cmi-20200628

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 28, 2020

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 June 28, 2020, there were 147,675,521 shares of common stock outstanding with a par value of $2.50 per share.

Table of Contents

CUMMINS INC. AND SUBSIDIARIES

TABLE OF CONTENTS

QUARTERLY REPORT ON FORM 10-Q


		Page
	PART I. FINANCIAL INFORMATION
ITEM 1.	Condensed Consolidated Financial Statements (Unaudited)	3
	Condensed Consolidated Statements of Net Income for the three and six months ended June 28, 2020 and June 30, 2019	3
	Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 28, 2020 and June 30, 2019	4

	Condensed Consolidated Balance Sheets at June 28, 2020 and December 31, 2019	5
	Condensed Consolidated Statements of Cash Flows for the six months ended June 28, 2020 and June 30, 2019	6
	Condensed Consolidated Statements of Changes in Equity for the three and six months ended June 28, 2020 and June 30, 2019	7
	Notes to Condensed Consolidated Financial Statements	9
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	51
ITEM 4.	Controls and Procedures	51
	PART II. OTHER INFORMATION
ITEM 1.	Legal Proceedings	52
ITEM 1A.	Risk Factors	52
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	61
ITEM 3.	Defaults Upon Senior Securities	62
ITEM 4.	Mine Safety Disclosures	62
ITEM 5.	Other Information	62
ITEM 6.	Exhibits	62
	Signatures	63

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						Six months ended
In millions, except per share amounts	June 28, 2020		June 30, 2019		June 28, 2020		June 30, 2019
NET SALES ^(a)(Note 3)	$	3,852	$	6,221	$	8,863	$	12,225
Cost of sales	2,962		4,580		6,679		9,052
GROSS MARGIN	890		1,641		2,184		3,173

OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses	470		629		1,016		1,222
Research, development and engineering expenses	189		251		427		488
Equity, royalty and interest income from investees (Note 5)	115		96		244		188



Other operating expense, net	(10)		(9)		(15)		(4)
OPERATING INCOME	336		848		970		1,647

Interest income	4		12		11		24
Interest expense	23		29		46		61
Other income, net	45		40		82		106
INCOME BEFORE INCOME TAXES	362		871		1,017		1,716

Income tax expense (Note 6)	93		186		220		362
CONSOLIDATED NET INCOME	269		685		797		1,354

Less: Net (loss) income attributable to noncontrolling interests	(7)		10		10		16
NET INCOME ATTRIBUTABLE TO CUMMINS INC.	$	276	$	675	$	787	$	1,338

EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
Basic	$	1.87	$	4.29	$	5.30	$	8.51
Diluted	$	1.86	$	4.27	$	5.29	$	8.47

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
Basic	147.6		157.4		148.4		157.3
Dilutive effect of stock compensation awards	0.4		0.6		0.4		0.6
Diluted	148.0		158.0		148.8		157.9



^(a)Includes sales to nonconsolidated equity investees of $338 million and $595 million for the three and six months ended June 28, 2020, compared with $317 million and $602 million for the comparable periods in 2019.

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

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CUMMINS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)



	Three months ended						Six months ended
In millions	June 28, 2020		June 30, 2019		June 28, 2020		June 30, 2019
CONSOLIDATED NET INCOME	$	269	$	685	$	797	$	1,354
Other comprehensive income (loss), net of tax (Note 13)
Change in pension and other postretirement defined benefit plans	16		7		18		(4)
Foreign currency translation adjustments	(11)		(99)		(173)		(15)
Unrealized gain on debt securities	—		1		—		—
Unrealized loss on derivatives	(2)		(10)		(81)		(11)
Total other comprehensive income (loss), net of tax	3		(101)		(236)		(30)
COMPREHENSIVE INCOME	272		584		561		1,324
Less: Comprehensive (loss) income attributable to noncontrolling interests	(12)		10		(12)		19
COMPREHENSIVE INCOME ATTRIBUTABLE TO CUMMINS INC.	$	284	$	574	$	573	$	1,305

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

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CUMMINS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


In millions, except par value	June 28, 2020		December 31, 2019
ASSETS
Current assets
Cash and cash equivalents	$	1,751	$	1,129

Marketable securities (Note 7)	353		341
Total cash, cash equivalents and marketable securities	2,104		1,470
Accounts and notes receivable, net
Trade and other	3,069		3,387
Nonconsolidated equity investees	372		283
Inventories (Note 8)	3,655		3,486
Prepaid expenses and other current assets	634		761
Total current assets	9,834		9,387
Long-term assets
Property, plant and equipment	8,620		8,699
Accumulated depreciation	(4,553)		(4,454)
Property, plant and equipment, net	4,067		4,245
Investments and advances related to equity method investees	1,362		1,237
Goodwill	1,284		1,286
Other intangible assets, net	1,017		1,003
Pension assets	998		1,001
Other assets	1,752		1,578
Total assets	$	20,314	$	19,737

