Actionable news
0
All posts from Actionable news
Actionable news in CMI: CumMINS Inc,

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

500 Jackson Street

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

Item 2.02. Results of Operations and Financial Condition.

On October 31, 2017, Cummins Inc. (“Cummins,” “the Company,” “the registrant,” “we,” “our,” or “us”) issued the attached press release reporting its financial results for the third 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.

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.

CUMMINS INC.
/s/ CHRISTOPHER C. CLULOW
Christopher C. ClulowVice President - Corporate Controller
(Principal Accounting Officer)
Three months ended
In millions, except per share amountsOctober 1,
2017
October 2,
2016
NET SALES$5,285
$4,187
Cost of sales3,946
3,108
GROSS MARGIN 1,339
1,079
OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses624
513
Research, development and engineering expenses213
157
Equity, royalty and interest income from investees95
74
Loss contingency
99
Other operating income (expense), net32

OPERATING INCOME 629
384
Interest income 4
6
Interest expense18
16
Other income (expense), net7
8
INCOME BEFORE INCOME TAXES 622
382
Income tax expense165
82
CONSOLIDATED NET INCOME 457
300
Less: Net income attributable to noncontrolling interests 4
11
NET INCOME ATTRIBUTABLE TO CUMMINS INC. $453
$289
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
Basic $2.72
$1.72
Diluted $2.71
$1.72
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 166.3
167.8
Diluted 167.0
168.2
CASH DIVIDENDS DECLARED PER COMMON SHARE $1.08
$1.025
(a) Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America.
Nine months ended
In millions, except per share amountsOctober 1,
2017
October 2,
2016
NET SALES$14,952
$13,006
Cost of sales11,236
9,674
GROSS MARGIN 3,716
3,332
OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses1,757
1,527
Research, development and engineering expenses545
478
Equity, royalty and interest income from investees301
234
Loss contingency
138
Other operating income (expense), net55
(2)
OPERATING INCOME 1,770
1,421
Interest income 11
18
Interest expense57
51
Other income (expense), net45
34
INCOME BEFORE INCOME TAXES 1,769
1,422
Income tax expense466
362
CONSOLIDATED NET INCOME 1,303
1,060
Less: Net income attributable to noncontrolling interests 30
44
NET INCOME ATTRIBUTABLE TO CUMMINS INC. $1,273
$1,016
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
Basic $7.62
$5.99
Diluted $7.60
$5.99
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic167.0
169.5
Diluted167.6
169.7
CASH DIVIDENDS DECLARED PER COMMON SHARE$3.13
$2.975
(a) Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America.
In millions, except par valueOctober 1,
2017
December 31,
2016
ASSETS
Current assets
Cash and cash equivalents $1,290
$1,120
Marketable securities154
260
Total cash, cash equivalents and marketable securities 1,444
1,380
Accounts and notes receivable, net 3,810
3,025
Inventories3,146
2,675
Prepaid expenses and other current assets 656
627
Total current assets 9,056
7,707
Long-term assets
Property, plant and equipment 7,901
7,635
Accumulated depreciation (4,085)(3,835)
Property, plant and equipment, net3,816
3,800
Investments and advances related to equity method investees1,213
946
Goodwill1,036
480
Other intangible assets, net964
332
Pension assets912
731
Other assets 995
1,015
Total assets $17,992
$15,011
LIABILITIES
Current liabilities
Accounts payable (principally trade) $2,486
$1,854
Loans payable64
41
Commercial paper514
212
Accrued compensation, benefits and retirement costs 674
412
Current portion of accrued product warranty462
333
Current portion of deferred revenue 528
468
Other accrued expenses 968
970
Current maturities of long-term debt62
35
Total current liabilities 5,758
4,325
Long-term liabilities
Long-term debt1,615
1,568
Postretirement benefits other than pensions319
329
Pensions328
326
Other liabilities and deferred revenue1,411
1,289
Total liabilities $9,431
$7,837
EQUITY
Cummins Inc. shareholders’ equity
Common stock, $2.50 par value, 500 shares authorized, 222.4 and 222.4 shares issued $2,198
$2,153
Retained earnings 11,791
11,040
Treasury stock, at cost, 56.4 and 54.2 shares (4,849)(4,489)
Common stock held by employee benefits trust, at cost, 0.6 and 0.7 shares (7)(8)
Accumulated other comprehensive loss(1,504)(1,821)
Total Cummins Inc. shareholders’ equity 7,629
6,875
Noncontrolling interests932
299
Total equity $8,561
$7,174
Total liabilities and equity $17,992
$15,011
(a) Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America.
Nine months ended
In millionsOctober 1,
2017
October 2,
2016
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net income $1,303
$1,060
Adjustments to reconcile consolidated net income to net cash provided by operating activities
Depreciation and amortization433
391
Deferred income taxes26
60
Equity in income of investees, net of dividends(166)(94)
Pension contributions in excess of expense(63)(92)
Other post retirement benefits payments in excess of expense(4)(16)
Stock-based compensation expense34
28
Restructuring payments
(53)
Loss contingency
138
Translation and hedging activities61
(39)
Changes in current assets and liabilities, net of acquisitions
Accounts and notes receivable(722)(112)
Inventories(401)(150)
Other current assets(28)138
Accounts payable567
101
Accrued expenses369
(279)
Changes in other liabilities and deferred revenue177
188
Other, net(115)45
Net cash provided by operating activities 1,471
1,314
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures(282)(312)
Investments in internal use software(59)(42)
Proceeds from disposals of property, plant and equipment 104
11
Investments in and advances to equity investees(71)(29)
Acquisitions of businesses, net of cash acquired(600)(1)
Investments in marketable securities—acquisitions(106)(447)
Investments in marketable securities—liquidations218
291
Cash flows from derivatives not designated as hedges9
(64)
Other, net1
3
Net cash used in investing activities(786)(590)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings4
111
Net borrowings of commercial paper302
273
Payments on borrowings and capital lease obligations(38)(156)
Net borrowings under short-term credit agreements 19
25
Distributions to noncontrolling interests(29)(42)
Dividend payments on common stock(522)(505)
Repurchases of common stock(391)(745)
Other, net55
(6)
Net cash used in financing activities(600)(1,045)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 85
(139)
Net increase (decrease) in cash and cash equivalents170
(460)
Cash and cash equivalents at beginning of year 1,120
1,711
CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,290
$1,251
(a) Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America.
In millionsEngineDistributionComponents(1)Power SystemsTotal SegmentIntersegment Eliminations (2)Total
Three months ended October 1, 2017
External sales$1,783
$1,748
$1,139
$615
$5,285
$
$5,285
Intersegment sales553
5
394
441
1,393
(1,393)
Total sales2,336
1,753
1,533
1,056
6,678
(1,393)5,285
Depreciation and amortization (3)47
29
42
30
148

