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Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
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 June 30, 2019
 
Commission File Number 1-4949
CUMMINS INC.
(Exact name of registrant as specified in its charter)
IN
 
35-0257090
(State of Incorporation)
 
 (IRS Employer Identification No.)
500 Jackson Street
Box 3005
Columbus, IN 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
 
NYSE

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 June 30, 2019, there were 157,786,322 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 six months ended June 30, 2019 and July 1, 2018
 
Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2019 and July 1, 2018
 
Condensed Consolidated Balance Sheets at June 30, 2019 and December 31, 2018
 
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and July 1, 2018
 
Condensed Consolidated Statements of Changes in Equity for the three and six months ended June 30, 2019 and July 1, 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
 
Six months ended
In millions, except per share amounts 
 
June 30,
2019
 
July 1,
2018
 
June 30,
2019
 
July 1,
2018
NET SALES (a) (Note 3)
 
$
6,221

 
$
6,132

 
$
12,225

 
$
11,702

Cost of sales
 
4,580

 
4,692

 
9,052

 
9,062

GROSS MARGIN
 
1,641

 
1,440

 
3,173

 
2,640

OPERATING EXPENSES AND INCOME
 
 

 
 

 
 

 
 

Selling, general and administrative expenses
 
629

 
613

 
1,222

 
1,190

Research, development and engineering expenses
 
251

 
219

 
488

 
429

Equity, royalty and interest income from investees (Note 5)
 
96

 
110

 
188

 
225

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

 
(4
)
 
6

OPERATING INCOME
 
848

 
722

 
1,647

 
1,252

Interest income
 
12

 
10

 
24

 
17

Interest expense
 
29

 
28

 
61

 
52

Other income, net
 
40

 
11

 
106

 
21

INCOME BEFORE INCOME TAXES
 
871

 
715

 
1,716

 
1,238

Income tax expense
 
186

 
161

 
362

 
359

CONSOLIDATED NET INCOME
 
685

 
554

 
1,354

 
879

Less: Net income attributable to noncontrolling interests
 
10

 
9

 
16

 
9

NET INCOME ATTRIBUTABLE TO CUMMINS INC.
 
$
675

 
$
545

 
$
1,338

 
$
870

 
 
 
 
 
 
 
 
 
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
 
 

 
 

 
 

 
 

Basic
 
$
4.29

 
$
3.33

 
$
8.51

 
$
5.30

Diluted
 
$
4.27

 
$
3.32

 
$
8.47

 
$
5.27

 
 
 
 
 
 
 
 
 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
 
 

 
 

 
 

 
 

Basic
 
157.4

 
163.8

 
157.3

 
164.3

Dilutive effect of stock compensation awards
 
0.6

 
0.5

 
0.6

 
0.7

Diluted
 
158.0

 
164.3

 
157.9

 
165.0

____________________________________
(a) Includes sales to nonconsolidated equity investees of $317 million and $602 million and $340 million and $637 million for the three and six months ended June 30, 2019 and July 1, 2018, respectively.
 
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
 
Six months ended
In millions 
 
June 30,
2019
 
July 1,
2018
 
June 30,
2019
 
July 1,
2018
CONSOLIDATED NET INCOME
 
$
685

 
$
554

 
$
1,354

 
$
879

Other comprehensive income (loss), net of tax (Note 13)
 
 

 
 

 
 

 
 

Change in pension and other postretirement defined benefit plans
 
7

 
13

 
(4
)
 
21

Foreign currency translation adjustments
 
(99
)
 
(299
)
 
(15
)
 
(215
)
Unrealized gain (loss) on derivatives
 
(10
)
 

 
(11
)
 
7

Unrealized gain on marketable securities
 
1

 

 

 

Total other comprehensive loss, net of tax
 
(101
)
 
(286
)
 
(30
)
 
(187
)
COMPREHENSIVE INCOME
 
584

 
268

 
1,324

 
692

Less: Comprehensive income (loss) attributable to noncontrolling interests
 
10

 
(7
)
 
19

 
(14
)
COMPREHENSIVE INCOME ATTRIBUTABLE TO CUMMINS INC.
 
$
574

 
$
275

 
$
1,305

 
$
706

 
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
 
June 30,
2019
 
December 31,
2018
ASSETS
 
 

 
 

Current assets
 
 

 
 

Cash and cash equivalents
 
$
1,397

 
$
1,303

Marketable securities (Note 6)
 
335

 
222

Total cash, cash equivalents and marketable securities
 
1,732

 
1,525

Accounts and notes receivable, net
 
 
 
 
Trade and other
 
3,899

 
3,635

Nonconsolidated equity investees
 
280

 
231

Inventories (Note 7)
 
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
 
8,424

 
8,319

Accumulated depreciation
 
(4,347
)
 
(4,223
)
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 (Note 10)
 
119

 
54

Commercial paper (Note 10)
 
434

 
780

Accrued compensation, benefits and retirement costs
 
465

 
679

Current portion of accrued product warranty (Note 11)
 
809

 
654

Current portion of deferred revenue (Note 3)
 
