UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 8-K

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report:  August 1, 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 August 1, 2017, Cummins Inc. (“Cummins,” “the Company,” “the registrant,” “we,” “our,” or “us”) issued the attached press release reporting its financial results for the second 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:

99-Press Release dated August 1, 2017

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: August 1, 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		July 2, 2017				July 3, 2016
NET SALES		$	5,078			$	4,528
Cost of sales		3,829				3,331
GROSS MARGIN		1,249				1,197
OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses		596				524
Research, development and engineering expenses		174				155
Equity, royalty and interest income from investees		98				88
Loss contingency		—				39
Other operating income (expense), net		18				—
OPERATING INCOME		595				567
Interest income		5				6
Interest expense		21				16
Other income (expense), net		20				18
INCOME BEFORE INCOME TAXES		599				575
Income tax expense		158				148
CONSOLIDATED NET INCOME		441				427
Less: Net income attributable to noncontrolling interests		17				21
NET INCOME ATTRIBUTABLE TO CUMMINS INC.		$	424			$	406
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
Basic		$	2.53			$	2.41
Diluted		$	2.53			$	2.40
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic		167.3				168.8
Diluted		167.8				169.0
CASH DIVIDENDS DECLARED PER COMMON SHARE		$	1.025			$	0.975
(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)

		Six months ended
In millions, except per share amounts		July 2, 2017				July 3, 2016
NET SALES		$	9,667			$	8,819
Cost of sales		7,290				6,566
GROSS MARGIN		2,377				2,253
OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses		1,133				1,014
Research, development and engineering expenses		332				321
Equity, royalty and interest income from investees		206				160
Loss contingency		—				39
Other operating income (expense), net		23				(2		)
OPERATING INCOME		1,141				1,037
Interest income		7				12
Interest expense		39				35
Other income (expense), net		38				26
INCOME BEFORE INCOME TAXES		1,147				1,040
Income tax expense		301				280
CONSOLIDATED NET INCOME		846				760
Less: Net income attributable to noncontrolling interests		26				33
NET INCOME ATTRIBUTABLE TO CUMMINS INC.		$	820			$	727
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
Basic		$	4.90			$	4.27
Diluted		$	4.88			$	4.26
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic		167.4				170.3
Diluted		167.9				170.5
CASH DIVIDENDS DECLARED PER COMMON SHARE		$	2.05			$	1.95
(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		July 2, 2017				December 31, 2016
ASSETS
Current assets
Cash and cash equivalents		$	1,293			$	1,120
Marketable securities		174				260
Total cash, cash equivalents and marketable securities		1,467				1,380
Accounts and notes receivable, net		3,553				3,025
Inventories		2,982				2,675
Prepaid expenses and other current assets		600				627
Total current assets		8,602				7,707
Long-term assets
Property, plant and equipment		7,804				7,635
Accumulated depreciation		(4,017		)		(3,835		)
Property, plant and equipment, net		3,787				3,800
Investments and advances related to equity method investees		1,162				946
Goodwill		488				480
Other intangible assets, net		339				332
Pension assets		852				731
Other assets		1,030				1,015
Total assets		$	16,260			$	15,011
LIABILITIES
Current liabilities
Accounts payable (principally trade)		$	2,300			$	1,854
Loans payable		54				41
Commercial paper		134				212
Accrued compensation, benefits and retirement costs		475				412
Current portion of accrued product warranty		392				333
Current portion of deferred revenue		520				468
Other accrued expenses		974				970
Current maturities of long-term debt		45				35
Total current liabilities		4,894				4,325
Long-term liabilities
Long-term debt		1,564				1,568
Postretirement benefits other than pensions		318				329
Pensions		327				326
Other liabilities and deferred revenue		1,335				1,289
Total liabilities		$	8,438			$	7,837
EQUITY
Cummins Inc. shareholders’ equity
Common stock, $2.50 par value, 500 shares authorized, 222.3 and 222.4 shares issued		$	2,184			$	2,153
Retained earnings		11,517				11,040
Treasury stock, at cost, 54.7 and 54.2 shares		(4,586		)		(4,489		)
Common stock held by employee benefits trust, at cost, 0.6 and 0.7 shares		(7		)		(8		)
Accumulated other comprehensive loss		(1,615		)		(1,821		)
Total Cummins Inc. shareholders’ equity		7,493				6,875
Noncontrolling interests		329				299
Total equity		$	7,822			$	7,174
Total liabilities and equity		$	16,260			$	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)