148
Research, development and engineering expenses83
6
63
61
213

213
Equity, royalty and interest income from investees58
11
12
14
95

95
Interest income1
2

1
4

4
EBIT229
91
217
81
618
22
640
EBIT as a percentage of total sales9.8%5.2%14.2%7.7%9.3%12.1%

Three months ended October 2, 2016
External sales$1,357
$1,497
$824
$509
$4,187
$
$4,187
Intersegment sales502
7
319
347
1,175
(1,175)
Total sales1,859
1,504
1,143
856
5,362
(1,175)4,187
Depreciation and amortization (3)42
28
32
29
131

131
Research, development and engineering expenses56
3
54
44
157

157
Equity, royalty and interest income from investees38
19
9
8
74

74
Loss contingency99



99

99
Interest income3
1
1
1
6

6
EBIT89
96
148
59
392
6
398
EBIT as a percentage of total sales4.8%6.4%12.9%6.9%7.3%9.5%
(1)The 2017 disclosures include Eaton Cummins Automated Transmission Technologies joint venture results consolidated during the third quarter of 2017. See "ACQUISITION," footnote for additional information.
(2)Includes intersegment sales, intersegment profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the three months ended October 1, 2017 and October 2, 2016.
(3)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."
In millionsEngineDistributionComponents(1)Power SystemsTotal SegmentIntersegment Eliminations (2)Total
Nine months ended October 1, 2017
External sales$4,951
$5,101
$3,183
$1,717
$14,952
$
$14,952
Intersegment sales1,715
19
1,148
1,238
4,120
(4,120)
Total sales6,666
5,120
4,331
2,955
19,072
(4,120)14,952
Depreciation and amortization (3)137
90
117
87
431

