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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
cmi-20200329_g1.jpg
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 29, 2020
 
Commission File Number 1-4949
CUMMINS INC.
(Exact name of registrant as specified in its charter)
Indiana35-0257090
(State of Incorporation)  (IRS Employer Identification No.)
500 Jackson Street
Box 3005
Columbus, Indiana 47202-3005
(Address of principal executive offices)
 
Telephone (812377-5000
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common stock, $2.50 par valueCMINew 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 FilerxAccelerated filerNon-accelerated filer
Smaller reporting companyEmerging 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 March 29, 2020, there were 147,526,086 shares of common stock outstanding with a par value of $2.50 per share.


1

Table of Contents
CUMMINS INC. AND SUBSIDIARIES
TABLE OF CONTENTS
QUARTERLY REPORT ON FORM 10-Q
 
  Page
  
 Condensed Consolidated Statements of Net Income for the three months ended March 29, 2020 and March 31, 2019
 Condensed Consolidated Statements of Comprehensive Income for the three months ended March 29, 2020 and March 31, 2019
 Condensed Consolidated Balance Sheets at March 29, 2020 and December 31, 2019
 Condensed Consolidated Statements of Cash Flows for the three months ended March 29, 2020 and March 31, 2019
 Condensed Consolidated Statements of Changes in Equity for the three months ended March 29, 2020 and March 31, 2019
 
  
 

2

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 March 29,
2020
March 31,
2019
NET SALES (a) (Note 3)
$5,011  $6,004  
Cost of sales 3,717  4,472  
GROSS MARGIN 1,294  1,532  
OPERATING EXPENSES AND INCOME   
Selling, general and administrative expenses 546  593  
Research, development and engineering expenses 238  237  
Equity, royalty and interest income from investees (Note 5)129  92  
Other operating (expense) income, net(5) 5  
OPERATING INCOME 634  799  
Interest income 7  12  
Interest expense 23  32  
Other income, net37  66  
INCOME BEFORE INCOME TAXES 655  845  
Income tax expense (Note 6)127  176  
CONSOLIDATED NET INCOME 528  669  
Less: Net income attributable to noncontrolling interests17  6  
NET INCOME ATTRIBUTABLE TO CUMMINS INC. $511  $663  
 
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.   
Basic $3.42  $4.22  
Diluted $3.41  $4.20  
 
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING   
Basic 149.3  157.2  
Dilutive effect of stock compensation awards 0.4  0.5  
Diluted 149.7  157.7  
(a) Includes sales to nonconsolidated equity investees of $257 million and $285 million for the three months ended March 29, 2020 and March 31, 2019, respectively.

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
3

Table of Contents
CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
 Three months ended
In millions March 29,
2020
March 31,
2019
CONSOLIDATED NET INCOME $528  $669  
Other comprehensive income (loss), net of tax (Note 13)  
Change in pension and other postretirement defined benefit plans 2  (11) 
Foreign currency translation adjustments (162) 84  
Unrealized loss on debt securities     (1) 
Unrealized loss on derivatives   (79) (1) 
Total other comprehensive (loss) income, net of tax (239) 71  
COMPREHENSIVE INCOME 289  740  
Less: Comprehensive income attributable to noncontrolling interests   9  
COMPREHENSIVE INCOME ATTRIBUTABLE TO CUMMINS INC. $289  $731  
 
