cmi-20210404

Table of Contents

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 April 4, 2021

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

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 April 4, 2021, there were 146,202,578 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 months ended April 4, 2021 and March 29, 2020	3
	Condensed Consolidated Statements of Comprehensive Income for the three months ended April 4, 2021 and March 29, 2020	4

	Condensed Consolidated Balance Sheets at April 4, 2021 and December 31, 2020	5
	Condensed Consolidated Statements of Cash Flows for the three months ended April 4, 2021 and March 29, 2020	6
	Condensed Consolidated Statements of Changes in Equity for the three months ended April 4, 2021 and March 29, 2020	7
	Notes to Condensed Consolidated Financial Statements	8
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	42
ITEM 4.	Controls and Procedures	42
	PART II. OTHER INFORMATION
ITEM 1.	Legal Proceedings	43
ITEM 1A.	Risk Factors	43
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43
ITEM 3.	Defaults Upon Senior Securities	43
ITEM 4.	Mine Safety Disclosures	43
ITEM 5.	Other Information	44
ITEM 6.	Exhibits	44
	Signatures	45

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
In millions, except per share amounts	April 4, 2021		March 29, 2020
NET SALES (a) (Note 2)	$	6,092	$	5,011
Cost of sales	4,606		3,717
GROSS MARGIN	1,486		1,294

OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses	574		546
Research, development and engineering expenses	260		238
Equity, royalty and interest income from investees (Note 4)	166		129



Other operating expense, net	(8)		(5)
OPERATING INCOME	810		634


Interest expense	28		23
Other income, net	1		44
INCOME BEFORE INCOME TAXES	783		655

Income tax expense	172		127
CONSOLIDATED NET INCOME	611		528

Less: Net income attributable to noncontrolling interests	8		17
NET INCOME ATTRIBUTABLE TO CUMMINS INC.	$	603	$	511

EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
Basic	$	4.10	$	3.42
Diluted	$	4.07	$	3.41

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
Basic	147.0		149.3
Dilutive effect of stock compensation awards	1.3		0.4
Diluted	148.3		149.7



(a) Includes sales to nonconsolidated equity investees of $478 million for the three months ended April 4, 2021, compared with $257 million for the comparable period in 2020.

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

Table of Contents

CUMMINS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)



	Three months ended
In millions	April 4, 2021		March 29, 2020
CONSOLIDATED NET INCOME	$	611	$	528
Other comprehensive income (loss), net of tax (Note 11)
Change in pension and other postretirement defined benefit plans	29		2
Foreign currency translation adjustments	(56)		(162)

Unrealized gain (loss) on derivatives	72		(79)
Total other comprehensive income (loss), net of tax	45		(239)
COMPREHENSIVE INCOME	656		289
Less: Comprehensive income attributable to noncontrolling interests	8		—
COMPREHENSIVE INCOME ATTRIBUTABLE TO CUMMINS INC.	$	648	$	289

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

Table of Contents

CUMMINS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


In millions, except par value	April 4, 2021		December 31, 2020
ASSETS
Current assets
Cash and cash equivalents	$	2,958	$	3,401

Marketable securities (Note 5)	397		461
Total cash, cash equivalents and marketable securities	3,355		3,862
Accounts and notes receivable, net
Trade and other	3,698		3,440
Nonconsolidated equity investees	511		380
Inventories (Note 6)	3,753		3,425
Prepaid expenses and other current assets	805		790
Total current assets	12,122		11,897
Long-term assets
Property, plant and equipment	9,044		9,011
Accumulated depreciation	(4,848)		(4,756)
Property, plant and equipment, net	4,196		4,255
Investments and advances related to equity method investees	1,592		1,441
Goodwill	1,290		1,293
Other intangible assets, net	964		963
Pension assets	1,085		1,042
Other assets (Note 7)	1,713		1,733
Total assets	$	22,962	$	22,624

LIABILITIES
Current liabilities
Accounts payable (principally trade)	$	3,279	$	2,820
Loans payable (Note 8)	93		169
Commercial paper (Note 8)	317		323
Accrued compensation, benefits and retirement costs	393		484
Current portion of accrued product warranty (Note 9)	623		674
Current portion of deferred revenue (Note 2)	773		691

Other accrued expenses (Note 7)	1,121		1,112
Current maturities of long-term debt (Note 8)	61		62
Total current liabilities	6,660		6,335
Long-term liabilities
Long-term debt (Note 8)	3,620		3,610
Pensions and other postretirement benefits	621		630
Accrued product warranty (Note 9)	692		672
Deferred revenue (Note 2)	828		840
Other liabilities (Note 7)	1,510		1,548
Total liabilities	$	13,931	$	13,635

Commitments and contingencies (Note 10)

EQUITY
Cummins Inc. shareholders’ equity
Common stock, $2.50 par value, 500 shares authorized, 222.4 and 222.4 shares issued	$	2,393	$	2,404
Retained earnings	15,825		15,419
Treasury stock, at cost, 76.2 and 74.8 shares	(8,172)		(7,779)

Accumulated other comprehensive loss (Note 11)	(1,937)		(1,982)



Total Cummins Inc. shareholders’ equity	8,109		8,062
Noncontrolling interests	922		927
Total equity	$	9,031	$	8,989
Total liabilities and equity	$	22,962	$	22,624

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

Table of Contents

CUMMINS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three months ended
In millions	April 4, 2021		March 29, 2020
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net income	$	611	$	528
Adjustments to reconcile consolidated net income to net cash provided by operating activities
Depreciation and amortization	170		168



Deferred income taxes	8		(11)
Equity in income of investees, net of dividends	(136)		(78)
Pension and OPEB expense (Note 3)	20		27
Pension contributions and OPEB payments (Note 3)	(51)		(60)
Share-based compensation expense	8		4

Restructuring payments	—		(48)


Loss (gain) on corporate owned life insurance	32		(17)

Foreign currency remeasurement and transaction exposure	1		3
Changes in current assets and liabilities
Accounts and notes receivable	(374)		107
Inventories	(336)		(171)
Other current assets	(24)		79
Accounts payable	465		171
Accrued expenses	(24)		(321)
Changes in other liabilities	—		28

Other, net	(31)		(30)
Net cash provided by operating activities	339		379

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(87)		(75)
Investments in internal use software	(11)		(8)

Investments in and advances to equity investees	(24)		(7)


Investments in marketable securities—acquisitions	(143)		(116)
Investments in marketable securities—liquidations (Note 5)	207		95


Cash flows from derivatives not designated as hedges	14		6
Other, net	19		6
Net cash used in investing activities	(25)		(99)

CASH FLOWS FROM FINANCING ACTIVITIES

Net (payments) borrowings of commercial paper	(6)		957
Payments on borrowings and finance lease obligations	(16)		(10)
Net (payments) borrowings under short-term credit agreements	(102)		25
Distributions to noncontrolling interests	(13)		(13)
Dividend payments on common stock	(197)		(195)
Repurchases of common stock	(418)		(550)
Proceeds from issuing common stock	18		13

Other, net	(11)		7
Net cash (used in) provided by financing activities	(745)		234
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	(12)		48
Net (decrease) increase in cash and cash equivalents	(443)		562
Cash and cash equivalents at beginning of year	3,401		1,129
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	2,958	$	1,691

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

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 DECEMBER 31, 2020	$	556	$	1,848	$	15,419	$	(7,779)	$	—	$	(1,982)	$	8,062	$	927	$	8,989

Net income					603								603		8		611
Other comprehensive income, net of tax (Note 11)											45		45		—		45


Repurchases of common stock							(418)						(418)		—		(418)
Cash dividends on common stock, $1.35 per share					(197)								(197)		—		(197)
Distributions to noncontrolling interests													—		(13)		(13)
Share-based awards			(6)				24						18		—		18

Other shareholder transactions			(5)				1						(4)		—		(4)
BALANCE AT APRIL 4, 2021	$	556	$	1,837	$	15,825	$	(8,172)	$	—	$	(1,937)	$	8,109	$	922	$	9,031

BALANCE AT DECEMBER 31, 2019	$	556	$	1,790	$	14,416	$	(7,225)	$	(2)	$	(2,028)	$	7,507	$	958	$	8,465
Adoption of new accounting standards					(4)								(4)		—		(4)
Net income					511								511		17		528
Other comprehensive loss, net of tax (Note 11)											(222)		(222)		(17)		(239)
Issuance of common stock			9										9		—		9
Employee benefits trust activity			17						1				18		—		18
Repurchases of common stock							(550)						(550)		—		(550)
Cash dividends on common stock, $1.311 per share					(195)								(195)		—		(195)
Distributions to noncontrolling interests													—		(13)		(13)
Share-based awards			(18)				31						13		—		13

Other shareholder transactions			(19)										(19)		5		(14)
BALANCE AT MARCH 29, 2020	$	556	$	1,779	$	14,728	$	(7,744)	$	(1)	$	(2,250)	$	7,068	$	950	$	8,018

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

Table of Contents

CUMMINS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Overview

Cummins Inc. (“Cummins,” “we,” “our” or “us”) was founded in 1919 as Cummins Engine Company, a corporation in Columbus, Indiana, and one of the first diesel engine manufacturers. In 2001, we changed our name to Cummins Inc. We are a global power leader that designs, manufactures, distributes and services diesel, natural gas, electric and hybrid powertrains and powertrain-related components including filtration, aftertreatment, turbochargers, fuel systems, controls systems, air handling systems, automated transmissions, electric power generation systems, batteries, electrified power systems, hydrogen production and fuel cell products. We sell our products to original equipment manufacturers (OEMs), distributors, dealers and other customers worldwide. We serve our customers through a network of over 500 wholly-owned, joint venture and independent distributor locations and over 9,000 Cummins certified dealer locations with service to approximately 190 countries and territories.

Interim Condensed Financial Statements

The unaudited Condensed Consolidated Financial Statements reflect all adjustments which, in the opinion of management, are necessary for a fair statement of the results of operations, financial position and cash flows. All such adjustments are of a normal recurring nature. The Condensed Consolidated Financial Statements were prepared in accordance with accounting principles in the United States of America (GAAP) pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for interim financial information. Certain information and footnote disclosures normally included in annual financial statements were condensed or omitted as permitted by such rules and regulations.

These interim condensed financial statements should be read in conjunction with the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2020. Our interim period financial results for the three month periods presented are not necessarily indicative of results to be expected for any other interim period or for the entire year. The year-end Condensed Consolidated Balance Sheet data was derived from audited financial statements, but does not include all required annual disclosures.

Reclassifications

Certain amounts for prior year periods were reclassified to conform to the current year presentation.

Use of Estimates in Preparation of Financial Statements

Preparation of financial statements requires management to make estimates and assumptions that affect reported amounts presented and disclosed in our Condensed Consolidated Financial Statements. Significant estimates and assumptions in these Condensed Consolidated Financial Statements require the exercise of judgment. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be different from these estimates.

Reporting Period

Our reporting period usually ends on the Sunday closest to the last day of the quarterly calendar period. The first quarters of 2021 and 2020 ended on April 4 and March 29, respectively. Our fiscal year ends on December 31, regardless of the day of the week on which December 31 falls.

