cmi-20210704

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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 July 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 July 4, 2021, there were 143,607,162 shares of common stock outstanding with a par value of $2.50 per share.

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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 July 4, 2021 and June 28, 2020	3
	Condensed Consolidated Statements of Comprehensive Income for the three and six months ended July 4, 2021 and June 28, 2020	4

	Condensed Consolidated Balance Sheets at July 4, 2021 and December 31, 2020	5
	Condensed Consolidated Statements of Cash Flows for the six months ended July 4, 2021 and June 28, 2020	6
	Condensed Consolidated Statements of Changes in Equity for the three and six months ended July 4, 2021 and June 28, 2020	7
	Notes to Condensed Consolidated Financial Statements	9
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	50
ITEM 4.	Controls and Procedures	50
	PART II. OTHER INFORMATION
ITEM 1.	Legal Proceedings	51
ITEM 1A.	Risk Factors	51
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51
ITEM 3.	Defaults Upon Senior Securities	51
ITEM 4.	Mine Safety Disclosures	51
ITEM 5.	Other Information	52
ITEM 6.	Exhibits	52
	Signatures	53

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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				Six months ended
In millions, except per share amounts	July 4, 2021		June 28, 2020		July 4, 2021		June 28, 2020
NET SALES (a) (Note 2)	$	6,111	$	3,852	$	12,203	$	8,863
Cost of sales	4,633		2,962		9,239		6,679
GROSS MARGIN	1,478		890		2,964		2,184

OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses	600		470		1,174		1,016
Research, development and engineering expenses	276		189		536		427
Equity, royalty and interest income from investees (Note 4)	137		115		303		244



Other operating expense, net	(4)		(10)		(12)		(15)
OPERATING INCOME	735		336		1,545		970


Interest expense	29		23		57		46
Other income, net	73		49		74		93
INCOME BEFORE INCOME TAXES	779		362		1,562		1,017

Income tax expense (Note 5)	167		93		339		220
CONSOLIDATED NET INCOME	612		269		1,223		797

Less: Net income (loss) attributable to noncontrolling interests	12		(7)		20		10
NET INCOME ATTRIBUTABLE TO CUMMINS INC.	$	600	$	276	$	1,203	$	787

EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
Basic	$	4.14	$	1.87	$	8.24	$	5.30
Diluted	$	4.10	$	1.86	$	8.16	$	5.29

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
Basic	145.1		147.6		146.0		148.4
Dilutive effect of stock compensation awards	1.4		0.4		1.4		0.4
Diluted	146.5		148.0		147.4		148.8



(a) Includes sales to nonconsolidated equity investees of $423 million and $901 million for the three and six months ended July 4, 2021, compared with $338 million and $595 million for the comparable periods in 2020.

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	July 4, 2021		June 28, 2020		July 4, 2021		June 28, 2020
CONSOLIDATED NET INCOME	$	612	$	269	$	1,223	$	797
Other comprehensive income (loss), net of tax (Note 12)
Change in pension and other postretirement defined benefit plans	17		16		46		18
Foreign currency translation adjustments	22		(11)		(34)		(173)

Unrealized (loss) gain on derivatives	(38)		(2)		34		(81)
Total other comprehensive income (loss), net of tax	1		3		46		(236)
COMPREHENSIVE INCOME	613		272		1,269		561
Less: Comprehensive income (loss) attributable to noncontrolling interests	5		(12)		13		(12)
COMPREHENSIVE INCOME ATTRIBUTABLE TO CUMMINS INC.	$	608	$	284	$	1,256	$	573

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	July 4, 2021		December 31, 2020
ASSETS
Current assets
Cash and cash equivalents	$	2,481	$	3,401