		Six months ended
In millions		July 2, 2017				July 3, 2016
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net income		$	846			$	760
Adjustments to reconcile consolidated net income to net cash provided by operating activities
Depreciation and amortization		284				259
Deferred income taxes		—				2
Equity in income of investees, net of dividends		(132		)		(87		)
Pension contributions in excess of expense		(44		)		(82		)
Other post-retirement benefits payments in excess of expense		(8		)		(17		)
Stock-based compensation expense		23				20
Restructuring payments		—				(42		)
Loss contingency		—				39
Translation and hedging activities		31				(45		)
Changes in current assets and liabilities
Accounts and notes receivable		(488		)		(252		)
Inventories		(264		)		(101		)
Other current assets		21				189
Accounts payable		403				143
Accrued expenses		132				(209		)
Changes in other liabilities and deferred revenue		103				129
Other, net		(81		)		32
Net cash provided by operating activities		826				738
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures		(182		)		(189		)
Investments in internal use software		(40		)		(27		)
Investments in and advances to equity investees		(64		)		(17		)
Investments in marketable securities—acquisitions		(69		)		(379		)
Investments in marketable securities—liquidations		162				237
Cash flows from derivatives not designated as hedges		19				(21		)
Other, net		14				5
Net cash used in investing activities		(160		)		(391		)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings		2				109
Net (payments) borrowings of commercial paper		(78		)		200
Payments on borrowings and capital lease obligations		(29		)		(133		)
Distributions to noncontrolling interests		(10		)		(24		)
Dividend payments on common stock		(343		)		(333		)
Repurchases of common stock		(120		)		(695		)
Other, net		34				(20		)
Net cash used in financing activities		(544		)		(896		)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		51				(117		)
Net increase (decrease) in cash and cash equivalents		173				(666		)
Cash and cash equivalents at beginning of year		1,120				1,711
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	1,293			$	1,045
(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				Power Systems				Intersegment Eliminations (1)				Total
		Three months ended July 2, 2017
		External sales		$	1,711			$	1,716			$	1,064			$	587			$	—			$	5,078
		Intersegment sales		596				6				390				430				(1,422		)		—
		Total sales		2,307				1,722				1,454				1,017				(1,422		)		5,078
		Depreciation and amortization (2)		46				31				38				29				—				144
		Research, development and engineering expenses		63				4				57				50				—				174
		Equity, royalty and interest income from investees		56				13				15				14				—				98
		Interest income		2				1				1				1				—				5
		Segment EBIT		277				96				190				61				(4		)		620
		Segment EBIT as a percentage of total sales		12.0		%		5.6		%		13.1		%		6.0		%						12.2		%
		Three months ended July 3, 2016
		External sales		$	1,504			$	1,538			$	933			$	553			$	—			$	4,528
		Intersegment sales		498				6				346				368				(1,218		)		—
		Total sales		2,002				1,544				1,279				921				(1,218		)		4,528
		Depreciation and amortization (2)		41				29				32				29				—				131
		Research, development and engineering expenses		53				3				51				48				—				155
		Equity, royalty and interest income from investees		46				19				12				11				—				88
		Loss contingency		39				—				—				—				—				39
		Interest income		3				1				1				1				—				6
		Segment EBIT		206				87				190				90				18				591
		Segment EBIT as a percentage of total sales		10.3		%		5.6		%		14.9		%		9.8		%						13.1		%
(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 July 2, 2017 and July 3, 2016.
(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."

7

---

CUMMINS INC. AND SUBSIDIARIES

SEGMENT INFORMATION

(Unaudited)