Weighted-Average Diluted Shares Outstanding

The weighted-average diluted common shares outstanding exclude the anti-dilutive effect of certain stock options. The options excluded from diluted earnings per share were as follows:

Three months ended

April 4,
2021

March 29,
2020

Options excluded

2,780

1,234,188

Table of Contents

NOTE 2. REVENUE FROM CONTRACTS WITH CUSTOMERS

Long-term Contracts

The majority of our contracts are for a period of less than one year. We have certain long-term maintenance agreements, construction contracts and extended warranty coverage arrangements that span a period in excess of one year. The aggregate amount of the transaction price for long-term maintenance agreements and construction contracts allocated to performance obligations that were not satisfied as of April 4, 2021, was $847 million. We expect to recognize the related revenue of $152 million over the next 12 months and $695 million over periods up to 10 years. See Note 9, "PRODUCT WARRANTY LIABILITY," for additional disclosures on extended warranty coverage arrangements. Our other contracts generally are for a duration of less than one year, include payment terms that correspond to the timing of costs incurred when providing goods and services to our customers or represent sales-based royalties.

Deferred and Unbilled Revenue

The following is a summary of our unbilled and deferred revenue and related activity:


In millions	April 4, 2021		December 31, 2020
Unbilled revenue	$	153	$	114
Deferred revenue, primarily extended warranty	1,601		1,531

We recognized revenue of $154 million for the three months ended April 4, 2021, compared with $112 million for the comparable period in 2020, that was included in the deferred revenue balance at the beginning of each year. We did not record any impairment losses on our unbilled revenues during the three months ended April 4, 2021 or March 29, 2020.

Disaggregation of Revenue

Consolidated Revenue

The table below presents our consolidated sales by geographic area. Net sales attributed to geographic areas were based on the location of the customer.


	Three months ended
In millions	April 4, 2021		March 29, 2020
United States	$	3,060	$	2,852

China	957		522


India	330		170

Other international	1,745		1,467
Total net sales	$	6,092	$	5,011

Segment Revenue

Engine segment external sales by market were as follows:


	Three months ended
In millions	April 4, 2021		March 29, 2020
Heavy-duty truck	$	613	$	519
Medium-duty truck and bus	483		490
Light-duty automotive	474		327
Total on-highway	1,570		1,336
Off-highway	325		243
Total sales	$	1,895	$	1,579

Table of Contents

Distribution segment external sales by region were as follows:


	Three months ended
In millions	April 4, 2021		March 29, 2020
North America	$	1,166	$	1,245
Asia Pacific	213		192
Europe	163		135
China	85		68
Russia	57		41
Africa and Middle East	54		51
India	49		36
Latin America	40		39
Total sales	$	1,827	$	1,807

Distribution segment external sales by product line were as follows:


	Three months ended
In millions	April 4, 2021		March 29, 2020
Parts	$	754	$	783
Power generation	416		375
Engines	333		322
Service	324		327
Total sales	$	1,827	$	1,807

Components segment external sales by business were as follows:


	Three months ended
In millions	April 4, 2021		March 29, 2020
Emission solutions	$	966	$	570
Filtration	301		249
Turbo technologies	225		158
Electronics and fuel systems	117		56
Automated transmissions	115		82
Total sales	$	1,724	$	1,115

Power Systems segment external sales by product line were as follows:


	Three months ended
In millions	April 4, 2021		March 29, 2020
Power generation	$	351	$	269
Industrial	179		165
Generator technologies	82		66
Total sales	$	612	$	500

Table of Contents

NOTE 3. PENSIONS AND OTHER POSTRETIREMENT BENEFITS

We sponsor funded and unfunded domestic and foreign defined benefit pension and other postretirement benefit (OPEB) plans. Contributions to these plans were as follows:


	Three months ended
In millions	April 4, 2021		March 29, 2020



Defined benefit pension contributions	$	42	$	56


OPEB payments, net	9		4


Defined contribution pension plans	35		34

During the remainder of 2021, we anticipate making $17 million in additional defined benefit pension contributions in the U.K. and $12 million in contributions to our U.S. non-qualified benefit plans. These contributions may be made from trusts or company funds either to increase pension assets or to make direct benefit payments to plan participants. We expect our 2021 annual net periodic pension cost to approximate $79 million.

The components of net periodic pension and OPEB costs under our plans were as follows:


	Pension
	U.S. Plans				U.K. Plans				OPEB
	Three months ended
In millions	April 4, 2021		March 29, 2020		April 4, 2021		March 29, 2020		April 4, 2021		March 29, 2020
Service cost	$	35	$	34	$	8	$	7	$	—	$	—
Interest cost	19		24		8		9		1		2
Expected return on plan assets	(50)		(49)		(21)		(19)		—		—
Amortization of prior service cost	—		—		—		1		—		—
Recognized net actuarial loss	12		10		8		8		—		—
Net periodic benefit cost	$	16	$	19	$	3	$	6	$	1	$	2

NOTE 4. EQUITY, ROYALTY AND INTEREST INCOME FROM INVESTEES

Equity, royalty and interest income from investees included in our Condensed Consolidated Statements of Net Income for the reporting period was as follows:


	Three months ended
In millions	April 4, 2021		March 29, 2020
Manufacturing entities
Beijing Foton Cummins Engine Co., Ltd.	$	39	$	17
Dongfeng Cummins Engine Company, Ltd.	31		8
Chongqing Cummins Engine Company, Ltd.	10		9
All other manufacturers	61		55		(1)



Distribution entities
Komatsu Cummins Chile, Ltda.	6		10
All other distributors	3		—


Cummins share of net income	150		99
Royalty and interest income	16		30
Equity, royalty and interest income from investees	$	166	$	129



(1) Includes $37 million in favorable adjustments related to tax changes within India's 2020-2021 Union Budget of India (India Tax Law Change) passed in March 2020.

NOTE 5. MARKETABLE SECURITIES

A summary of marketable securities, all of which were classified as current, was as follows:


	April 4, 2021						December 31, 2020
In millions	Cost		Gross unrealized gains/(losses)(1)		Estimated fair value		Cost		Gross unrealized gains/(losses)(1)		Estimated fair value

Equity securities





Debt mutual funds	$	188	$	3	$	191	$	267	$	5	$	272
Certificates of deposit	179		—		179		164		—		164

Equity mutual funds	20		6		26		19		5		24

Debt securities	1		—		1		1		—		1







Total marketable securities	$	388	$	9	$	397	$	451	$	10	$	461

(1) Unrealized gains and losses for debt securities are recorded in other comprehensive income while unrealized gains and losses for equity securities are recorded in "Other income, net" in our Condensed Consolidated Statements of Net Income.

All debt securities are classified as available-for-sale. All marketable securities presented use a Level 2 fair value measure. The fair value of Level 2 securities is estimated using actively quoted prices for similar instruments from brokers and observable inputs where available, including market transactions and third-party pricing services, or net asset values provided to investors. We do not currently have any Level 3 securities, and there were no transfers between Level 2 or 3 during the three months ended April 4, 2021 or the year ended December 31, 2020.

A description of the valuation techniques and inputs used for our Level 2 fair value measures is as follows:

•Debt mutual funds — The fair value measures for the vast majority of these investments are the daily net asset values published on a regulated governmental website. Daily quoted prices are available from the issuing brokerage and are used on a test basis to corroborate this Level 2 input measure.

•Certificates of deposit — These investments provide us with a contractual rate of return and generally range in maturity from three months to five years. The counterparties to these investments are reputable financial institutions with investment grade credit ratings. Since these instruments are not tradable and must be settled directly by us with the respective financial institution, our fair value measure is the financial institution's month-end statement.

•Equity mutual funds — The fair value measures for these investments are the net asset values published by the issuing brokerage. Daily quoted prices are available from reputable third-party pricing services and are used on a test basis to corroborate this Level 2 input measure.

•Debt securities — The fair value measures for these securities are broker quotes received from reputable firms. These securities are infrequently traded on a national exchange and these values are used on a test basis to corroborate our Level 2 input measure.

The proceeds from sales and maturities of marketable securities were as follows:


	Three months ended
In millions		April 4, 2021		March 29, 2020
Proceeds from sales of marketable securities		$	163	$	53
Proceeds from maturities of marketable securities		44		42
Investments in marketable securities - liquidations		$	207	$	95

Table of Contents

NOTE 6. INVENTORIES

Inventories are stated at the lower of cost or net realizable value. Inventories included the following:


In millions	April 4, 2021		December 31, 2020
Finished products	$	2,320	$	2,216
Work-in-process and raw materials	1,585		1,346
Inventories at FIFO cost	3,905		3,562
Excess of FIFO over LIFO	(152)		(137)
Total inventories	$	3,753	$	3,425

NOTE 7. SUPPLEMENTAL BALANCE SHEET DATA

Other assets included the following:



In millions	April 4, 2021		December 31, 2020
Operating lease assets	$	466	$	438
Corporate owned life insurance	462		508
Deferred income taxes	439		479
Mark-to-market valuation on interest rate locks	38		—
Other	308		308
Other assets	$	1,713	$	1,733

Other accrued expenses included the following:



In millions	April 4, 2021		December 31, 2020
Marketing accruals	$	279	$	242
Other taxes payable	242		256
Current portion of operating lease liabilities	125		128
Income taxes payable	94		82
Other	381		404
Other accrued expenses	$	1,121	$	1,112

Other liabilities included the following:



In millions	April 4, 2021		December 31, 2020

Operating lease liabilities	$	343	$	325
Deferred income taxes	322		325
One-time transition tax	289		289
Accrued compensation	192		203
Mark-to-market valuation on interest rate locks	—		41
Other long-term liabilities	364		365
Other liabilities	$	1,510	$	1,548

Table of Contents

NOTE 8. DEBT

Loans Payable and Commercial Paper

Loans payable, commercial paper and the related weighted-average interest rates were as follows:


In millions	April 4, 2021			December 31, 2020


Loans payable (1)	$	93		$	169

Commercial paper	317		(2)	323		(3)




(1) Loans payable consist primarily of notes payable to various domestic and international financial institutions. It is not practicable to aggregate these notes and calculate a quarterly weighted-average interest rate.
(2) The weighted-average interest rate, inclusive of all brokerage fees, was negative 0.03 percent at April 4, 2021 and included $117 million of borrowings under the EUR program that were negative 0.35 percent and $200 million of borrowings under the U.S. program at 0.16 percent.
(3) The weighted-average interest rate, inclusive of all brokerage fees, was negative 0.01 percent at December 31, 2020 and included $123 million of borrowings under the EUR program that were negative 0.34 percent and $200 million of borrowings under the U.S. program at 0.19 percent.

Revolving Credit Facilities

We have access to committed credit facilities that total $3.5 billion, including the $1.5 billion 364-day facility that expires August 18, 2021 and our $2.0 billion five-year facility that expires on August 22, 2023. We maintain credit facilities at the current or higher aggregate amounts by renewing or replacing these facilities at or before expiration. These revolving credit facilities are maintained primarily to provide backup liquidity for our commercial paper borrowings and for general corporate purposes. There were no outstanding borrowings under these facilities at April 4, 2021 and December 31, 2020.

At April 4, 2021, the $317 million of outstanding commercial paper effectively reduced the $3.5 billion of revolving credit capacity to $3.2 billion.

At April 4, 2021, we also had an additional $249 million available for borrowings under our international and other domestic credit facilities.