Marketable securities (Note 6)	438		461
Total cash, cash equivalents and marketable securities	2,919		3,862
Accounts and notes receivable, net
Trade and other	3,670		3,440
Nonconsolidated equity investees	462		380
Inventories (Note 7)	4,076		3,425
Prepaid expenses and other current assets	804		790
Total current assets	11,931		11,897
Long-term assets
Property, plant and equipment	9,109		9,011
Accumulated depreciation	(4,935)		(4,756)
Property, plant and equipment, net	4,174		4,255
Investments and advances related to equity method investees	1,494		1,441
Goodwill	1,291		1,293
Other intangible assets, net	942		963
Pension assets	1,096		1,042
Other assets (Note 8)	1,680		1,733
Total assets	$	22,608	$	22,624

LIABILITIES
Current liabilities
Accounts payable (principally trade)	$	3,172	$	2,820
Loans payable (Note 9)	54		169
Commercial paper (Note 9)	200		323
Accrued compensation, benefits and retirement costs	569		484
Current portion of accrued product warranty (Note 10)	661		674
Current portion of deferred revenue (Note 2)	805		691

Other accrued expenses (Note 8)	1,086		1,112
Current maturities of long-term debt (Note 9)	57		62
Total current liabilities	6,604		6,335
Long-term liabilities
Long-term debt (Note 9)	3,620		3,610
Pensions and other postretirement benefits	617		630
Accrued product warranty (Note 10)	674		672
Deferred revenue (Note 2)	828		840
Other liabilities (Note 8)	1,472		1,548
Total liabilities	$	13,815	$	13,635

Commitments and contingencies (Note 11)

EQUITY
Cummins Inc. shareholders’ equity
Common stock, $2.50 par value, 500 shares authorized, 222.5 and 222.4 shares issued	$	2,405	$	2,404
Retained earnings	16,228		15,419
Treasury stock, at cost, 78.8 and 74.8 shares	(8,838)		(7,779)

Accumulated other comprehensive loss (Note 12)	(1,929)		(1,982)



Total Cummins Inc. shareholders’ equity	7,866		8,062
Noncontrolling interests	927		927
Total equity	$	8,793	$	8,989
Total liabilities and equity	$	22,608	$	22,624

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	July 4, 2021		June 28, 2020
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net income	$	1,223	$	797
Adjustments to reconcile consolidated net income to net cash provided by operating activities
Depreciation and amortization	337		333



Deferred income taxes	17		(11)
Equity in income of investees, net of dividends	(114)		(124)
Pension and OPEB expense (Note 3)	41		54
Pension contributions and OPEB payments (Note 3)	(68)		(82)
Share-based compensation expense	18		12

Restructuring payments	(1)		(81)


Loss (gain) on corporate owned life insurance	12		(38)

Foreign currency remeasurement and transaction exposure	10		(2)
Changes in current assets and liabilities
Accounts and notes receivable	(331)		170
Inventories	(628)		(224)
Other current assets	(18)		95
Accounts payable	377		(220)
Accrued expenses	169		(422)
Changes in other liabilities	(34)		199

Other, net	(55)		(99)
Net cash provided by operating activities	955		357

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(212)		(152)
Investments in internal use software	(22)		(21)

Proceeds from sale of land	20		—
Investments in and advances to equity investees	10		(17)


Investments in marketable securities—acquisitions	(362)		(285)
Investments in marketable securities—liquidations (Note 6)	381		254


Cash flows from derivatives not designated as hedges	12		(22)
Other, net	27		9
Net cash used in investing activities	(146)		(234)

CASH FLOWS FROM FINANCING ACTIVITIES

Net (payments) borrowings of commercial paper	(123)		1,367
Payments on borrowings and finance lease obligations	(33)		(25)
Net (payments) borrowings under short-term credit agreements	(102)		4
Distributions to noncontrolling interests	(13)		(13)
Dividend payments on common stock	(394)		(388)
Repurchases of common stock	(1,090)		(550)
Proceeds from issuing common stock	26		32

Other, net	7		33
Net cash (used in) provided by financing activities	(1,722)		460
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	(7)		39
Net (decrease) increase in cash and cash equivalents	(920)		622
Cash and cash equivalents at beginning of year	3,401		1,129
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	2,481	$	1,751

