cmi-20200927

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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 September 27, 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 September 27, 2020, there were 148,006,581 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 nine months ended September 27, 2020 and September 29, 2019	3
	Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 27, 2020 and September 29, 2019	4

	Condensed Consolidated Balance Sheets at September 27, 2020 and December 31, 2019	5
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 27, 2020 and September 29, 2019	6
	Condensed Consolidated Statements of Changes in Equity for the three and nine months ended September 27, 2020 and September 29, 2019	7
	Notes to Condensed Consolidated Financial Statements	9
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	54
ITEM 4.	Controls and Procedures	54
	PART II. OTHER INFORMATION
ITEM 1.	Legal Proceedings	55
ITEM 1A.	Risk Factors	55
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	64
ITEM 3.	Defaults Upon Senior Securities	64
ITEM 4.	Mine Safety Disclosures	64
ITEM 5.	Other Information	64
ITEM 6.	Exhibits	65
	Signatures	66

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						Nine months ended
In millions, except per share amounts	September 27, 2020		September 29, 2019		September 27, 2020		September 29, 2019
NET SALES ^(a)(Note 3)	$	5,118	$	5,768	$	13,981	$	17,993
Cost of sales	3,769		4,274		10,448		13,326
GROSS MARGIN	1,349		1,494		3,533		4,667

OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses	533		600		1,549		1,822
Research, development and engineering expenses	224		242		651		730
Equity, royalty and interest income from investees (Note 5)	98		68		342		256



Other operating expense, net	(20)		(21)		(35)		(25)
OPERATING INCOME	670		699		1,640		2,346

Interest income	4		14		15		38
Interest expense	25		26		71		87
Other income, net	37		68		119		174
INCOME BEFORE INCOME TAXES	686		755		1,703		2,471

Income tax expense (Note 6)	182		139		402		501
CONSOLIDATED NET INCOME	504		616		1,301		1,970

Less: Net income (loss) attributable to noncontrolling interests	3		(6)		13		10
NET INCOME ATTRIBUTABLE TO CUMMINS INC.	$	501	$	622	$	1,288	$	1,960

EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
Basic	$	3.39	$	3.99	$	8.69	$	12.50
Diluted	$	3.36	$	3.97	$	8.65	$	12.45

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
Basic	147.9		155.9		148.3		156.8
Dilutive effect of stock compensation awards	1.0		0.7		0.6		0.6
Diluted	148.9		156.6		148.9		157.4



^(a)Includes sales to nonconsolidated equity investees of $311 million and $906 million for the three and nine months ended September 27, 2020, compared with $280 million and $882 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						Nine months ended
In millions	September 27, 2020		September 29, 2019		September 27, 2020		September 29, 2019
CONSOLIDATED NET INCOME	$	504	$	616	$	1,301	$	1,970
Other comprehensive income (loss), net of tax (Note 13)
Change in pension and other postretirement defined benefit plans	16		6		34		2
Foreign currency translation adjustments	111		(182)		(62)		(197)

Unrealized gain (loss) on derivatives	18		(29)		(63)		(40)
Total other comprehensive income (loss), net of tax	145		(205)		(91)		(235)
COMPREHENSIVE INCOME	649		411		1,210		1,735
Less: Comprehensive income (loss) attributable to noncontrolling interests	13		(11)		1		8
COMPREHENSIVE INCOME ATTRIBUTABLE TO CUMMINS INC.	$	636	$	422	$	1,209	$	1,727

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	September 27, 2020		December 31, 2019
ASSETS
Current assets
Cash and cash equivalents	$	2,967	$	1,129

Marketable securities (Note 7)	345		341
Total cash, cash equivalents and marketable securities	3,312		1,470
Accounts and notes receivable, net
Trade and other	3,291		3,387
Nonconsolidated equity investees	337		283
Inventories (Note 8)	3,470		3,486
Prepaid expenses and other current assets	652		761
Total current assets	11,062		9,387
Long-term assets
Property, plant and equipment	8,753		8,699
Accumulated depreciation	(4,666)		(4,454)
Property, plant and equipment, net	4,087		4,245
Investments and advances related to equity method investees	1,418		1,237
Goodwill	1,288		1,286
Other intangible assets, net	990		1,003
Pension assets	1,010		1,001
Other assets	1,713		1,578
Total assets	$	21,568	$	19,737

LIABILITIES
Current liabilities
Accounts payable (principally trade)	$	2,597	$	2,534
Loans payable (Note 9)	129		100
Commercial paper (Note 9)	316		660
Accrued compensation, benefits and retirement costs	433		560
Current portion of accrued product warranty (Note 10)	646		803
Current portion of deferred revenue (Note 3)	540		533