Table of Contents

Long-term Debt

A summary of long-term debt was as follows:


In millions	Interest Rate	April 4, 2021		December 31, 2020
Long-term debt
Senior notes, due 2023	3.65%	$	500	$	500
Senior notes, due 2025	0.75%	500		500
Debentures, due 2027	6.75%	58		58
Debentures, due 2028	7.125%	250		250
Senior notes, due 2030	1.50%	850		850
Senior notes, due 2043	4.875%	500		500
Senior notes, due 2050	2.60%	650		650
Debentures, due 2098(1)	5.65%	165		165

Other debt		146		132

Unamortized discount and deferred issuance costs		(71)		(72)
Fair value adjustments due to hedge on indebtedness		44		48
Finance leases		89		91
Total long-term debt		3,681		3,672
Less: Current maturities of long-term debt		61		62
Long-term debt		$	3,620	$	3,610


(1) The effective interest rate is 7.48%.

Principal payments required on long-term debt during the next five years are as follows:



In millions	2021		2022		2023		2024		2025
Principal payments	$	51	$	57	$	534	$	30	$	506

Interest Rate Risk

We have interest rate lock agreements to reduce the variability of the cash flows of the interest payments on a total of $500 million of fixed rate debt forecast to be issued in 2023 to replace our senior notes at maturity. We recorded a net gain of $61 million and net loss of $79 million in "Other comprehensive income" for the three months ended April 4, 2021 and March 29, 2020, respectively.

Fair Value of Debt

Based on borrowing rates currently available to us for bank loans with similar terms and average maturities, considering our risk premium, the fair values and carrying values of total debt, including current maturities, were as follows:


In millions	April 4, 2021		December 31, 2020
Fair value of total debt (1)	$	4,338	$	4,665
Carrying value of total debt	4,091		4,164

(1) The fair value of debt is derived from Level 2 inputs.

Table of Contents

NOTE 9. PRODUCT WARRANTY LIABILITY

A tabular reconciliation of the product warranty liability, including the deferred revenue related to our extended warranty coverage and accrued product campaigns, was as follows:


	Three months ended
In millions	April 4, 2021		March 29, 2020
Balance, beginning of year	$	2,307	$	2,389
Provision for base warranties issued	157		97
Deferred revenue on extended warranty contracts sold	65		66
Provision for product campaigns issued	3		2
Payments made during period	(146)		(138)

Amortization of deferred revenue on extended warranty contracts	(61)		(57)
Changes in estimates for pre-existing product warranties	(44)		(15)
Foreign currency translation and other	(6)		(12)

Balance, end of period	$	2,275	$	2,332

We recognized supplier recoveries of $4 million and $9 million for the three months ended April 4, 2021 and March 29, 2020, respectively.

Warranty related deferred revenues and warranty liabilities on our Condensed Consolidated Balance Sheets were as follows:


In millions	April 4, 2021		December 31, 2020		Balance Sheet Location
Deferred revenue related to extended coverage programs
Current portion	$	270	$	261	Current portion of deferred revenue
Long-term portion	690		700		Deferred revenue
Total	$	960	$	961

Product warranty
Current portion	$	623	$	674	Current portion of accrued product warranty
Long-term portion	692		672		Accrued product warranty
Total	$	1,315	$	1,346

Total warranty accrual	$	2,275	$	2,307

Engine System Campaign Accrual

During 2017, the California Air Resources Board (CARB) and the U.S. Environmental Protection Agency (EPA) selected certain of our pre-2013 model year engine systems for additional emissions testing. Some of these engine systems failed CARB and EPA tests as a result of degradation of an aftertreatment component. In the second quarter of 2018, we reached agreement with the CARB and EPA regarding our plans to address the affected populations. From the fourth quarter of 2017 through the second quarter of 2018, we recorded charges for the expected costs of field campaigns to repair these engine systems.

The campaigns launched in the third quarter of 2018 are being completed in phases across the affected population. The total engine system campaign charge, excluding supplier recoveries, was $410 million. In the fourth quarter of 2020, we recorded an additional $20 million charge related to this campaign, as a change in estimate, to bring the total campaign, excluding supplier recoveries, to $430 million. At April 4, 2021, the remaining accrual balance was $129 million.

Table of Contents

NOTE 10. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

We are subject to numerous lawsuits and claims arising out of the ordinary course of our business, including actions related to product liability; personal injury; the use and performance of our products; warranty matters; product recalls; patent, trademark or other intellectual property infringement; contractual liability; the conduct of our business; tax reporting in foreign jurisdictions; distributor termination; workplace safety; and environmental matters. We also have been identified as a potentially responsible party at multiple waste disposal sites under U.S. federal and related state environmental statutes and regulations and may have joint and several liability for any investigation and remediation costs incurred with respect to such sites. We have denied liability with respect to many of these lawsuits, claims and proceedings and are vigorously defending such lawsuits, claims and proceedings. We carry various forms of commercial, property and casualty, product liability and other forms of insurance; however, such insurance may not be applicable or adequate to cover the costs associated with a judgment against us with respect to these lawsuits, claims and proceedings. We do not believe that these lawsuits are material individually or in the aggregate. While we believe we have also established adequate accruals for our expected future liability with respect to pending lawsuits, claims and proceedings, where the nature and extent of any such liability can be reasonably estimated based upon then presently available information, there can be no assurance that the final resolution of any existing or future lawsuits, claims or proceedings will not have a material adverse effect on our business, results of operations, financial condition or cash flows.

We conduct significant business operations in Brazil that are subject to the Brazilian federal, state and local labor, social security, tax and customs laws. While we believe we comply with such laws, they are complex, subject to varying interpretations and we are often engaged in litigation regarding the application of these laws to particular circumstances.

On April 29, 2019, we announced that we were conducting a formal internal review of our emissions certification process and compliance with emission standards for our pick-up truck applications, following conversations with the EPA and CARB regarding certification of our engines in model year 2019 RAM 2500 and 3500 trucks. This review is being conducted with external advisors to ensure the certification and compliance processes for all of our pick-up truck applications are consistent with our internal policies, engineering standards and applicable laws. In addition, we voluntarily disclosed our formal internal review to the regulators and to other government agencies, the Department of Justice (DOJ) and the SEC, and worked cooperatively with them to ensure a complete and thorough review. We fully cooperated with the DOJ's and the SEC's information requests and inquiries and, based on recent communications with these agencies, we do not expect further inquiries. During conversations with the EPA and CARB about the effectiveness of our pick-up truck applications, the regulators raised concerns that certain aspects of our emissions systems may reduce the effectiveness of our emissions control systems and thereby act as defeat devices. As a result, our internal review focuses, in part, on the regulators’ concerns. We are working closely with the regulators to enhance our emissions systems to improve the effectiveness of all of our pick-up truck applications and to fully address the regulators’ requirements. Based on discussions with the regulators, we have developed a new calibration for the engines in model year 2019 RAM 2500 and 3500 trucks that has been included in all engines shipped since September 2019. During our discussions, the regulators have asked us to look at other model years and other engines. Due to the continuing nature of our formal review, our ongoing cooperation with our regulators and the presence of many unknown facts and circumstances, we cannot predict the final outcome of this review and these regulatory processes, and we cannot provide assurance that the matter will not have a materially adverse impact on our results of operations and cash flows.

Guarantees and Commitments

Periodically, we enter into guarantee arrangements, including guarantees of non-U.S. distributor financings, residual value guarantees on equipment under operating leases and other miscellaneous guarantees of joint ventures or third-party obligations. At April 4, 2021, the maximum potential loss related to these guarantees was $31 million.

We have arrangements with certain suppliers that require us to purchase minimum volumes or be subject to monetary penalties. At April 4, 2021, if we were to stop purchasing from each of these suppliers, the aggregate amount of the penalty would be approximately $74 million. These arrangements enable us to secure supplies of critical components and IT services. We do not currently anticipate paying any penalties under these contracts.

We enter into physical forward contracts with suppliers of platinum and palladium to purchase certain volumes of the commodities at contractually stated prices for various periods, which generally fall within two years. At April 4, 2021, the total commitments under these contracts were $39 million. These arrangements enable us to guarantee the prices of these commodities, which otherwise are subject to market volatility.

We have guarantees with certain customers that require us to satisfactorily honor contractual or regulatory obligations, or compensate for monetary losses related to nonperformance. These performance bonds and other performance-related guarantees were $100 million at April 4, 2021.

Table of Contents

Indemnifications

Periodically, we enter into various contractual arrangements where we agree to indemnify a third-party against certain types of losses. Common types of indemnities include:

•product liability and license, patent or trademark indemnifications;

•asset sale agreements where we agree to indemnify the purchaser against future environmental exposures related to the asset sold; and

•any contractual agreement where we agree to indemnify the counterparty for losses suffered as a result of a misrepresentation in the contract.

We regularly evaluate the probability of having to incur costs associated with these indemnities and accrue for expected losses that are probable. Because the indemnifications are not related to specified known liabilities and due to their uncertain nature, we are unable to estimate the maximum amount of the potential loss associated with these indemnifications.

Table of Contents

NOTE 11. ACCUMULATED OTHER COMPREHENSIVE LOSS

Following are the changes in accumulated other comprehensive income (loss) by component for the three months ended:



In millions	Change in pensions and other postretirement defined benefit plans		Foreign currency translation adjustment		Unrealized gain (loss) on derivatives			Total attributable to Cummins Inc.		Noncontrolling interests		Total
Balance at December 31, 2020	$	(735)	$	(1,204)	$	(43)		$	(1,982)
Other comprehensive income before reclassifications
Before-tax amount	15		(60)		93			48		$	—	$	48
Tax (expense) benefit	(3)		4		(22)			(21)		—		(21)
After-tax amount	12		(56)		71			27		—		27
Amounts reclassified from accumulated other comprehensive income(1)	17		—		1			18		—		18

Net current period other comprehensive income (loss)	29		(56)		72		(2)	45		$	—	$	45
Balance at April 4, 2021	$	(706)	$	(1,260)	$	29		$	(1,937)

Balance at December 31, 2019	$	(734)	$	(1,285)	$	(9)		$	(2,028)
Other comprehensive income before reclassifications
Before-tax amount	(19)		(148)		(95)			(262)		$	(17)	$	(279)
Tax benefit	5		3		18			26		—		26
After-tax amount	(14)		(145)		(77)			(236)		(17)		(253)
Amounts reclassified from accumulated other comprehensive income (loss)(1)	16		—		(2)			14		—		14
Net current period other comprehensive income (loss)	2		(145)		(79)		(2)	(222)		$	(17)	$	(239)
Balance at March 29, 2020	$	(732)	$	(1,430)	$	(88)		$	(2,250)

(1) Amounts are net of tax. Reclassifications out of accumulated other comprehensive income (loss) and the related tax effects are immaterial for separate disclosure.
(2) Primarily related to interest rate lock activity. See the Interest Rate Risk section in NOTE 8 "DEBT" for additional information.

Table of Contents

NOTE 12. OPERATING SEGMENTS

Operating segments under GAAP are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the Chief Operating Decision Maker (CODM), or decision-making group, in deciding how to allocate resources and in assessing performance. Our CODM is the President and Chief Operating Officer.