LIABILITIES
Current liabilities
Accounts payable (principally trade)	$	2,281	$	2,534
Loans payable (Note 9)	109		100
Commercial paper (Note 9)	2,027		660
Accrued compensation, benefits and retirement costs	309		560
Current portion of accrued product warranty (Note 10)	681		803
Current portion of deferred revenue (Note 3)	523		533

Other accrued expenses (Note 11)	920		1,039
Current maturities of long-term debt (Note 9)	66		31
Total current liabilities	6,916		6,260
Long-term liabilities
Long-term debt (Note 9)	1,639		1,576
Pensions and other postretirement benefits	578		591
Accrued product warranty (Note 10)	636		645
Deferred revenue (Note 3)	829		821
Other liabilities (Note 11)	1,586		1,379
Total liabilities	$	12,184	$	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	$	2,353	$	2,346
Retained earnings	14,811		14,416
Treasury stock, at cost, 74.8 and 71.7 shares	(7,729)		(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)	(2,242)		(2,028)



Total Cummins Inc. shareholders’ equity	7,192		7,507
Noncontrolling interests	938		958
Total equity	$	8,130	$	8,465
Total liabilities and equity	$	20,314	$	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)


	Six months ended
In millions	June 28, 2020		June 30, 2019
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net income	$	797	$	1,354
Adjustments to reconcile consolidated net income to net cash provided by operating activities
Depreciation and amortization	333		315



Deferred income taxes	(11)		17
Equity in income of investees, net of dividends	(124)		(43)
Pension and OPEB expense (Note 4)	54		37
Pension contributions and OPEB payments (Note 4)	(82)		(92)
Stock-based compensation expense	12		28

Restructuring payments (Note 14)	(81)		—


Gain on corporate owned life insurance	(38)		(55)

Foreign currency remeasurement and transaction exposure	(2)		46
Changes in current assets and liabilities
Accounts and notes receivable	170		(312)
Inventories	(224)		(125)
Other current assets	95		15
Accounts payable	(220)		148
Accrued expenses	(422)		(194)
Changes in other liabilities	199		120

Other, net	(99)		(39)
Net cash provided by operating activities	357		1,220

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(152)		(242)
Investments in internal use software	(21)		(34)

Investments in and advances to equity investees	(17)		(18)


Investments in marketable securities—acquisitions	(285)		(259)
Investments in marketable securities—liquidations (Note 7)	254		153


Cash flows from derivatives not designated as hedges	(22)		(26)
Other, net	9		15
Net cash used in investing activities	(234)		(411)

CASH FLOWS FROM FINANCING ACTIVITIES

Net borrowings (payments) of commercial paper (Note 9)	1,367		(346)
Payments on borrowings and finance lease obligations	(25)		(17)
Net borrowings under short-term credit agreements	4		57
Distributions to noncontrolling interests	(13)		(13)
Dividend payments on common stock	(388)		(358)
Repurchases of common stock	(550)		(100)

Other, net	65		66
Net cash provided by (used in) financing activities	460		(711)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	39		(4)
Net increase in cash and cash equivalents	622		94
Cash and cash equivalents at beginning of year	1,129		1,303
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	1,751	$	1,397

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

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CUMMINS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)


	Three months ended
In millions, except per share amounts	Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Common Stock Held in Trust		Accumulated Other Comprehensive Loss		Total Cummins Inc. Shareholders’ Equity		Noncontrolling Interests		Total Equity
BALANCE AT MARCH 29, 2020	$	556	$	1,779	$	14,728	$	(7,744)	$	(1)	$	(2,250)	$	7,068	$	950	$	8,018

Net income					276								276		(7)		269
Other comprehensive income (loss), net of tax (Note 13)											8		8		(5)		3
Issuance of common stock			1										1		—		1
Employee benefits trust activity			5										5		—		5

Cash dividends on common stock, $1.311 per share					(193)								(193)		—		(193)

Stock-based awards			4				15						19		—		19

Other shareholder transactions			8										8		—		8
BALANCE AT JUNE 28, 2020	$	556	$	1,797	$	14,811	$	(7,729)	$	(1)	$	(2,242)	$	7,192	$	938	$	8,130

BALANCE AT MARCH 31, 2019	$	556	$	1,717	$	13,401	$	(6,111)	$	(4)	$	(1,739)	$	7,820	$	907	$	8,727

Net income					675								675		10		685
Other comprehensive loss, net of tax (Note 13)											(101)		(101)		—		(101)
Issuance of common stock			1										1		—		1
Employee benefits trust activity			7										7		—		7

Cash dividends on common stock, $1.14 per share					(179)								(179)		—		(179)

Stock-based awards			8				29						37		—		37

Other shareholder transactions			18										18		1		19
BALANCE AT JUNE 30, 2019	$	556	$	1,751	$	13,897	$	(6,082)	$	(4)	$	(1,840)	$	8,278	$	918	$	9,196

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)



	Six 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, 2019	$	556	$	1,790	$	14,416	$	(7,225)	$	(2)	$	(2,028)	$	7,507	$	958	$	8,465
Adoption of new accounting standards (Note 16)					(4)