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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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 (812) 377-5000
(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.
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 | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
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)
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
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.
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.
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.
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.
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 |
| |
|
| |
|
| |
|
| |
|
| | 10 |
| | — |
| | 10 |
|
Employee benefits trust activity | |
|
| | 10 |
| |
|
| |
|
| | 1 |
| |
|
| | 11 |
| | — |
|
|