Our reportable operating segments consist of Engine, Distribution, Components, Power Systems and New Power. This reporting structure is organized according to the products and markets each segment serves. The Engine segment produces engines (15 liters and smaller) and associated parts for sale to customers in on-highway and various off-highway markets. Our engines are used in trucks of all sizes, buses and recreational vehicles, as well as in various industrial applications, including construction, agriculture, power generation systems and other off-highway applications. The Distribution segment includes wholly-owned and partially-owned distributorships engaged in wholesaling engines, generator sets and service parts, as well as performing service and repair activities on our products and maintaining relationships with various OEMs throughout the world. The Components segment sells filtration products, aftertreatment systems, turbochargers, electronics, fuel systems and automated transmissions. The Power Systems segment is an integrated power provider, which designs, manufactures and sells engines (16 liters and larger) for industrial applications (including mining, oil and gas, marine and rail), standby and prime power generator sets, alternators and other power components. The New Power segment designs, manufactures, sells and supports hydrogen production solutions as well as electrified power systems ranging from fully electric to hybrid along with innovative components and subsystems, including battery and fuel cell technologies. We continue to serve all our markets as they adopt electrification and alternative power technologies, meeting the needs of our OEM partners and end customers.

We use segment earnings or losses before interest expense, income taxes, depreciation and amortization and noncontrolling interests (EBITDA) as the primary basis for the CODM to evaluate the performance of each of our reportable operating segments. We believe EBITDA is a useful measure of our operating performance as it assists investors and debt holders in comparing our performance on a consistent basis without regard to financing methods, capital structure, income taxes or depreciation and amortization methods, which can vary significantly depending upon many factors. Segment amounts exclude certain expenses not specifically identifiable to segments.

The accounting policies of our operating segments are the same as those applied in our Condensed Consolidated Financial Statements. We prepared the financial results of our operating segments on a basis that is consistent with the manner in which we internally disaggregate financial information to assist in making internal operating decisions. We allocate certain common costs and expenses, primarily corporate functions, among segments differently than we would for stand-alone financial information prepared in accordance with GAAP. These include certain costs and expenses of shared services, such as information technology, human resources, legal, finance and supply chain management. We do not allocate gains or losses of corporate owned life insurance to individual segments. EBITDA may not be consistent with measures used by other companies.

Table of Contents

Summarized financial information regarding our reportable operating segments for the three months ended is shown in the table below:


In millions	Engine		Distribution		Components		Power Systems		New Power		Total Segments		Intersegment Eliminations (1)		Total
Three months ended April 4, 2021



Segment sales	$	2,459	$	1,835	$	2,152	$	1,022	$	35	$	7,503	$	(1,411)	$	6,092
Less: Intersegment sales	564		8		428		410		1		1,411		(1,411)		—
External sales	1,895		1,827		1,724		612		34		6,092		—		6,092
Research, development and engineering expenses	92		13		75		57		23		260		—		260
Equity, royalty and interest income from investees	113		17		19		12		5		166		—		166

Interest income	3		1		1		1		—		6		—		6
EBITDA	354		160		421		126		(51)		1,010		(30)		980
Depreciation and amortization (2)	51		30		48		35		5		169		—		169



Three months ended March 29, 2020



Segment sales	$	2,158	$	1,814	$	1,502	$	884	$	10	$	6,368	$	(1,357)	$	5,011
Less: Intersegment sales	579		7		387		384		—		1,357		(1,357)		—
External sales	1,579		1,807		1,115		500		10		5,011		—		5,011
Research, development and engineering expenses	80		7		68		54		29		238		—		238
Equity, royalty and interest income from investees	78		21		21		9		—		129		—		129

Interest income	4		1		1		1		—		7		—		7
EBITDA	365		158		279		77		(43)		836		10		846
Depreciation and amortization (2)	53		31		48		32		4		168		—		168



(1) Includes intersegment sales, intersegment profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the three months ended April 4, 2021 and March 29, 2020.

(2) 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 Net Income as "Interest expense." The amortization of debt discount and deferred costs was $1 million and less than $1 million for the three months ended April 4, 2021 and March 29, 2020, respectively. A portion of depreciation expense is included in "Research, development and engineering expenses."

Table of Contents

A reconciliation of our segment information to the corresponding amounts in the Condensed Consolidated Statements of Net Income is shown in the table below:


	Three months ended
In millions	April 4, 2021		March 29, 2020
TOTAL SEGMENT EBITDA	$	1,010	$	836
Add:
Intersegment elimination	(30)		10
TOTAL EBITDA	980		846
Less:
Interest expense	28		23
Depreciation and amortization	169		168
INCOME BEFORE INCOME TAXES	783		655
Less: Income tax expense	172		127
CONSOLIDATED NET INCOME	611		528
Less: Net income attributable to noncontrolling interests	8		17
NET INCOME ATTRIBUTABLE TO CUMMINS INC.	$	603	$	511

Table of Contents

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cummins Inc. and its consolidated subsidiaries are hereinafter sometimes referred to as “Cummins,” “we,” “our” or “us.”

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION

Certain parts of this quarterly report contain forward-looking statements intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. Forward-looking statements include those that are based on current expectations, estimates and projections about the industries in which we operate and management’s beliefs and assumptions. Forward-looking statements are generally accompanied by words such as "anticipates," "expects," "forecasts," "intends," "plans," "believes," "seeks," "estimates," "could," "should," "may" or words of similar meaning. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which we refer to as "future factors," which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. Some future factors that could cause our results to differ materially from the results discussed in such forward-looking statements are discussed below and shareholders, potential investors and other readers are urged to consider these future factors carefully in evaluating forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. Future factors that could affect the outcome of forward-looking statements include the following:

GOVERNMENT REGULATION

•any adverse results of our internal review into our emissions certification process and compliance with emission standards;

•increased scrutiny from regulatory agencies, as well as unpredictability in the adoption, implementation and enforcement of emission standards around the world;

•policy changes in international trade;

•the U.K.'s exit from the European Union;

•changes in taxation;

•global legal and ethical compliance costs and risks;

•increasingly stringent environmental laws and regulations;

•future bans or limitations on the use of diesel-powered products;

BUSINESS CONDITIONS / DISRUPTIONS

•supply shortages and supplier financial risk, particularly from any of our single-sourced suppliers, including suppliers that may be impacted by the COVID-19 pandemic;

•market slowdown due to the impacts from the COVID-19 pandemic, other public health crises, epidemics or pandemics;

•impacts to manufacturing and supply chain abilities from an extended shutdown or disruption of our operations due to the COVID-19 pandemic;

•aligning our capacity and production with our demand, including impacts of COVID-19;

•large truck manufacturers and original equipment manufacturers customers discontinuing outsourcing their engine supply needs or experiencing financial distress, particularly related to the COVID-19 pandemic, bankruptcy or change in control;

•a slowdown in infrastructure development and/or depressed commodity prices;

•failure to realize expected results from our investment in Eaton Cummins Automated Transmission Technologies joint venture;

•the actions of, and income from, joint ventures and other investees that we do not directly control;

PRODUCTS AND TECHNOLOGY

•product recalls;

•the development of new technologies that reduce demand for our current products and services;

•lower than expected acceptance of new or existing products or services;

Table of Contents

•variability in material and commodity costs;

•product liability claims;

•our sales mix of products;

•protection and validity of our patent and other intellectual property rights;

GENERAL

•disruptions in global credit and financial markets as the result of the COVID-19 pandemic;

•labor relations or work stoppages;

•reliance on our executive leadership team and other key personnel;

•climate change and global warming;

•our plan to reposition our portfolio of product offerings through exploration of strategic acquisitions and divestitures and related uncertainties of entering such transactions;

•exposure to potential security breaches or other disruptions to our information technology systems and data security;

•political, economic and other risks from operations in numerous countries;

•competitor activity;

•increasing competition, including increased global competition among our customers in emerging markets;

•foreign currency exchange rate changes;

•the performance of our pension plan assets and volatility of discount rates, particularly those related to the sustained slowdown of the global economy due to the COVID-19 pandemic;

•the price and availability of energy;

•the outcome of pending and future litigation and governmental proceedings;

•continued availability of financing, financial instruments and financial resources in the amounts, at the times and on the terms required to support our future business; and

•other risk factors described in our 2020 Form 10-K , Part I, Item 1A. under the caption "Risk Factors."

Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are made only as of the date of this quarterly report and we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

Table of Contents

ORGANIZATION OF INFORMATION

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) was prepared to provide the reader with a view and perspective of our business through the eyes of management and should be read in conjunction with our Management's Discussion and Analysis of Financial Condition and Results of Operations section of our 2020 Form 10-K. Our MD&A is presented in the following sections:

•EXECUTIVE SUMMARY AND FINANCIAL HIGHLIGHTS

•RESULTS OF OPERATIONS

•OPERATING SEGMENT RESULTS

•OUTLOOK

•LIQUIDITY AND CAPITAL RESOURCES

•APPLICATION OF CRITICAL ACCOUNTING ESTIMATES

EXECUTIVE SUMMARY AND FINANCIAL HIGHLIGHTS

Overview

We are a global power leader that designs, manufactures, distributes and services diesel, natural gas, electric and hybrid powertrains and powertrain-related components including filtration, aftertreatment, turbochargers, fuel systems, controls systems, air handling systems, automated transmissions, electric power generation systems, batteries, electrified power systems, hydrogen production and fuel cell products. We sell our products to original equipment manufacturers (OEMs), distributors, dealers and other customers worldwide. We have long-standing relationships with many of the leading manufacturers in the markets we serve, including PACCAR Inc, Navistar International Corporation, Daimler Trucks North America and Stellantis N.V. We serve our customers through a network of over 500 wholly-owned, joint venture and independent distributor locations and over 9,000 Cummins certified dealer locations with service to approximately 190 countries and territories.

Our financial performance depends, in large part, on varying conditions in the markets we serve, particularly the on-highway, construction and general industrial markets. Demand in these markets tends to fluctuate in response to overall economic conditions. Our sales may also be impacted by OEM inventory levels, production schedules and stoppages. Economic downturns in markets we serve generally result in reduced sales of our products and can result in price reductions in certain products and/or markets. As a worldwide business, our operations are also affected by currency, political, economic, public health crises, epidemics or pandemics and regulatory matters, including adoption and enforcement of environmental and emission standards, in the countries we serve. As part of our growth strategy, we invest in businesses in certain countries that carry high levels of these risks such as China, Brazil, India, Mexico, Russia and countries in the Middle East and Africa. At the same time, our geographic diversity and broad product and service offerings have helped limit the impact from a drop in demand in any one industry or customer or the economy of any single country on our consolidated results.

Table of Contents

First Quarter 2021 Results

A summary of our results is as follows:


	Three months ended
In millions, except per share amounts	April 4, 2021		March 29, 2020
Net sales	$	6,092	$	5,011
Net income attributable to Cummins Inc.	603		511
Earnings per common share attributable to Cummins Inc.
Basic	$	4.10	$	3.42
Diluted	4.07		3.41

Worldwide revenues increased 22 percent in the three months ended April 4, 2021, compared to the same period in 2020, due to higher demand in all operating segments and most geographic regions of the world. International demand (excludes the U.S. and Canada) improved 45 percent primarily due to higher sales in most geographic regions. The increase in international sales was principally due to higher demand in all components businesses (primarily in China and India), stronger demand in China due to an improved COVID-19 environment over the comparable period in 2020, higher off-highway demand (mainly construction markets in China), higher demand for power generation equipment and favorable foreign currency impacts of 3 percent of international sales (primarily the Chinese renminbi and Euro, partially offset by the Brazilian real). Net sales in the U.S. and Canada improved 7 percent, primarily due to increased demand in North American on-highway markets, which also positively impacted all of our components businesses, partially offset by reduced sales in our distribution product lines resulting from supply chain constraints.

