
)
 
(56
)
Net increase (decrease) in cash and cash equivalents
 
257

 
(147
)
Cash and cash equivalents at beginning of year
 
1,303

 
1,369

CASH AND CASH EQUIVALENTS AT END OF PERIOD
 
$
1,560

 
$
1,222


 The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

6

Table of Contents

CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
 
 
 
Three months ended
In millions, except per share amounts
 
Common Stock
 
Additional Paid-in Capital
 
Retained Earnings
 
Treasury Stock
 
Common Stock Held in Trust
 
Accumulated Other Comprehensive Loss
 
Total Cummins Inc. Shareholders’ Equity
 
Noncontrolling Interests
 
Total Equity
BALANCE AT JUNE 30, 2019
 
$
556

 
$
1,751

 
$
13,897

 
$
(6,082
)
 
$
(4
)
 
$
(1,840
)
 
$
8,278

 
$
918

 
$
9,196

Net income
 


 


 
622

 


 


 


 
622

 
(6
)
 
616

Other comprehensive income, net of tax (Note 14)
 


 


 

 


 


 
(200
)
 
(200
)
 
(5
)
 
(205
)
Employee benefits trust activity
 


 
6

 


 


 
1

 


 
7

 

 
7

Repurchases of common stock
 


 


 


 
(706
)
 


 


 
(706
)
 

 
(706
)
Cash dividends on common stock, $1.311 per share
 


 


 
(204
)
 


 


 


 
(204
)
 

 
(204
)
Distributions to noncontrolling interests
 


 


 


 


 


 


 

 
(20
)
 
(20
)
Stock-based awards
 


 
1

 


 
4

 


 


 
5

 

 
5

Other shareholder transactions
 


 
8

 


 


 


 


 
8

 
56

 
64

BALANCE AT SEPTEMBER 29, 2019
 
$
556

 
$
1,766

 
$
14,315

 
$
(6,784
)
 
$
(3
)
 
$
(2,040
)
 
$
7,810

 
$
943

 
$
8,753

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE AT JULY 1, 2018
 
$
556

 
$
1,683

 
$
12,009

 
$
(5,276
)
 
$
(6
)
 
$
(1,667
)
 
$
7,299

 
$
895

 
$
8,194

Net income
 


 


 
692

 


 


 


 
692

 
6

 
698

Other comprehensive income, net of tax (Note 14)
 


 


 


 


 


 
(132
)
 
(132
)
 
(17
)
 
(149
)
Issuance of common stock
 


 
2

 


 


 


 


 
2

 

 
2

Employee benefits trust activity
 


 
2

 


 


 


 


 
2

 

 
2

Repurchases of common stock
 


 
(100
)
 


 
(400
)
 


 


 
(500
)
 

 
(500
)
Cash dividends on common stock, $1.14 per share
 


 


 
(182
)
 


 


 


 
(182
)
 

 
(182
)
Distributions to noncontrolling interests
 


 


 


 


 


 


 

 
(19
)
 
(19
)
Stock-based awards
 


 
1

 


 
2

 


 


 
3

 

 
3

Other shareholder transactions
 


 
7

 


 


 


 


 
7

 
4

 
11

BALANCE AT SEPTEMBER 30, 2018
 
$
556

 
$
1,595

 
$
12,519

 
$
(5,674
)
 
$
(6
)
 
$
(1,799
)
 
$
7,191

 
$
869

 
$
8,060

 
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.





7

Table of Contents

CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
 
 
Nine months ended
In millions, except per share amounts
 
Common
Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Treasury
Stock
 
Common
Stock
Held in
Trust
 
Accumulated
Other
Comprehensive
Loss
 
Total
Cummins Inc.
Shareholders’
Equity
 
Noncontrolling
Interests
 
Total
Equity
BALANCE AT DECEMBER 31, 2018
 
$
556

 
$
1,715

 
$
12,917

 
$
(6,028
)
 
$
(5
)
 
$
(1,807
)
 
$
7,348

 
$
911

 
$
8,259

Net income
 


 


 
1,960

 


 


 


 
1,960

 
10

 
1,970

Other comprehensive income, net of tax (Note 14)
 


 


 
 
 


 


 
(233
)
 
(233
)
 
(2
)
 
(235
)
Issuance of common stock
 


 
2

 


 


 


 


 
2

 

 
2

Employee benefits trust activity
 


 
26

 


 


 
2

 


 
28

 

 
28

Repurchases of common stock
 


 


 


 
(806
)
 


 


 
(806
)
 

 
(806
)
Cash dividends on common stock, $3.591 per share
 


 


 
(562
)
 


 


 


 
(562
)
 

 
(562
)
Distributions to noncontrolling interests
 


 


 


 


 


 


 

 
(33
)
 
(33
)
Stock-based awards
 


 
(2
)
 


 
50

 


 


 
48

 

 
48

Other shareholder transactions
 


 
25

 


 


 


 


 
25

 
57

 
82

BALANCE AT SEPTEMBER 29, 2019
 
$
556

 
$
1,766

 
$
14,315

 
$
(6,784
)
 
$
(3
)
 
$
(2,040
)
 
$
7,810

 
$
943

 
$
8,753

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE AT DECEMBER 31, 2017
 
$
556

 
$
1,654

 
$
11,464

 
$
(4,905
)
 
$
(7
)
 
$
(1,503
)
 
$
7,259

 
$
905

 
$
8,164

Adoption of new accounting standards (1)
 
 
 
 
 
30

 
 
 
 
 
 
 
30

 

 
30

Net income
 


 


 
1,562

 


 


 


 
1,562

 
15

 
1,577

Other comprehensive income, net of tax (Note 14)
 


 


 


 


 


 
(296
)
 
(296
)
 
(40
)
 
(336
)
Issuance of common stock
 


 
10