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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 April 4, 2021
Commission File Number 1-4949
CUMMINS INC.
(Exact name of registrant as specified in its charter)
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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):
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Large Accelerated Filer | x | | 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.
CUMMINS INC. AND SUBSIDIARIES
TABLE OF CONTENTS
QUARTERLY REPORT ON FORM 10-Q
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| Condensed Consolidated Statements of Net Income for the three months ended April 4, 2021 and March 29, 2020 | |
| Condensed Consolidated Statements of Comprehensive Income for the three months ended April 4, 2021 and March 29, 2020 | |
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| Condensed Consolidated Balance Sheets at April 4, 2021 and December 31, 2020 | |
| Condensed Consolidated Statements of Cash Flows for the three months ended April 4, 2021 and March 29, 2020 | |
| Condensed Consolidated Statements of Changes in Equity for the three months ended April 4, 2021 and March 29, 2020 | |
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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 | | | | | |
| | | | | | | | |
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Other operating expense, net | | (8) | | | (5) | | | | | |
OPERATING INCOME | | 810 | | | 634 | | | | | |
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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 | | | | | |
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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 | | | | | |
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(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.
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.
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.
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.
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.
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 | | | | | |
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 | | | | | |
| | | | | | | | |
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 | | | | | |
| | | | | | | | |
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 | |
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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 | |
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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 | |
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 | | |
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Loans payable (1) | | $ | |