The following table contains sales and EBITDA (defined as earnings or losses before interest expense, income taxes, depreciation and amortization and noncontrolling interests) by operating segment for the three months ended April 4, 2021 and March 29, 2020. See Note 12, "OPERATING SEGMENTS," to the Condensed Consolidated Financial Statements for additional information and a reconciliation of our segment information to the corresponding amounts in our Condensed Consolidated Statements of Net Income.


	Three months ended
Operating Segments	April 4, 2021						March 29, 2020						Percent change
			Percent						Percent				2021 vs. 2020
In millions	Sales		of Total		EBITDA		Sales		of Total		EBITDA		Sales		EBITDA
Engine	$	2,459	40	%	$	354	$	2,158	43	%	$	365	14	%	(3)	%
Distribution	1,835		30	%	160		1,814		36	%	158		1	%	1	%
Components	2,152		35	%	421		1,502		30	%	279		43	%	51	%
Power Systems	1,022		17	%	126		884		18	%	77		16	%	64	%
New Power	35		1	%	(51)		10		—	%	(43)		NM		(19)	%
Intersegment eliminations	(1,411)		(23)	%	(30)		(1,357)		(27)	%	10		4	%	NM

Total	$	6,092	100	%	$	980	$	5,011	100	%	$	846	22	%	16	%

"NM" - not meaningful information

Net income attributable to Cummins was $603 million, or $4.07 per diluted share, on sales of $6.1 billion for the three months ended April 4, 2021, versus the comparable prior year period net income attributable to Cummins of $511 million, or $3.41 per diluted share, on sales of $5.0 billion. The increases in net income and earnings per diluted share were driven by higher net sales, increased gross margin and higher equity, royalty and interest income from investees primarily in China (due to stronger demand for trucks and construction equipment resulting from an improved COVID-19 environment over the comparable period in 2020), partially offset by higher variable compensation expenses, incremental costs associated with supply chain constraints, mark-to-market losses on corporate owned life insurance and a higher effective tax rate due to the absence of favorable adjustments related to India Tax Law Changes in March 2020. The increase in gross margin was primarily due to higher volumes and improved pricing, partially offset by increased compensation expenses (especially variable compensation) and higher premium freight costs. The decrease in gross margin as a percentage of sales was primarily due to higher compensation expenses, increased premium freight costs and manufacturing inefficiencies. Diluted earnings per common share for the three months ended April 4, 2021, benefited $0.03 from fewer weighted-average shares outstanding due to the stock repurchase program.

Table of Contents

We generated $339 million of cash from operations for the three months ended April 4, 2021, compared to $379 million for the comparable period in 2020. Refer to the section titled "Cash Flows" in the "LIQUIDITY AND CAPITAL RESOURCES" section for a discussion of items impacting cash flows.

Our debt to capital ratio (total capital defined as debt plus equity) at April 4, 2021, was 31.2 percent, compared to 31.7 percent at December 31, 2020. The decrease was primarily due to $73 million of lower debt balances since December 31, 2020. At April 4, 2021, we had $3.4 billion in cash and marketable securities on hand and access to our $3.5 billion credit facilities, if necessary, to meet currently anticipated working capital, investment and funding needs.

In the first three months of 2021, we purchased $418 million, or 1.7 million shares of common stock.

In the first three months of 2021, the investment gain on our U.S. pension trust was 1.1 percent while our U.K. pension trust loss was 6.1 percent. During the remainder of 2021, we anticipate making $17 million in additional defined benefit pension contributions in the U.K. and $12 million in contributions to our U.S. non-qualified benefit plans. We expect our 2021 annual net periodic pension cost to approximate $79 million.

As of the date of this filing, our credit ratings and outlooks from the credit rating agencies remain unchanged.

Table of Contents

RESULTS OF OPERATIONS



	Three months ended				Favorable/
	April 4, 2021		March 29, 2020		(Unfavorable)
In millions, except per share amounts					Amount		Percent
NET SALES	$	6,092	$	5,011	$	1,081	22	%
Cost of sales	4,606		3,717		(889)		(24)	%
GROSS MARGIN	1,486		1,294		192		15	%
OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses	574		546		(28)		(5)	%
Research, development and engineering expenses	260		238		(22)		(9)	%
Equity, royalty and interest income from investees	166		129		37		29	%

Other operating expense, net	(8)		(5)		(3)		(60)	%
OPERATING INCOME	810		634		176		28	%

Interest expense	28		23		(5)		(22)	%
Other income, net	1		44		(43)		(98)	%
INCOME BEFORE INCOME TAXES	783		655		128		20	%
Income tax expense	172		127		(45)		(35)	%
CONSOLIDATED NET INCOME	611		528		83		16	%
Less: Net income attributable to noncontrolling interests	8		17		9		53	%
NET INCOME ATTRIBUTABLE TO CUMMINS INC.	$	603	$	511	$	92	18	%
Diluted Earnings Per Common Share Attributable to Cummins Inc.	$	4.07	$	3.41	$	0.66	19	%


	Three months ended				Favorable/ (Unfavorable)
	April 4, 2021		March 29, 2020
Percent of sales					Percentage Points
Gross margin	24.4	%	25.8	%	(1.4)
Selling, general and administrative expenses	9.4	%	10.9	%	1.5
Research, development and engineering expenses	4.3	%	4.7	%	0.4

Net Sales

Net sales for the three months ended April 4, 2021, increased by $1,081 million versus the comparable period in 2020. The primary drivers were as follows:

•Components segment sales increased 43 percent largely due to higher emission solutions demand in China, India and North America.

•Engine segment sales increased 14 percent due to increased volumes in the North American pick-up truck and heavy-duty truck markets.

•Power Systems segment sales increased 16 percent primarily due to higher demand in power generation markets in North America, China, Middle East and Asia Pacific.

•Favorable foreign currency fluctuations of 1 percent of total sales, primarily in the Chinese renminbi and Euro, partially offset by the Brazilian real.

Sales to international markets (excluding the U.S. and Canada), based on location of customers, for the three months ended April 4, 2021, were 46 percent of total net sales compared with 38 percent of total net sales for the comparable period in 2020. A more detailed discussion of sales by segment is presented in the “OPERATING SEGMENT RESULTS” section.

Table of Contents

Cost of Sales

The types of expenses included in cost of sales are the following: parts and material consumption, including direct and indirect materials; salaries, wages and benefits; depreciation on production equipment and facilities and amortization of technology intangibles; estimated costs of warranty programs and campaigns; production utilities; production-related purchasing; warehousing, including receiving and inspection; freight costs; engineering support costs; repairs and maintenance; production and warehousing facility property insurance; rent for production facilities and other production overhead.

Gross Margin

Gross margin increased $192 million for the three months ended April 4, 2021 and decreased 1.4 points as a percentage of sales, versus the comparable period in 2020. The increase in gross margin was primarily due to higher volumes and improved pricing, partially offset by increased compensation expenses (especially variable compensation) and higher premium freight costs. The decrease in gross margin as a percentage of sales was primarily due to higher compensation expenses, increased premium freight costs and manufacturing inefficiencies.

The provision for base warranties issued as a percent of sales for the three months ended April 4, 2021, was 2.6 percent compared to 1.9 percent for the comparable period in 2020. A detailed discussion of gross margin by segment is presented in the “OPERATING SEGMENT RESULTS” section.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $28 million for the three months ended April 4, 2021, versus the comparable period in 2020, primarily due to increased variable compensation expenses, partially offset by lower consulting expenses and reduced travel costs. Overall, selling, general and administrative expenses as a percentage of sales decreased to 9.4 percent in the three months ended April 4, 2021, from 10.9 percent in the comparable period in 2020. The decrease in selling, general and administrative expenses as a percentage of sales was mainly due to sales increasing faster than selling, general and administrative expenses, despite higher variable compensation expenses.

Research, Development and Engineering Expenses

Research, development and engineering expenses increased $22 million for the three months ended April 4, 2021, versus the comparable period in 2020 primarily due to increased compensation expenses, especially variable compensation expenses, partially offset by decreased travel costs. Overall, research, development and engineering expenses as a percentage of sales decreased to 4.3 percent in the three months ended April 4, 2021, from 4.7 percent in the comparable period in 2020. Research activities continue to focus on development of new products to meet future emission standards around the world, improvements in fuel economy performance of diesel and natural gas powered engines and related components as well as development activities around fully electric, hybrid and hydrogen powertrain solutions.

Equity, Royalty and Interest Income from Investees

Equity, royalty and interest income from investees increased $37 million for the three months ended April 4, 2021, versus the comparable period in 2020, primarily due to increased earnings at Dongfeng Cummins Engine Co., Ltd., Beijing Foton Cummins Engine Co., Ltd., Tata Cummins Ltd. (excluding the absence of 2020 benefits noted below), Guangxi Cummins Industrial Power Co., Loop Energy Inc. and Dongfeng Cummins Emission Solutions Co., Ltd., partially offset by the absence of a $37 million favorable adjustment as the result of tax changes within India's 2020-2021 Union Budget of India (India Tax Law Changes) passed in March 2020 and $18 million of technology fee revenue both recorded in the first quarter of 2020 in Tata Cummins Ltd. The increased earnings in our China joint ventures were primarily due to an improved COVID-19 environment over the comparable period in 2020. See Note 4, "INCOME TAXES," of the Notes to the Consolidated Financial Statements of our 2020 Form 10-K for additional information on India Tax Law Changes.

Table of Contents

Other Operating Expense, Net

Other operating expense, net was as follows:


	Three months ended
In millions	April 4, 2021		March 29, 2020
Amortization of intangible assets	$	(6)	$	(5)
Loss on write-off of assets	(4)		(2)
Gain (loss) on sale of assets, net	1		(1)
Royalty income, net	2		2
Other, net	(1)		1
Total other operating expense, net	$	(8)	$	(5)

Interest Expense

Interest expense increased $5 million for the three months ended April 4, 2021, versus the comparable period in 2020, primarily due to higher borrowings related to our $2 billion senior unsecured notes issued in August of 2020.

Other Income, Net

Other income, net was as follows:


	Three months ended
In millions	April 4, 2021		March 29, 2020
Non-service pension and OPEB credit	$	24	$	16
Interest income	6		7
Rental income	2		2
Loss on marketable securities, net	—		(3)
Bank charges	(3)		(3)
Foreign currency loss, net	(5)		(1)
(Loss) gain on corporate owned life insurance	(32)		17


Other, net	9		9
Total other income, net	$	1	$	44

Income Tax Expense

Our effective tax rate for 2021 is expected to approximate 22.5 percent, excluding any discrete items that may arise.

Our effective tax rate for the three months ended April 4, 2021, was 22.0 percent and contained favorable discrete items of $4 million or $0.03 per share.

Our effective tax rate for the three months ended March 29, 2020, was 19.4 percent and contained $18 million of favorable net discrete tax items, primarily due to the India Tax Law Change passed in March of 2020. The India Tax Law Change eliminated the dividend distribution tax and replaced it with a lower rate withholding tax as the burden shifted from the dividend payor to the dividend recipient for a net favorable income statement impact of $35 million, or $0.23 per share in the first quarter of 2020. See Note 4, "INCOME T AXES," of the Notes to the Consolidated Fin ancial Statements of ou r 2020 Form 10-K for additional information on India Tax Law Changes.