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
4

Table of Contents
CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
In millions, except par valueMarch 29,
2020
December 31,
2019
ASSETS  
Current assets   
Cash and cash equivalents $1,691  $1,129  
Marketable securities (Note 7)339  341  
Total cash, cash equivalents and marketable securities 2,030  1,470  
Accounts and notes receivable, net
Trade and other 3,234  3,387  
Nonconsolidated equity investees 271  283  
Inventories (Note 8)3,579  3,486  
Prepaid expenses and other current assets 676  761  
Total current assets 9,790  9,387  
Long-term assets   
Property, plant and equipment 8,578  8,699  
Accumulated depreciation (4,450) (4,454) 
Property, plant and equipment, net 4,128  4,245  
Investments and advances related to equity method investees1,304  1,237  
Goodwill 1,283  1,286  
Other intangible assets, net 965  1,003  
Pension assets989  1,001  
Other assets 1,617  1,578  
Total assets $20,076  $19,737  
LIABILITIES  
Current liabilities   
Accounts payable (principally trade) $2,648  $2,534  
Loans payable (Note 9)121  100  
Commercial paper (Note 9)1,617  660  
Accrued compensation, benefits and retirement costs 322  560  
Current portion of accrued product warranty (Note 10)743  803  
Current portion of deferred revenue (Note 3)527  533  
Other accrued expenses (Note 11)971  1,039  
Current maturities of long-term debt (Note 9)33  31  
Total current liabilities 6,982  6,260  
Long-term liabilities   
Long-term debt (Note 9)1,580  1,576  
Pensions and other postretirement benefits588  591  
Accrued product warranty (Note 10)640  645  
Deferred revenue (Note 3)837  821  
Other liabilities (Note 11)1,431  1,379  
Total liabilities $12,058  $11,272  
Commitments and contingencies (Note 12)
 
EQUITY
Cummins Inc. shareholders’ equity   
Common stock, $2.50 par value, 500 shares authorized, 222.4 and 222.4 shares issued
$2,335  $2,346  
Retained earnings 14,728  14,416  
Treasury stock, at cost, 74.9 and 71.7 shares
(7,744) (7,225) 
Common stock held by employee benefits trust, at cost, 0.1 and 0.2 shares
(1) (2) 
Accumulated other comprehensive loss (Note 13)(2,250) (2,028) 
Total Cummins Inc. shareholders’ equity 7,068  7,507  
Noncontrolling interests 950  958  
Total equity $8,018  $8,465  
Total liabilities and equity $20,076  $19,737  
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
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CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Three months ended
In millionsMarch 29,
2020
March 31,
2019
CASH FLOWS FROM OPERATING ACTIVITIES  
Consolidated net income $528  $669  
Adjustments to reconcile consolidated net income to net cash provided by operating activities   
Depreciation and amortization168  157  
Deferred income taxes(11) 11  
Equity in income of investees, net of dividends (78) (64) 
Pension and OPEB expense (Note 4)27  18  
Pension contributions and OPEB payments (Note 4)(60) (47) 
Stock-based compensation expense 4  9  
Restructuring payments (Note 14)(48)   
Gain on corporate owned life insurance (17) (37) 
Foreign currency remeasurement and transaction exposure 3  79  
Changes in current assets and liabilities  
Accounts and notes receivable 107  (135) 
Inventories (171) (107) 
Other current assets 79  67  
Accounts payable 171  166  
Accrued expenses (321) (293) 
Changes in other liabilities 28  64  
Other, net (30) (145) 
Net cash provided by operating activities 379  412  
CASH FLOWS FROM INVESTING ACTIVITIES   
Capital expenditures (75) (109) 
Investments in internal use software (8) (20) 
Investments in and advances to equity investees (7) (10) 
Investments in marketable securities—acquisitions (116) (121) 
Investments in marketable securities—liquidations (Note 7)95  103  
Cash flows from derivatives not designated as hedges 6  55  
Other, net 6  31  
Net cash used in investing activities (99) (71) 
CASH FLOWS FROM FINANCING ACTIVITIES   
Net borrowings (payments) of commercial paper (Note 9)957  (71) 
Payments on borrowings and finance lease obligations (10) (10) 
Net borrowings under short-term credit agreements 25  15  
Distributions to noncontrolling interests (13) (13) 
Dividend payments on common stock (195) (179) 
Repurchases of common stock (550) (100) 
Other, net 20  11  
Net cash provided by (used in) financing activities 234  (347) 
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 48  31  
Net increase in cash and cash equivalents562  25  
Cash and cash equivalents at beginning of year1,129  1,303  
CASH AND CASH EQUIVALENTS AT END OF PERIOD$1,691  $1,328  

 The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
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CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
 