431
Research, development and engineering expenses200
14
170
161
545

545
Equity, royalty and interest income from investees186
35
40
40
301

301
Interest income4
4
1
2
11

11
EBIT735
287
586
199
1,807
19
1,826
EBIT as a percentage of total sales11.0%5.6%13.5%6.7%9.5%12.2%
Nine months ended October 2, 2016
External sales$4,350
$4,493
$2,654
$1,509
$13,006
$
$13,006
Intersegment sales1,487
18
1,005
1,076
3,586
(3,586)
Total sales5,837
4,511
3,659
2,585
16,592
(3,586)13,006
Depreciation and amortization (3)122
85
95
87
389

389
Research, development and engineering expenses166
10
161
141
478

478
Equity, royalty and interest income from investees120
56
29
29
234

234
Loss contingency138



138

138
Interest income8
3
3
4
18

18
EBIT492
270
501
195
1,458
15
1,473
EBIT as a percentage of total sales8.4%6.0%13.7%7.5%8.8%11.3%
(1)The 2017 disclosures include Eaton Cummins Automated Transmission Technologies joint venture results consolidated during the third quarter of 2017. See "ACQUISITION," footnote for additional information.
(2)Includes intersegment sales, intersegment profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the nine months ended October 1, 2017 and October 2, 2016.
(3)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 $2 million for both of the nine months ended October 1, 2017 and October 2, 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 endedNine months ended
In millionsOctober 1,
2017
October 2,
2016
October 1,
2017
October 2,
2016
Total EBIT$640
$398
$1,826
$1,473
Less: Interest expense18
16
57
51
Income before income taxes$622
$382
$1,769
$1,422

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 endedNine months ended
In millionsOctober 1,
2017
October 2,
2016
October 1,
2017
October 2,
2016
Distribution entities
Komatsu Cummins Chile, Ltda.$8
$8
$23
$26
North American distributors
7

18
All other distributors(1)1
(1)2
Manufacturing entities

Beijing Foton Cummins Engine Co., Ltd.24
19
79
59
Dongfeng Cummins Engine Company, Ltd.15
10
56
32
Chongqing Cummins Engine Company, Ltd.11
11
30
28
All other manufacturers27
8
78
40
Cummins share of net income84
64
265
205
Royalty and interest income11
10
36
29
Equity, royalty and interest income from investees$95
$74
$301
$234

In April 2017, we entered into an agreement to form a joint venture with Eaton Corporation PLC (Eaton), which closed on July 31, 2017 (the acquisition date). We purchased a 50 percent interest in the new venture named Eaton Cummins Automated Transmission Technologies for $600 million in cash. In addition, each partner contributed $20 million for working capital. The joint venture will design, assemble, sell and support medium-duty and heavy-duty automated transmissions for the commercial vehicle market, including new product launches. We consolidated the results of the joint venture in our Components segment as we have a majority voting interest in the venture by virtue of a tie-breaking vote on the joint venture's board of directors. We do not expect this new venture to have a significant impact on our consolidated results in 2017.

During 2017, the CARB and U.S. EPA began selecting certain of our pre-2013 model year engine systems for additional emissions testing. We have been notified that a portion of the CARB and EPA selected engine systems have failed emissions testing due to the unexpected degradation of an aftertreatment component. Although we have no official notice from the CARB or EPA on these engine systems to date, we are working with the agencies on a resolution of these matters. We are developing and testing solutions to address the technical issues, which could include a combination of calibration changes, service practices and hardware changes. We recorded a charge of $29 million to "cost of sales" in our Condensed Consolidated Statements of Income in the third quarter of 2017 for the expected cost of field campaigns to repair some of these engine systems.

In addition, we are currently evaluating other engine systems for model years 2010 through 2015 that could potentially be subject to similar degradation issues. At this point in time, we have not yet determined the impact to other model years and engine systems or the percentage of the engine system populations affected.

Because this remains under review with a number of yet unresolved variables, we are not yet able to estimate the outcome for these matters. It is possible, however, that they could have a material effect on our results of operations in the periods in which the uncertainties are resolved.

We do not currently expect any fines or penalties from the EPA or CARB related to this matter.