505

 
498

Other accrued expenses (Note 8)
 
920

 
852

Current maturities of long-term debt (Note 10)
 
46

 
45

Total current liabilities
 
6,289

 
6,384

Long-term liabilities
 
 

 
 

Long-term debt (Note 10)
 
1,624

 
1,597

Pensions and other postretirement benefits
 
522

 
532

Accrued product warranty (Note 11)
 
663

 
740

Deferred revenue (Note 3)
 
726

 
658

Other liabilities (Note 8)
 
1,234

 
892

Total liabilities
 
$
11,058

 
$
10,803

 
 
 
 
 
Commitments and contingencies (Note 12)
 


 


 
 
 

 
 

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 (Note 13)
 
(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


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)
 
 
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 (Note 4)
 
(45
)
 
25

Other postretirement benefits payments in excess of expense, net (Note 4)
 
(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 (Note 6)
 
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 (Note 10)
 
(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


 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 MARCH 31, 2019
 
$
556

 
$
1,717

 
$
13,401

 
$
(6,111
)
 
$
(4
)
 
$
(1,739
)
 
$
7,820

 
$
907

 
$
8,727

Net income
 


 


 
675

 


 


 


 
675

 
10

 
685

Other comprehensive income, net of tax (Note 13)
 


 


 

 


 


 
(101
)
 
(101
)
 

 
(101
)
Issuance of common stock
 


 
1

 


 


 


 


 
1

 

 
1

Employee benefits trust activity
 


 
7

 


 


 


 


 
7

 

 
7

Cash dividends on common stock, $1.14 per share
 


 


 
(179
)
 


 


 


 
(179
)
 

 
(179
)
Stock based awards
 


 
8

 


 
29

 


 


 
37

 

 
37

Other shareholder transactions
 


 
18

 


 


 


 


 
18

 
1

 
19

BALANCE AT JUNE 30, 2019
 
$
556

 
$
1,751

 
$
13,897

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

 
$
918

 
$
9,196

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE AT APRIL 1, 2018
 
$
556

 
$
1,661

 
$
11,641

 
$
(5,061
)
 
$
(6
)
 
$
(1,397
)
 
$
7,394

 
$
902

 
$
8,296

Net income
 


 


 
545

 


 


 


 
545

 
9

 
554

Other comprehensive income, net of tax (Note 13)
 


 


 


 


 


 
(270
)
 
(270
)
 
(16
)
 
(286
)
Issuance of common stock
 


 
5

 


 


 


 


 
5

 

 
5

Employee benefits trust activity
 


 
2

 


 


 


 


 
2

 

 
2

Repurchases of common stock
 


 


 


 
(216
)
 


 


 
(216
)
 

 
(216
)
Cash dividends on common stock, $1.08 per share
 


 


 
(177
)
 


 


 


 
(177
)
 

 
(177
)
Stock based awards
 


 


 


 
1

 


 


 
1

 

 
1

Other shareholder transactions
 


 
15

 


 


 


 


 
15

 

 
15

BALANCE AT JULY 1, 2018
 
$
556

 
$
1,683

 
$
12,009

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

 
$
895

 
$
8,194

 
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)
 
 
 
Six 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
 


 


 
1,338

 


 


 


 
1,338

 
16

 
1,354

Other comprehensive income, net of tax (Note 13)
 


 


 
 
 


 


 
(33
)
 
(33
)
 
3

 
(30
)
Issuance of common stock
 


 
2

 


 


 


 


 
2

 

 
2

Employee benefits trust activity
 


 
20

 


 


 
1

 


 
21

 

 
21

Repurchases of common stock
 


 


 


 
(100
)
 


 


 
(100
)
 

 
(100
)
Cash dividends on common stock, $2.28 per share
 


 


 
(358
)
 


 


 


 
(358
)
 

 
(358
)
Distributions to noncontrolling interests
 


 


 


 


 


 


 

 
(13
)
 
(13
)
Stock based awards
 


 
(3
)
 


 
46

 


 


 
43

 

 
43

Other shareholder transactions
 


 
17

 


 


 


 


 
17

 
1

 
18

BALANCE AT JUNE 30, 2019
 
$
556

 
$
1,751

 
$
13,897

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

 
$
918

 
$
9,196

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 


 


 
870

 


 


 


 
870

 
9

 
879

Other comprehensive income (loss), net of tax (Note 13)
 


 


 


 


 


 
(164
)
 
(164
)
 
(23
)
 
(187
)
Issuance of common stock
 


 
8

 


 


 


 


 
8

 

 
8

Employee benefits trust activity
 


 
8

 


 


 
1

 


 
9

 

 
9

Repurchases of common stock
 


 


 


 
(379
)
 


 


 
(379
)
 

 
(379
)
Cash dividends on common stock, $2.16 per share
 


 


 
(355
)
 


 


 


 
(355
)
 

 
(355
)
Distributions to noncontrolling interests
 


 


 


 


 


 


 

 
(11
)
 
(11
)
Stock based awards
 


 
(4
)
 


 
8

 


 


 
4

 

 
4

Other shareholder transactions
 


 
17