SEC Filings


10-Q
CUMMINS INC filed this Form 10-Q on 10/31/2017
Entire Document
 

 
 
Three months ended
 
Nine months ended
 
 
October 1, 2017 vs. October 2, 2016
 
October 1, 2017 vs. October 2, 2016
 
 
Favorable/(Unfavorable) Change
 
Favorable/(Unfavorable) Change
In millions
 
Amount
 
Percent
 
Percentage point
change as a percent
of total sales
 
Amount
 
Percent
 
Percentage point
change as a percent
of total sales
Gross margin
 
$
77

 
23
 %
 
(0.4
)
 
$
121

 
11
 %
 
(0.5
)
Selling, general and administrative expenses
 
(26
)
 
(18
)%
 
0.5

 
(58
)
 
(14
)%
 
0.1

Research, development and engineering expenses
 
(27
)
 
(48
)%
 
(0.6
)
 
(34
)
 
(20
)%
 
(0.2
)
Equity, royalty and interest income from investees
 
20

 
53
 %
 
0.5

 
66

 
55
 %
 
0.7

Loss contingency (1)
 
99

 
100
 %
 
NM

 
138

 
100
 %
 
NM

____________________________________
"NM" - not meaningful information
(1) See Note 9, "COMMITMENTS AND CONTINGENCIES," to the Condensed Consolidated Financial Statements for additional information.
The increase in gross margin dollars for the three months ended October 1, 2017, versus the comparable period in 2016, was primarily due to higher volumes and improved leverage, partially offset by increased warranty costs for campaigns related to pre-2015 engines and higher variable compensation expense. The increase in selling, general and administrative expenses was primarily due to higher compensation expense, especially variable compensation expense. The increase in research, development and engineering expenses was primarily due to higher compensation expense, especially variable compensation expense, and higher consulting expenses. The increase in equity, royalty and interest income from investees was primarily due to higher earnings at Dongfeng Cummins Engine Company, Ltd. and Beijing Foton Cummins Engine Co., Ltd.
The increase in gross margin dollars for the nine months ended October 1, 2017, versus the comparable period in 2016, was primarily due to higher volumes, improved leverage, favorable pricing and mix and lower material costs, partially offset by increased warranty costs for campaigns related to pre-2015 engines and higher variable compensation expense. The increase in selling, general and administrative expenses was primarily due to higher compensation expense, especially variable compensation expense. The increase in research, development and engineering expenses was primarily due to higher compensation expense, especially higher variable compensation expense, and higher consulting expenses. The increase in equity, royalty and interest income from investees was primarily due to higher earnings at Dongfeng Cummins Engine Company, Ltd. and Beijing Foton Cummins Engine Co.
Distribution Segment Results 
Financial data for the Distribution segment was as follows:
 
 
Three months ended
 
Favorable/
 
Nine months ended
 
Favorable/
 
 
October 1,
 
October 2,
 
(Unfavorable)
 
October 1,
 
October 2,
 
(Unfavorable)
In millions
 
2017
 
2016
 
Amount
 
Percent
 
2017
 
2016
 
Amount
 
Percent
External sales
 
$
1,748

 
$
1,497

 
$
251

 
17
 %
 
$
5,101

 
$
4,493

 
$
608

 
14
 %
Intersegment sales
 
5

 
7

 
(2
)
 
(29
)%
 
19

 
18

 
1

 
6
 %
Total sales
 
1,753

 
1,504

 
249

 
17
 %
 
5,120

 
4,511

 
609

 
14
 %
Depreciation and amortization
 
29

 
28

 
(1
)
 
(4
)%
 
90

 
85

 
(5
)
 
(6
)%
Research, development and engineering expenses
 
6

 
3

 
(3
)
 
(100
)%
 
14

 
10

 
(4
)
 
(40
)%
Equity, royalty and interest income from investees
 
11

 
19

 
(8
)
 
(42
)%
 
35

 
56

 
(21
)
 
(38
)%
Interest income
 
2

 
1

 
1

 
100
 %
 
4

 
3

 
1

 
33
 %
EBIT
 
91

 
96

 
(5
)
 
(5
)%
 
287

 
270

 
17

 
6
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Percentage Points
 
 
 
 
 
Percentage Points
EBIT as a percentage of total sales
 
5.2
%
 
6.4
%
 
 

 
(1.2
)
 
5.6
%
 
6.0
%
 
 

 
(0.4
)
In the first quarter of 2017, our Distribution segment reorganized its regions to align with how the segment is managed. All prior year amounts have been reclassified to conform to our new regional structure. Sales for our Distribution segment by region were as follows:

38