		In millions		Engine				Distribution				Components				Power Systems				Intersegment Eliminations (1)				Total
		Six months ended July 2, 2017
		External sales		$	3,168			$	3,353			$	2,044			$	1,102			$	—			$	9,667
		Intersegment sales		1,162				14				754				797				(2,727		)		—
		Total sales		4,330				3,367				2,798				1,899				(2,727		)		9,667
		Depreciation and amortization (2)		90				61				75				57				—				283
		Research, development and engineering expenses		117				8				107				100				—				332
		Equity, royalty and interest income from investees		128				24				28				26				—				206
		Interest income		3				2				1				1				—				7
		Segment EBIT		506				196				369				118				(3		)		1,186
		Segment EBIT as a percentage of total sales		11.7		%		5.8		%		13.2		%		6.2		%						12.3		%
		Six months ended July 3, 2016
		External sales		$	2,993			$	2,996			$	1,830			$	1,000			$	—			$	8,819
		Intersegment sales		985				11				686				729				(2,411		)		—
		Total sales		3,978				3,007				2,516				1,729				(2,411		)		8,819
		Depreciation and amortization (2)		80				57				63				58				—				258
		Research, development and engineering expenses		110				7				107				97				—				321
		Equity, royalty and interest income from investees		82				37				20				21				—				160
		Loss contingency		39				—				—				—				—				39
		Interest income		5				2				2				3				—				12
		Segment EBIT		403				174				353				136				9				1,075
		Segment EBIT as a percentage of total sales		10.1		%		5.8		%		14.0		%		7.9		%						12.2		%
(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 July 2, 2017 and July 3, 2016.
(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 for both of the six months ended July 2, 2017 and July 3, 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								Six months ended
In millions		July 2, 2017				July 3, 2016				July 2, 2017				July 3, 2016
Total segment EBIT		$	620			$	591			$	1,186			$	1,075
Less: Interest expense		21				16				39				35
Income before income taxes		$	599			$	575			$	1,147			$	1,040

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								Six months ended
In millions		July 2, 2017				July 3, 2016				July 2, 2017				July 3, 2016
Distribution entities
Komatsu Cummins Chile, Ltda.		$	8			$	8			$	15			$	18
North American distributors		—				6				—				11
All other distributors		—				1				—				1
Manufacturing entities
Beijing Foton Cummins Engine Co., Ltd.		22				22				55				40
Dongfeng Cummins Engine Company, Ltd.		19				15				41				22
Chongqing Cummins Engine Company, Ltd.		10				9				19				17
All other manufacturers		27				16				51				32
Cummins share of net income		86				77				181				141
Royalty and interest income		12				11				25				19
Equity, royalty and interest income from investees		$	98			$	88			$	206			$	160

 

9

---

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								Six months ended
In millions		July 2, 2017				July 3, 2016				July 2, 2017				July 3, 2016
Net income attributable to Cummins Inc.		$	424			$	406			$	820			$	727
Net income attributable to Cummins Inc. as a percentage of net sales		8.3		%		9.0		%		8.5		%		8.2		%
Add
Net income attributable to noncontrolling interests		17				21				26				33
Consolidated net income		441				427				846				760
Add
Interest expense		21				16				39				35
Income tax expense		158				148				301				280
Earnings before interest expense and income taxes		$	620			$	591			$	1,186			$	1,075
EBIT as a percentage of net sales		12.2		%		13.1		%		12.3		%		12.2		%

10

---

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			$	—			$	—			$	1,334
Medium-duty truck and bus		544				701				—				—				1,245
Light-duty automotive		423				429				—				—				852
Off-highway		436				463				—				—				899
Total sales		$	2,023			$	2,307			$	—			$	—			$	4,330
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			—			—			43,300
Medium-duty		60,300			71,600			—			—			131,900
Light-duty		63,100			65,600			—			—			128,700
Total units		142,600			161,300			—			—			303,900
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

11

---

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			$	—			$	—			$	1,504
Service		319				320				—				—				639
Power generation		306				329				—				—				635
Engines		275				314				—				—				589
Total sales		$	1,645			$	1,722			$	—			$	—			$	3,367
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.

Sales for our Components segment by product line were as follows:

2017
In millions		Q1				Q2				Q3				Q4				YTD
Emission solutions		$	616			$	674			$	—			$	—			$	1,290
Turbo technologies		287				307				—				—				594
Filtration		277				291				—				—				568
Fuel systems		164				182				—				—				346
Total sales		$	1,344			$	1,454			$	—			$	—			$	2,798
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

12

---

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			$	—			$	—			$	1,096
Industrial		275				353				—				—				628
Generator technologies		81				94				—				—				175
Total sales		$	882			$	1,017			$	—			$	—			$	1,899
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			—			—			4,000
Industrial		1,300			1,700			—			—			3,000
Total units		3,200			3,800			—			—			7,000
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

13