Three months ended
In millions, except per share amountsCommon StockAdditional Paid-in CapitalRetained EarningsTreasury StockCommon Stock Held in TrustAccumulated Other Comprehensive LossTotal Cummins Inc. Shareholders’ EquityNoncontrolling InterestsTotal Equity
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 (Note 16)(4) (4) —  (4) 
Net income 511  511  17  528  
Other comprehensive loss, net of tax (Note 13)(222) (222) (17) (239) 
Issuance of common stock 9  9  —  9  
Employee benefits trust activity17  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) 
Stock-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  
BALANCE AT DECEMBER 31, 2018$556  $1,715  $12,917  $(6,028) $(5) $(1,807) $7,348  $911  $8,259  
Net income663  663  6  669  
Other comprehensive income, net of tax (Note 13)68  68  3  71  
Issuance of common stock1  1  —  1  
Employee benefits trust activity13  1  14  —  14  
Repurchases of common stock(100) (100) —  (100) 
Cash dividends on common stock, $1.14 per share
(179) (179) —  (179) 
Distributions to noncontrolling interests—  (13) (13) 
Stock-based awards(11) 17  6  —  6  
Other shareholder transactions(1) (1) —  (1) 
BALANCE AT MARCH 31, 2019$556  $1,717  $13,401  $(6,111) $(4) $(1,739) $7,820  $907  $8,727  
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.



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CUMMINS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. NATURE OF OPERATIONS
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 generation 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 approximately 600 wholly-owned, joint venture and independent distributor locations and over 7,600 Cummins certified dealer locations in more than 190 countries and territories.
NOTE 2. BASIS OF PRESENTATION
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 have been 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 prepared in accordance with GAAP have been 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, 2019. 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 disclosures required by GAAP.
Reclassifications
Certain amounts for prior year periods have been reclassified to conform to the presentation of the current year.
Use of Estimates in Preparation of Financial Statements
Preparation of financial statements in conformity with GAAP 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 2020 and 2019 ended on March 29 and March 31, 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 excludes the anti-dilutive effect of certain stock options. The options excluded from diluted earnings per share were as follows: 
 Three months ended
 March 29,
2020
March 31,
2019
Options excluded1,234,188  783,576  

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NOTE 3. REVENUE RECOGNITION
Long-term Contracts
Most 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 had not been satisfied as of March 29, 2020, was $967 million. We expect to recognize the related revenue of $237 million over the next 12 months and $730 million over periods up to 10 years. See Note 10, "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 millionsMarch 29,
2020
December 31,
2019
Unbilled revenue$91  $68  
Deferred revenue, primarily extended warranty1,364  1,354  
We recognized revenue of $112 million and $109 million for the three months ended March 29, 2020 and March 31, 2019, respectively, 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 March 29, 2020 or March 31, 2019.
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 millionsMarch 29,
2020
March 31,
2019
United States$2,852  $3,436  
China522  573  
India170  224  
Other international1,467  1,771  
Total net sales$5,011  $6,004  
Segment Revenue
Engine segment external sales by market were as follows:
Three months ended
In millionsMarch 29,
2020
March 31,
2019
Heavy-duty truck$519  $723  
Medium-duty truck and bus490  610  
Light-duty automotive327  330  
Total on-highway1,336  1,663  
Off-highway243  321  
Total sales$1,579  $1,984  
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Distribution segment external sales by region were as follows:
Three months ended
In millionsMarch 29,
2020
March 31,
2019
North America$1,245  $1,392  
Asia Pacific192  220  
Europe135  123  
China68  81  
Africa and Middle East51  55  
Russia41  35  
Latin America39  40  
India36  47  
Total sales$1,807  $1,993  
Distribution segment external sales by product line were as follows:
Three months ended
In millionsMarch 29,
2020
March 31,
2019
Parts$783  $841  
Power generation375  401  
Service327  362  
Engines322  389  
Total sales$1,807  $1,993  
Components segment external sales by business were as follows:
Three months ended
In millionsMarch 29,
2020
March 31,
2019
Emission solutions$