On October 12, 2017, we entered into an asset purchase agreement with Brammo Inc., an engineer and manufacturer of lithium ion batteries primarily related to the utility vehicle markets, for approximately $70 million to be paid in cash at closing. In addition to the closing consideration, the agreement contains an earnout based on future results of the acquired business, which could result in a maximum additional $100 million payment to the former owners. The majority of the purchase price will likely be assigned to intangible assets and goodwill. We expect the transaction to close in the fourth quarter of 2017.

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 endedNine months ended
In millionsOctober 1, 2017October 2, 2016October 1, 2017October 2, 2016
Net income attributable to Cummins Inc.$453
$289
$1,273
$1,016
Net income attributable to Cummins Inc. as a percentage of net sales8.6%6.9%8.5%7.8%
Add
Net income attributable to noncontrolling interests4
11
30
44
Consolidated net income457
300
1,303
1,060
Add
Interest expense18
16
57
51
Income tax expense165
82
466
362
Earnings before interest expense and income taxes$640
$398
$1,826
$1,473
EBIT as a percentage of net sales12.1%9.5%12.2%11.3%

Engine Segment Sales by Market and Unit Shipments by Engine Classification

2017
In millionsQ1Q2Q3Q4YTD
Heavy-duty truck$620
$714
$776
$
$2,110
Medium-duty truck and bus544
701
625

1,870
Light-duty automotive423
429
452

1,304
Off-highway436
463
483

1,382
Total sales$2,023
$2,307
$2,336
$
$6,666
2016
In millionsQ1Q2Q3Q4YTD
Heavy-duty truck$631
$622
$625
$565
$2,443
Medium-duty truck and bus549
600
517
606
2,272
Light-duty automotive433
394
345
409
1,581
Off-highway363
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
UnitsQ1Q2Q3Q4YTD
Heavy-duty19,200
24,100
28,100

71,400
Medium-duty60,300
71,600
68,500

200,400
Light-duty63,100
65,600
66,300

195,000
Total units142,600
161,300
162,900

466,800
2016
UnitsQ1Q2Q3Q4YTD
Heavy-duty19,700
20,700
20,100
18,500
79,000
Medium-duty55,400
62,300
53,400
58,000
229,100
Light-duty61,700
57,100
49,800
60,000
228,600
Total units136,800
140,100
123,300
136,500
536,700

Distribution Segment Sales by Product Line

2017
In millionsQ1Q2Q3Q4YTD
Parts$745
$759
$768
$
$2,272
Service319
320
326

965
Power generation306
329
317

952
Engines275
314
342

931
Total sales$1,645
$1,722
$1,753
$
$5,120
2016
In millionsQ1Q2Q3Q4YTD
Parts$648
$642
$643
$694
$2,627
Service299
297
299
320
1,215
Power generation275
326
291
347
1,239
Engines241
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.

In the third quarter of 2017, we completed the Eaton Cummins Automated Transmission Technologies joint venture (ECJV), which was consolidated and included in our Components segment as the automated transmissions business.

2017
In millionsQ1Q2Q3Q4YTD
Emission solutions$616
$674
$696
$
$1,986
Turbo technologies287
307
297

891
Filtration277
291
287

855
Fuel systems164
182
184

530
Automated transmissions

69

69
Total sales$1,344
$1,454
$1,533
$
$4,331
2016
In millionsQ1Q2Q3Q4YTD
Emission solutions$589
$603
$522
$524
$2,238
Turbo technologies265
276
241
254
1,036
Filtration252
262
244
252
1,010
Fuel systems131
138
136
147
552
Total sales$1,237
$1,279
$1,143
$1,177
$4,836
2015
In millionsYTD
Emission solutions$2,449
Turbo technologies1,141
Filtration1,010
Fuel systems572
Total sales$5,172

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 millionsQ1Q2Q3Q4YTD
Power generation$526
$570
$580
$
$1,676
Industrial275
353
385

1,013
Generator technologies81
94
91

266
Total sales$882
$1,017
$1,056
$
$2,955
2016
In millionsQ1Q2Q3Q4YTD
Power generation$518
$602
$543
$593
$2,256
Industrial215
236
235
255
941
Generator technologies75
83
78
84
320
Total sales$808
$921
$856
$932
$3,517
2015
In millionsYTD
Power generation$2,588
Industrial1,121
Generator technologies358
Total sales$4,067

High-horsepower unit shipments by engine classification were as follows:


More