Noncontrolling Interests

Noncontrolling interests eliminate the income or loss attributable to non-Cummins ownership interests in our consolidated entities. Noncontrolling interests in income of consolidated subsidiaries for the three months ended April 4, 2021, decreased $9 million versus the comparable period in 2020. The decrease for the three months ended April 4, 2021, is primarily due to the absence of a $19 million unfavorable adjustment as the results of India Tax Law Changes passed in March 2020, partially offset by higher earnings at Eaton Cummins Joint Venture. See Note 4, "INCOME TAXES," of the Notes to the Consolidated Financial Statements of our 2020 Form 10-K for additional information on India Tax Law Changes.

Table of Contents

Net Income Attributable to Cummins Inc. and Diluted Earnings Per Common Share Attributable to Cummins Inc.

Net income and diluted earnings per common share attributable to Cummins Inc. for the three months ended April 4, 2021, increased $92 million and $0.66 per diluted share versus the comparable period in 2020, primarily due to higher net sales, increased gross margin and higher equity, royalty and interest income from investees primarily in China (due to stronger demand for trucks and construction equipment resulting from an improved COVID-19 environment over the comparable period in 2020), partially offset by higher variable compensation expenses, incremental costs associated with supply chain constraints, mark-to-market losses on corporate owned life insurance and a higher effective tax rate due to the absence of favorable adjustments related to India Tax Law Changes in March 2020. Diluted earnings per common share for the three months ended April 4, 2021, benefited $0.03 from fewer weighted-average shares outstanding due to the stock repurchase program.

Comprehensive Income - Foreign Currency Translation Adjustment

The foreign currency translation adjustment was a net loss of $56 million for the three months ended April 4, 2021, compared to a net loss of $162 million for the three months ended March 29, 2020 and was driven by the following:


	Three months ended
	April 4, 2021			March 29, 2020
In millions	Translation adjustment		Primary currency driver vs. U.S. dollar	Translation adjustment		Primary currency driver vs. U.S. dollar
Wholly-owned subsidiaries	$	(48)	Brazilian real, British pound, Chinese renminbi	$	(124)	Brazilian real, Indian rupee, Chinese renminbi, British pound
Equity method investments	(8)		Chinese renminbi	(21)		Chinese renminbi, Indian rupee
Consolidated subsidiaries with a noncontrolling interest	—			(17)		Indian rupee
Total	$	(56)		$	(162)

Table of Contents

OPERATING SEGMENT RESULTS

Our reportable operating segments consist of the Engine, Distribution, Components, Power Systems and New Power segments. This reporting structure is organized according to the products and markets each segment serves. We use segment EBITDA as a primary basis for the Chief Operating Decision Maker to evaluate the performance of each of our reportable operating segments. We believe EBITDA is a useful measure of our operating performance as it assists investors and debt holders in comparing our performance on a consistent basis without regard to financing methods, capital structure, income taxes or depreciation and amortization methods, which can vary significantly depending upon many factors. Segment amounts exclude certain expenses not specifically identifiable to segments. See Note 12, "OPERATING SEGMENTS," to the Condensed Consolidated Financial Statements for additional information and a reconciliation of our segment information to the corresponding amounts in our Condensed Consolidated Statements of Net Income.

Following is a discussion of results for each of our operating segments.

Engine Segment Results

Financial data for the Engine segment was as follows:


	Three months ended						Favorable/
	April 4,			March 29,			(Unfavorable)
In millions	2021			2020			Amount		Percent
External sales	$	1,895		$	1,579		$	316	20	%
Intersegment sales	564			579			(15)		(3)	%
Total sales	2,459			2,158			301		14	%

Research, development and engineering expenses	92			80			(12)		(15)	%
Equity, royalty and interest income from investees	113			78			35		45	%

Interest income	3			4			(1)		(25)	%
Segment EBITDA	354			365			(11)		(3)	%

							Percentage Points
Segment EBITDA as a percentage of total sales	14.4		%	16.9		%			(2.5)

Sales for our Engine segment by market were as follows:


	Three months ended						Favorable/
	April 4,			March 29,			(Unfavorable)
In millions	2021			2020			Amount		Percent
Heavy-duty truck	$	827		$	750		$	77	10	%
Medium-duty truck and bus	674			618			56		9	%
Light-duty automotive	481			353			128		36	%
Total on-highway	1,982			1,721			261		15	%
Off-highway	477			437			40		9	%
Total sales	$	2,459		$	2,158		$	301	14	%

							Percentage Points
On-highway sales as percentage of total sales	81		%	80		%			1

Table of Contents

Unit shipments by engine classification (including unit shipments to Power Systems and off-highway engine units included in their respective classification) were as follows:


	Three months ended		Favorable/
	April 4,	March 29,	(Unfavorable)
	2021	2020	Amount	Percent
Heavy-duty	30,700	25,800	4,900	19	%
Medium-duty	73,100	61,200	11,900	19	%
Light-duty	68,500	49,400	19,100	39	%
Total unit shipments	172,300	136,400	35,900	26	%

Sales

Engine segment sales for the three months ended April 4, 2021, increased $301 million versus the comparable period in 2020. The following were the primary drivers by market:

•Light-duty automotive sales increased $128 million primarily due to pick-up truck sales in North America with shipments up 49 percent.

•Heavy-duty truck sales increased $77 million principally due to increased volumes in North America with shipments up 28 percent.

•Medium-duty truck and bus sales increased $56 million mainly due to higher medium-duty demand, partially offset by lower bus sales, especially in North America.

•Off-highway sales increased $40 million primarily due to higher demand in construction markets in China.

Segment EBITDA

Engine segment EBITDA for the three months ended April 4, 2021, decreased $11 million versus the comparable period in 2020, primarily due to lower gross margin, increased research, development and engineering expenses and higher selling, general and administrative expenses, partially offset by increased equity, royalty and interest income from investees. The decrease in gross margin and gross margin as a percentage of sales was mainly due to increased premium freight, unfavorable mix, unfavorable foreign currency fluctuations (primarily in the Brazilian real) and increased variable compensation expenses, partially offset by higher volumes. The increase in selling, general and administrative expenses was due to increased variable compensation expenses, partially offset by lower consulting expenses and reduced travel costs. The increase in research, development and engineering expenses was due to higher compensation expenses, especially variable compensation expenses. The increase in equity, royalty and interest income from investees was principally due to increased earnings at Dongfeng Cummins Engine Co., Ltd., Beijing Foton Cummins Engine Co., Ltd., Tata Cummins Ltd. (excluding the absence of 2020 benefits noted below) and Guangxi Cummins Industrial Power Co., partially offset by the absence of an $18 million favorable adjustment related to India Tax Law Changes passed in March 2020 and $18 million of technology fee revenue both recorded in the first quarter of 2020 in Tata Cummins Ltd. The increased earnings in our China joint ventures were primarily due to an improved COVID-19 environment over the comparable period in 2020. See Note 4, "INCOME TAXES," of the Notes to the Consolidated Financial Statements of our 2020 Form 10-K for additional information on India Tax Law Changes.

Table of Contents

Distribution Segment Results

Financial data for the Distribution segment was as follows:


	Three months ended						Favorable/
	April 4,			March 29,			(Unfavorable)
In millions	2021			2020			Amount		Percent
External sales	$	1,827		$	1,807		$	20	1	%
Intersegment sales	8			7			1		14	%
Total sales	1,835			1,814			21		1	%

Research, development and engineering expenses	13			7			(6)		(86)	%
Equity, royalty and interest income from investees	17			21			(4)		(19)	%
Interest income	1			1			—		—	%
Segment EBITDA	160			158			2		1	%

							Percentage Points
Segment EBITDA as a percentage of total sales	8.7		%	8.7		%			—

Sales for our Distribution segment by region were as follows:


	Three months ended				Favorable/
	April 4,		March 29,		(Unfavorable)
In millions	2021		2020		Amount		Percent
North America	$	1,171	$	1,246	$	(75)	(6)	%
Asia Pacific	214		196		18		9	%
Europe	163		136		27		20	%
China	87		68		19		28	%
Russia	57		42		15		36	%
Africa and Middle East	54		51		3		6	%
India	49		36		13		36	%
Latin America	40		39		1		3	%
Total sales	$	1,835	$	1,814	$	21	1	%

Sales for our Distribution segment by product line were as follows:


	Three months ended				Favorable/
	April 4,		March 29,		(Unfavorable)
In millions	2021		2020		Amount		Percent
Parts	$	757	$	787	$	(30)	(4)	%
Power generation	418		376		42		11	%
Engines	334		323		11		3	%
Service	326		328		(2)		(1)	%
Total sales	$	1,835	$	1,814	$	21	1	%

Sales

Distribution segment sales for the three months ended April 4, 2021, increased $21 million versus the comparable period in 2020. The following were the primary drivers by region:

•Improved demand in Europe, China, Asia Pacific, Russia and India.

•Favorable foreign currency fluctuations, primarily in the Australian dollar and Euro.

The increases were partially offset by reduced parts sales in North America resulting from supply chain constraints.

Table of Contents

Segment EBITDA

Distribution segment EBITDA for the three months ended April 4, 2021, increased $2 million versus the comparable period in 2020, primarily due to increased other income and higher gross margin, partially offset by higher research, development and engineering expenses, increased selling, general and administrative expenses and lower equity, royalty and interest income from investees. The increase in gross margin and gross margin as a percentage of sales was mainly due to decreased compensation expenses, improved pricing, higher volumes and favorable foreign currency fluctuations (primarily in the Australian dollar), partially offset by higher variable compensation expenses. The increase in selling, general and administrative expenses was due to increased variable compensation expenses, partially offset by decreased consulting expenses and lower travel costs. The increase in research, development and engineering expenses was due to increased variable compensation expenses and higher consulting expenses. The decrease in equity, royalty and interest income from investees was principally due to the absence of a $5 million favorable adjustment related to India Tax Law Changes passed in March 2020. See Note 4, "INCOME TAXES," of the Notes to the Consolidated Financial Statements of our 2020 Form 10-K for additional information on India Tax Law Changes.

Components Segment Results

Financial data for the Components segment was as follows:


	Three months ended						Favorable/
	April 4,			March 29,			(Unfavorable)
In millions	2021			2020			Amount		Percent
External sales	$	1,724		$	1,115		$	609	55	%
Intersegment sales	428			387			41		11	%
Total sales	2,152			1,502			650		43	%

Research, development and engineering expenses	75			68			(7)		(10)	%
Equity, royalty and interest income from investees	19			21			(2)		(10)	%
Interest income	1			1			—		—	%
Segment EBITDA	421			279			142		51	%

							Percentage Points
Segment EBITDA as a percentage of total sales	19.6		%	18.6		%			1.0

Sales for our Components segment by business were as follows:


	Three months ended				Favorable/
	April 4,		March 29,		(Unfavorable)
In millions	2021		2020		Amount		Percent
Emission solutions	$	1,035	$	664	$	371	56	%
Filtration	372		312		60		19	%
Turbo technologies	367		270		97		36	%
Electronics and fuel systems	263		174		89		51	%
Automated transmissions	115		82		33		40	%
Total sales	$	2,152	$	1,502	$	650	43	%

Sales

Components segment sales for the three months ended April 4, 2021, increased $650 million versus the comparable period in 2020. The following were the primary drivers by business:

•Emission solutions sales increased $371 million primarily due to strong demand in China, India and North America.