Other accrued expenses (Note 11)	990		1,039
Current maturities of long-term debt (Note 9)	58		31
Total current liabilities	5,709		6,260
Long-term liabilities
Long-term debt (Note 9)	3,609		1,576
Pensions and other postretirement benefits	571		591
Accrued product warranty (Note 10)	635		645
Deferred revenue (Note 3)	837		821
Other liabilities (Note 11)	1,566		1,379
Total liabilities	$	12,927	$	11,272

Commitments and contingencies (Note 12)

EQUITY
Cummins Inc. shareholders’ equity
Common stock, $2.50 par value, 500 shares authorized, 222.5 and 222.4 shares issued	$	2,385	$	2,346
Retained earnings	15,118		14,416
Treasury stock, at cost, 74.4 and 71.7 shares	(7,696)		(7,225)
Common stock held by employee benefits trust, at cost, 0.0 and 0.2 shares	—		(2)
Accumulated other comprehensive loss (Note 13)	(2,107)		(2,028)



Total Cummins Inc. shareholders’ equity	7,700		7,507
Noncontrolling interests	941		958
Total equity	$	8,641	$	8,465
Total liabilities and equity	$	21,568	$	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)


	Nine months ended
In millions	September 27, 2020		September 29, 2019
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net income	$	1,301	$	1,970
Adjustments to reconcile consolidated net income to net cash provided by operating activities
Depreciation and amortization	499		493



Deferred income taxes	(7)		(14)
Equity in income of investees, net of dividends	(136)		(44)
Pension and OPEB expense (Note 4)	81		56
Pension contributions and OPEB payments (Note 4)	(102)		(130)
Stock-based compensation expense	22		37

Restructuring payments (Note 14)	(100)		—


Gain on corporate owned life insurance	(50)		(64)

Foreign currency remeasurement and transaction exposure	(7)		(54)
Changes in current assets and liabilities, net of acquisitions
Accounts and notes receivable	47		(101)
Inventories	(50)		(62)
Other current assets	73		48
Accounts payable	109		(3)
Accrued expenses	(236)		(74)
Changes in other liabilities	208		168

Other, net	(72)		117
Net cash provided by operating activities	1,580		2,343

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(268)		(395)
Investments in internal use software	(33)		(50)

Investments in and advances to equity investees	(30)		(16)
Acquisitions of businesses, net of cash acquired (Note 15)	—		(237)

Investments in marketable securities—acquisitions	(422)		(367)
Investments in marketable securities—liquidations (Note 7)	408		296


Cash flows from derivatives not designated as hedges	(15)		(86)
Other, net	23		26
Net cash used in investing activities	(337)		(829)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings (Note 9)	1,999		10
Net (payments) borrowings of commercial paper	(344)		122
Payments on borrowings and finance lease obligations	(41)		(47)
Net borrowings under short-term credit agreements	6		53
Distributions to noncontrolling interests	(26)		(33)
Dividend payments on common stock	(582)		(562)
Repurchases of common stock	(550)		(806)

Other, net	102		65
Net cash provided by (used in) financing activities	564		(1,198)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	31		(59)
Net increase in cash and cash equivalents	1,838		257
Cash and cash equivalents at beginning of year	1,129		1,303
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	2,967	$	1,560

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 JUNE 28, 2020	$	556	$	1,797	$	14,811	$	(7,729)	$	(1)	$	(2,242)	$	7,192	$	938	$	8,130

Net income					501								501		3		504
Other comprehensive income, net of tax (Note 13)											135		135		10		145

Employee benefits trust activity			5						1				6		—		6

Cash dividends on common stock, $1.311 per share					(194)								(194)		—		(194)
Distributions to noncontrolling interests													—		(13)		(13)
Stock-based awards			13				33						46		—		46

Other shareholder transactions			14										14		3		17
BALANCE AT SEPTEMBER 27, 2020	$	556	$	1,829	$	15,118	$	(7,696)	$	—	$	(2,107)	$	7,700	$	941	$	8,641

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

Net income					622								622		(6)		616
Other comprehensive loss, net of tax (Note 13)											(200)		(200)		(5)		(205)

Employee benefits trust activity			6						1				7		—		7
Repurchases of common stock							(706)						(706)		—		(706)
Cash dividends on common stock, $1.311 per share					(204)								(204)		—		(204)
Distributions to noncontrolling interests													—		(20)		(20)
Stock-based awards			1				4						5		—		5

Other shareholder transactions			8										8		56		64
BALANCE AT SEPTEMBER 29, 2019	$	556	$	1,766	$	14,315	$	(6,784)	$	(3)	$	(2,040)	$	7,810	$	943	$	8,753

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)



	Nine 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 17)					(4)								(4)		—		(4)
Net income					1,288								1,288		13		1,301
Other comprehensive loss, net of tax (Note 13)											(79)		(79)		(12)		(91)
Issuance of common stock			10										10		—		10
Employee benefits trust activity			27						2				29		—		29
Repurchases of common stock							(550)						(550)		—		(550)
Cash dividends on common stock, $3.933 per share					(582)								(582)		—		(582)
Distributions to noncontrolling interests													—