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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.

Table of Contents

CUMMINS INC. AND SUBSIDIARIES

TABLE OF CONTENTS

QUARTERLY REPORT ON FORM 10-Q



		Page
	PART I. FINANCIAL INFORMATION
ITEM 1.	Condensed Consolidated Financial Statements (Unaudited)	3
	Condensed Consolidated Statements of Net Income for the three and nine months ended September 29, 2019 and September 30, 2018	3
	Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 29, 2019 and September 30, 2018	4
	Condensed Consolidated Balance Sheets at September 29, 2019 and December 31, 2018	5
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 29, 2019 and September 30, 2018	6
	Condensed Consolidated Statements of Changes in Equity for the three and nine months ended September 29, 2019 and September 30, 2018	7
	Notes to Condensed Consolidated Financial Statements	9
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	55
ITEM 4.	Controls and Procedures	55
	PART II. OTHER INFORMATION
ITEM 1.	Legal Proceedings	56
ITEM 1A.	Risk Factors	56
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	57
ITEM 3.	Defaults Upon Senior Securities	57
ITEM 4.	Mine Safety Disclosures	57
ITEM 5.	Other Information	58
ITEM 6.	Exhibits	58
	Signatures	59

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.

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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.

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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.

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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.

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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.

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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			—