•Turbo technologies sales increased $97 million principally due to increased demand in China, Western Europe and North America.

•Electronics and fuel systems sales increased $89 million mostly due to higher demand in China, India and North America.

•Filtration sales increased $60 million mainly due to stronger demand in China, North America and Europe.

Table of Contents

•Favorable foreign currency fluctuations, primarily in the Chinese renminbi and Euro, partially offset by the Brazilian real.

Segment EBITDA

Components segment EBITDA for the three months ended April 4, 2021, increased $142 million versus the comparable period in 2020, mainly due to higher gross margin, partially offset by higher selling, general and administrative expenses, increased research, development and engineering costs and lower equity, royalty and interest income from investees. The increase in gross margin and gross margin as a percentage of sales was mainly due to higher volumes and favorable mix, partially offset by increased compensation expenses. Selling, general and administrative expenses increased due to higher variable compensation expenses. Research, development and engineering expenses increased due to higher compensation expenses, especially variable compensation expenses. The decrease in equity, royalty and interest income from investees was principally due to the absence of a $14 million favorable adjustment related to India Tax Law Changes passed in March 2020 in Fleetguard Filters Private Ltd., partially offset by higher earnings at Fleetguard Filters Private Ltd. (excluding the absence of 2020 tax benefit noted above), Dongfeng Cummins Emission Solutions Co., Ltd. and Shanghai Fleetguard Filter Co. See Note 4, "INCOME TAXES," of the Notes to the Consolidated Financial Statements of our 2020 Form 10-K for additional information on India Tax Law Changes.

Power Systems Segment Results

Financial data for the Power Systems segment was as follows:


	Three months ended						Favorable/
	April 4,			March 29,			(Unfavorable)
In millions	2021			2020			Amount		Percent
External sales	$	612		$	500		$	112	22	%
Intersegment sales	410			384			26		7	%
Total sales	1,022			884			138		16	%

Research, development and engineering expenses	57			54			(3)		(6)	%
Equity, royalty and interest income from investees	12			9			3		33	%
Interest income	1			1			—		—	%
Segment EBITDA	126			77			49		64	%

							Percentage Points
Segment EBITDA as a percentage of total sales	12.3		%	8.7		%			3.6

Sales for our Power Systems segment by product line were as follows:


	Three months ended				Favorable/
	April 4,		March 29,		(Unfavorable)
In millions	2021		2020		Amount		Percent
Power generation	$	611	$	519	$	92	18	%
Industrial	324		296		28		9	%
Generator technologies	87		69		18		26	%
Total sales	$	1,022	$	884	$	138	16	%

Sales

Power Systems segment sales for the three months ended April 4, 2021, increased $138 million versus the comparable period in 2020. The following were the primary drivers by product line:

•Power generation sales increased $92 million due to higher demand in North America, China, Middle East and Asia Pacific.

•Industrial sales increased $28 million due to increased demand in global mining markets, partially offset by decreased demand in oil and gas markets in China.

•Favorable foreign currency fluctuations, primarily in the Chinese renminbi and British pound.

Table of Contents

Segment EBITDA

Power Systems segment EBITDA for the three months ended April 4, 2021, increased $49 million versus the comparable period in 2020, primarily due to higher gross margin and favorable foreign currency fluctuations (especially in the Chinese renminbi and British pound), partially offset by increased selling, general and administrative expenses. The increase in gross margin and gross margin as a percentage of sales was mainly due to higher volumes and improved pricing, partially offset by increased compensation expenses and unfavorable mix. Selling, general and administrative expenses increased primarily due to increased variable compensation expenses, partially offset by lower travel costs.

New Power Segment Results

The New Power segment designs, manufactures, sells and supports hydrogen production solutions as well as electrified power systems ranging from fully electric to hybrid along with innovative components and subsystems, including battery and fuel cell technologies. The New Power segment is currently in the development phase with a primary focus on research and development activities for our power systems, components and subsystems. Financial data for the New Power segment was as follows:



	Three months ended				Favorable/
	April 4,		March 29,		(Unfavorable)
In millions	2021		2020		Amount		Percent
External sales	$	34	$	10	$	24	NM
Intersegment sales	1		—		1		NM
Total sales	35		10		25		NM

Research, development and engineering expenses	23		29		6		21	%
Equity, royalty and interest income from investees	5		—		5		NM

Segment EBITDA	(51)		(43)		(8)		(19)	%




"NM" - not meaningful information

Table of Contents

OUTLOOK

COVID-19 Impact

The acceleration of the COVID-19 vaccine distribution in the U.S. is helping curb the spread of the virus and will hopefully allow the majority of our manufacturing facilities to remain open to meet increasing customer demand. While the vaccination effort will allow a return to more normal operations in the U.S., many international markets are still dealing with rising cases, new COVID variants and slower vaccination rollout. We continue to take necessary precautions at all our facilities both in the U.S. and abroad to mitigate the spread of the disease and prioritize the health and safety of our employees. While we are optimistic that continued vaccination distribution globally will minimize the impacts of the virus in the second half of the year, there is still a risk of increased cases or new virus variants resulting in lower customer demand, additional facility shutdowns or supply chain constraints in the future.

We anticipate lower demand in all end markets in India for the second quarter due to new lockdowns as a result of an increase in COVID-19 cases and are monitoring the events on the ground closely. Given the rapid increase in COVID cases in India, we are very concerned about the health and safety of our employees and those of our suppliers and partners. We are continuing to operate all our manufacturing facilities but with robust safety measures in place.

In March, we gained approval as a COVID-19 vaccine administrator at several U.S. sites and began offering the vaccine to our employees and their families at certain facilities in the U.S. We continue to collaborate with health officials around the world to provide employees with access to COVID-19 vaccines. That work differs geographically due to the variability in vaccine accessibility and distribution. Our global network of medical professionals is always focused on efforts to ensure the safety of all Cummins employees, their families and our communities.

Business Outlook

Our outlook reflects the following positive trends and challenges to our business for the remainder of 2021.

Positive Trends

•We expect demand for pick-up trucks in North America to remain strong.

•We estimate North American medium-duty and heavy-duty truck demand will continue to improve from 2020 levels.

•We believe market demand for trucks in India will improve from 2020 levels.

•We anticipate our aftermarket business will continue to improve, driven primarily by increased truck utilization in North America.

•Our liquidity of $6.5 billion in cash, marketable securities and available credit facilities strengthens our position to deal with any uncertainties that may arise in the remainder of 2021.

Challenges

•Supply constraints driven by strong demand in multiple end markets and regions may lead to increased costs, including higher premium freight.

•The shortage of key components such as semiconductor chips may lead to manufacturing delays, increased costs and the loss of sales.

•We expect market demand in truck and construction markets in China to decline from record levels in 2020.

•We may close or restructure certain manufacturing and distribution facilities as we evaluate the appropriate size and structure of our manufacturing and distribution capacity, which could result in additional charges.

•Uncertainty in the U.K. surrounding its ability to negotiate trade agreements as a sovereign country could have material negative impacts on our European operations in the long-term.

Table of Contents

LIQUIDITY AND CAPITAL RESOURCES

Key Working Capital and Balance Sheet Data

We fund our working capital with cash from operations and short-term borrowings, including commercial paper, when necessary. Various assets and liabilities, including short-term debt, can fluctuate significantly from month to month depending on short-term liquidity needs. As a result, working capital is a prime focus of management's attention. Working capital and balance sheet measures are provided in the following table:


Dollars in millions	April 4, 2021			December 31, 2020
Working capital (1)	$	5,462		$	5,562
Current ratio	1.82			1.88
Accounts and notes receivable, net	$	4,209		$	3,820
Days' sales in receivables	60			69
Inventories	$	3,753		$	3,425
Inventory turnover	5.0			4.2
Accounts payable (principally trade)	$	3,279		$	2,820
Days' payable outstanding	58			68
Total debt	$	4,091		$	4,164
Total debt as a percent of total capital	31.2		%	31.7		%

(1) Working capital includes cash and cash equivalents.

Cash Flows

Cash and cash equivalents were impacted as follows:


	Three months ended
In millions	April 4, 2021		March 29, 2020		Change
Net cash provided by operating activities	$	339	$	379	$	(40)
Net cash used in investing activities	(25)		(99)		74
Net cash (used in) provided by financing activities	(745)		234		(979)
Effect of exchange rate changes on cash and cash equivalents	(12)		48		(60)
Net (decrease) increase in cash and cash equivalents	$	(443)	$	562	$	(1,005)

Net cash provided by operating activities decreased $40 million for the three months ended April 4, 2021, versus the comparable period in 2020, primarily due to higher working capital requirements of $158 million, partially offset by higher consolidated net income of $83 million and the absence of prior year restructuring payments of $48 million. During the first three months of 2021, the higher working capital requirements resulted in a cash outflow of $293 million compared to a cash outflow of $135 million in the comparable period in 2020, mainly due to higher accounts and notes receivable, inventories and other current assets, partially offset by higher accrued expenses and accounts payable.

Net cash used in investing activities decreased $74 million for the three months ended April 4, 2021, versus the comparable period in 2020, primarily due to higher net liquidations of marketable securities of $85 million, partially offset by higher investments in and advances to equity investees of $17 million.

Net cash used in financing activities increased $979 million for the three months ended April 4, 2021, versus the comparable period in 2020, primarily due to lower net borrowings of commercial paper of $963 million and higher net payments under short-term credit agreements of $127 million, partially offset by lower repurchases of common stock of $132 million.

The effect of exchange rate changes on cash and cash equivalents for the three months ended April 4, 2021, versus the comparable period in 2020, decreased $60 million primarily due to unfavorable fluctuations in the British pound of $69 million, partially offset by favorable fluctuations in the Chinese renminbi and Indian rupee.

Table of Contents

Sources of Liquidity

Cash provided by operations is typically our principal source of liquidity with $339 million generated in the three months ended April 4, 2021. Our sources of liquidity include:


	April 4, 2021
In millions	Total		U.S.		International		Primary location of international balances
Cash and cash equivalents	$	2,958	$	1,536	$	1,422	China, Singapore, Belgium, Mexico, Australia, Canada

Marketable securities (1)	397		91		306		India
Total	$	3,355	$	1,627	$	1,728
Available credit capacity
Revolving credit facilities (2)	$	3,183
International and other uncommitted domestic credit facilities	$	249




(1) The majority of marketable securities could be liquidated into cash within a few days.
(2) The five-year credit facility for $2.0 billion and the 364-day credit facility for $1.5 billion, maturing August 2023 and August 2021, respectively, are maintained primarily to provide backup liquidity for our commercial paper borrowings and general corporate purposes. At April 4, 2021, we had $317 million of commercial paper outstanding, which effectively reduced the available capacity under our revolving credit facilities to $3.2 billion.

Cash, Cash Equivalents and Marketable Securities

A significant portion of our cash flow is generated outside the U.S. We manage our worldwide cash requirements considering available funds among the many subsidiaries through which we conduct our business and the cost effectiveness with which those funds can be accessed. As a result, we do not anticipate any local liquidity restrictions to preclude us from funding our operating needs with local resources.

If we distribute our foreign cash balances to the U.S. or to other foreign subsidiaries, we could be required to accrue and pay withholding taxes, for example, if we repatriated cash from certain foreign subsidiaries whose earnings we have asserted are permanently reinvested outside of the U.S. Foreign earnings for which we assert permanent reinvestment outside the U.S. consist primarily of earnings of our China, India and Netherlands domiciled subsidiaries. At present, we do not foresee a need to repatriate any earnings from these subsidiaries for which we have asserted permanent reinvestment. However, to help fund cash needs of the U.S. or other international subsidiaries as they arise, we repatriate available cash from certain foreign subsidiaries whose earnings are not permanently reinvested when it is cost effective to do so.

Debt Facilities and Other Sources of Liquidity

We can issue up to $3.5 billion of unsecured, short-term promissory notes (commercial paper) pursuant to the Board of Directors (the Board) authorized commercial paper programs. The programs facilitate the private placement of unsecured short-term debt through third-party brokers. We intend to use the net proceeds from the commercial paper borrowings for general corporate purposes. The total combined borrowing capacity under the revolving credit facilities and commercial programs should not exceed $3.5 billion. See Note 8, "DEBT," to our Condensed Consolidated Financial Statements for additional information.

At April 4, 2021, we had $317 million of commercial paper outstanding, which effectively reduced the available capacity under our revolving credit facilities to $3.2 billion.

Supply Chain Financing

We currently have supply chain financing programs with financial intermediaries, which provide certain vendors the option to be paid by financial intermediaries earlier than the due date on the applicable invoice. When a vendor utilizes the program and receives an early payment from a financial intermediary, they take a discount on the invoice. We then pay the financial intermediary the face amount of the invoice on the regularly scheduled due date. We do not reimburse vendors for any costs they incur for participation in

Table of Contents

the program and their participation is completely voluntary. As a result, all amounts owed to the financial intermediaries are presented as "Accounts payable" in our Condensed Consolidated Balance Sheets.

Uses of Cash

Stock Repurchases

In December 2019, the Board authorized the acquisition of up to $2.0 billion of additional common stock upon completion of the 2018 repurchase plan. In the first three months of 2021, we made the following purchases under the 2019 stock repurchase program:


In millions, except per share amounts	Shares Purchased	Average Cost Per Share		Total Cost of Repurchases		Remaining Authorized Capacity (1)

April 4	1.7	$	247.35	$	418	$	1,576





(1) The remaining authorized capacity under these plans was calculated based on the cost to purchase the shares but excludes commission expenses in accordance with the authorized plan.

We intend to repurchase outstanding shares from time to time during 2021 to enhance shareholder value.

Dividends

We paid dividends of $197 million during the three months ended April 4, 2021.

Capital Expenditures

Capital expenditures, including spending on internal use software, for the three months ended April 4, 2021, were $98 million versus $83 million in the comparable period in 2020. We plan to spend an estimated $725 million to $775 million in 2021 on capital expenditures, excluding internal use software, with over 50 percent of these expenditures expected to be invested in North America. In addition, we plan to spend an estimated $60 million to $70 million on internal use software in 2021.

Current Maturities of Short and Long-Term Debt

We had $317 million of commercial paper outstanding at April 4, 2021, that matures in less than one year. The maturity schedule of our existing long-term debt does not require significant cash outflows until 2023 when our 3.65% senior notes are due. Required annual long-term debt principal payments range from $30 million to $534 million over the next five years (including the remainder of 2021). See Note 8, "DEBT," to the Condensed Consolidated Financial Statements for additional information.

Pensions

Our global pension plans, including our unfunded and non-qualified plans, were 112 percent funded at December 31, 2020. Our U.S. defined benefit plan, which represented approximately 52 percent of the worldwide pension obligation, was 128 percent funded, and our U.K. defined benefit plan was 114 percent funded at December 31, 2020. The funded status of our pension plans is dependent upon a variety of variables and assumptions including return on invested assets, market interest rates and levels of voluntary contributions to the plans. In the first three months of 2021, the investment gain on our U.S. pension trust was 1.1 percent while our U.K. pension trust loss was 6.1 percent. Approximately 71 percent of our pension plan assets are held in highly liquid investments such as fixed income and equity securities. The remaining 29 percent of our plan assets are held in less liquid, but market valued investments, including real estate, private equity, venture capital, opportunistic credit and insurance contracts. During the remainder of 2021, we anticipate making $17 million in additional defined benefit pension contributions in the U.K. and $12 million in contributions to our U.S. non-qualified benefit plans. These contributions may be made from trusts or company funds either to increase pension assets or to make direct benefit payments to plan participants. We expect our 2021 annual net periodic pension cost to approximate $79 million.

Table of Contents

Credit Ratings

Our rating and outlook from each of the credit rating agencies as of the date of filing are shown in the table below.

Long-Term

Short-Term

Credit Rating Agency (1)

Senior Debt Rating

Debt Rating

Outlook

Standard and Poor’s Rating Services

A+

Stable

Moody’s Investors Service, Inc.

Stable

(1) Credit ratings are not recommendations to buy, are subject to change, and each rating should be evaluated independently of any other rating. In addition, we undertake no obligation to update disclosures concerning our credit ratings, whether as a result of new information, future events or otherwise.

Management's Assessment of Liquidity

Our financial condition and liquidity remain strong. Our solid balance sheet and credit ratings enable us to have ready access to credit and the capital markets. We assess our liquidity in terms of our ability to generate adequate cash to fund our operating, investing and financing activities. We believe our existing cash and marketable securities, operating cash flow and revolving credit facilities provide us with the financial flexibility needed to fund common stock repurchases, dividend payments, targeted capital expenditures, projected pension obligations, acquisitions, working capital and debt service obligations through 2021 and beyond. We continue to generate significant cash from operations and maintain access to our expanded revolving credit facilities and commercial paper programs as noted above.

APPLICATION OF CRITICAL ACCOUNTING ESTIMATES

A summary of our significant accounting policies is included in Note 1, “SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,” of the Notes to the Consolidated Financial Statements of our 2020 Form 10-K, which discusses accounting policies that we have selected from acceptable alternatives.

Our Condensed Consolidated Financial Statements are prepared in accordance with generally accepted accounting principles that often require management to make judgments, estimates and assumptions regarding uncertainties that affect the reported amounts presented and disclosed in the financial statements. Management reviews these estimates and assumptions based on historical experience, changes in business conditions including the impacts of COVID-19 and other relevant factors they believe to be reasonable under the circumstances. In any given reporting period, our actual results may differ from the estimates and assumptions used in preparing our Condensed Consolidated Financial Statements.

Critical accounting estimates are defined as follows: the estimate requires management to make assumptions about matters that were highly uncertain at the time the estimate was made; different estimates reasonably could have been used; or if changes in the estimate are reasonably likely to occur from period to period and the change would have a material impact on our financial condition or results of operations. Our senior management has discussed the development and selection of our accounting policies, related accounting estimates and the disclosures set forth below with the Audit Committee of the Board. Our critical accounting estimates disclosed in the Form 10-K address estimating liabilities for warranty programs, assessing goodwill impairment, accounting for income taxes and pension benefits.

A discussion of our critical accounting estimates may be found in the “Management’s Discussion and Analysis” section of our 2020 Form 10-K under the caption “APPLICATION OF CRITICAL ACCOUNTING ESTIMATES.” Within the context of these critical accounting estimates, we are not currently aware of any reasonably likely events or circumstances that would result in different policies or estimates being reported in the first three months of 2021.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

A discussion of quantitative and qualitative disclosures about market risk may be found in Item 7A of our 2020 Form 10-K. There have been no material changes in this information since the filing of our 2020 Form 10-K.

ITEM 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and 15d-15(e). Based upon that evaluation, our CEO and our CFO concluded that our disclosure controls and procedures were effective to ensure that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of

Table of Contents

1934 is (1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) accumulated and communicated to management, including our CEO and CFO, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting during the quarter ended April 4, 2021, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

The matters described under "Legal Proceedings" in Note 10, "COMMITMENTS AND CONTINGENCIES," to the Condensed Consolidated Financial Statements are incorporated herein by reference.

ITEM 1A. Risk Factors

In addition to other information set forth in this report, you should consider other risk factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 20 20, which could materially affect our business, financial condition or future results. The risks described in our 20 20 Annual Report on Form 10-K or the "CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION" in this Quarterly report are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently judge to be immaterial also may materially adversely affect our business, financial condition or operating results.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following information is provided pursuant to Item 703 of Regulation S-K:


	Issuer Purchases of Equity Securities
Period	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in millions) (2)
January 1 - February 7	647,390	$	237.88	647,390	$	1,840
February 8 - March 7	654,074	246.15		654,074	1,679
March 8 - April 4	388,437	265.17		388,437	1,576
Total	1,689,901	247.35		1,689,901

(1) Shares purchased represent shares under the Board authorized share repurchase program.
(2) Shares repurchased under our Key Employee Stock Investment Plan only occur in the event of a participant default, which cannot be predicted, and were excluded from this column.

In December 2019, the Board authorized the acquisition of up to $2.0 billion of additional common stock upon completion of the 2018 repurchase plan. During the three months ended April 4, 2021, we repurchased $418 million of common stock under the 2019 authorization. The dollar value remaining available for future purchases under the 2019 program at April 4, 2021, was $1,576 million.

Our Key Employee Stock Investment Plan allows certain employees, other than officers, to purchase shares of common stock on an installment basis up to an established credit limit. We hold participants’ shares as security for the loans and would, in effect, repurchase shares only if the participant defaulted in repayment of the loan. Shares associated with participants' sales are sold as open-market transactions via a third-party broker.

ITEM 3. Defaults Upon Senior Securities

Not applicable.

ITEM 4. Mine Safety Disclosures

Not applicable.

Table of Contents

ITEM 5. Other Information

Not applicable.

ITEM 6. Exhibits

The exhibits listed in the following Exhibit Index are filed as part of this Quarterly Report on Form 10-Q.

CUMMINS INC.

EXHIBIT INDEX


Exhibit No.						Description of Exhibit





10(a)						Deferred Compensation Plan, as amended and restated February 15, 2021.
10(b)						Deferred Compensation Plan for Non-Employee Directors, as amended and restated February 15, 2021.





31(a)						Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31(b)						Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32						Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*						Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*						Inline XBRL Taxonomy Extension Schema Document.
101.CAL*						Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*						Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*						Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*						Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

* Filed with this quarterly report on Form 10-Q are the following documents formatted in iXBRL (Inline Extensible Business Reporting Language): (i) the Condensed Consolidated Statements of Net Income for the three months ended April 4, 2021 and March 29, 2020, (ii) the Condensed Consolidated Statements of Comprehensive Income for the three months ended April 4, 2021 and March 29, 2020, (iii) the Condensed Consolidated Balance Sheets at April 4, 2021 and December 31, 2020, (iv) the Condensed Consolidated Statements of Cash Flows for the three months ended April 4, 2021 and March 29, 2020, (v) the Condensed Consolidated Statements of Changes in Equity for the three months ended April 4, 2021 and March 29, 2020 and (vi) Notes to Condensed Consolidated Financial Statements.

Table of Contents

SIGNATURES

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 thereunto duly authorized.

Cummins Inc.

Date:

May 4, 2021

By:

/s/ MARK A. SMITH

By:

/s/ CHRISTOPHER C. CLULOW

Mark A. Smith

Christopher C. Clulow

Vice President and Chief Financial Officer

Vice President-Corporate Controller

(Principal Financial Officer)

(Principal Accounting Officer)