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 APRIL 4, 2021	$	556	$	1,837	$	15,825	$	(8,172)	$	—	$	(1,937)	$	8,109	$	922	$	9,031

Net income					600								600		12		612
Other comprehensive income (loss), net of tax (Note 12)											8		8		(7)		1
Issuance of common stock			1										1		—		1

Repurchases of common stock							(672)						(672)		—		(672)
Cash dividends on common stock, $1.35 per share					(197)								(197)		—		(197)

Share-based awards			2				6						8		—		8

Other shareholder transactions			9										9		—		9
BALANCE AT JULY 4, 2021	$	556	$	1,849	$	16,228	$	(8,838)	$	—	$	(1,929)	$	7,866	$	927	$	8,793

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 12)											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)

Share-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

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)



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

Net income					1,203								1,203		20		1,223
Other comprehensive income (loss), net of tax (Note 12)											53		53		(7)		46
Issuance of common stock			1										1		—		1

Repurchases of common stock							(1,090)						(1,090)		—		(1,090)
Cash dividends on common stock, $2.70 per share					(394)								(394)		—		(394)
Distributions to noncontrolling interests													—		(13)		(13)
Share-based awards			(4)				30						26		—		26

Other shareholder transactions			4				1						5				5
BALANCE AT JULY 4, 2021	$	556	$	1,849	$	16,228	$	(8,838)	$	—	$	(1,929)	$	7,866	$	927	$	8,793

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					787								787		10		797
Other comprehensive loss, net of tax (Note 12)											(214)		(214)		(22)		(236)
Issuance of common stock			10										10		—		10
Employee benefits trust activity			22						1				23		—		23
Repurchases of common stock							(550)						(550)		—		(550)
Cash dividends on common stock, $2.622 per share					(388)								(388)		—		(388)
Distributions to noncontrolling interests													—		(13)		(13)
Share-based awards			(14)				46						32		—		32

Other shareholder transactions			(11)										(11)		5		(6)
BALANCE AT JUNE 28, 2020	$	556	$	1,797	$	14,811	$	(7,729)	$	(1)	$	(2,242)	$	7,192	$	938	$	8,130

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 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 and six 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 second quarters of 2021 and 2020 ended on July 4 and June 28, 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

Six months ended

July 4,
2021

June 28,
2020

July 4,
2021

June 28,
2020

Options excluded

3,137

1,339,359

2,958

1,286,774

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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 July 4, 2021, was $812 million. We expect to recognize the related revenue of $164 million over the next 12 months and $648 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 millions	July 4, 2021		December 31, 2020
Unbilled revenue	$	109	$	114
Deferred revenue, primarily extended warranty	1,633		1,531

We recognized revenue of $126 million and $280 million for the three and six months ended July 4, 2021, compared with $94 million and $206 million for the comparable periods 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 and six months ended July 4, 2021 or June 28, 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				Six months ended
In millions	July 4, 2021		June 28, 2020		July 4, 2021		June 28, 2020
United States	$	3,263	$	1,865	$	6,323	$	4,717

China	832		810		1,789		1,332


India	217		70		547		240

Other international	1,799		1,107		3,544		2,574
Total net sales	$	6,111	$	3,852	$	12,203	$	8,863

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Segment Revenue

Engine segment external sales by market were as follows:


	Three months ended				Six months ended
In millions	July 4, 2021		June 28, 2020		July 4, 2021		June 28, 2020
Heavy-duty truck	$	666	$	221	$	1,279	$	740
Medium-duty truck and bus	477		298		960		788
Light-duty automotive	466		146		940		473
Total on-highway	1,609		665		3,179		2,001
Off-highway	311		272		636		515
Total sales	$	1,920	$	937	$	3,815	$	2,516

Distribution segment external sales by region were as follows:


	Three months ended				Six months ended
In millions	July 4, 2021		June 28, 2020		July 4, 2021		June 28, 2020
North America	$	1,228	$	1,038	$	2,394	$	2,283
Asia Pacific	226		190		439		382
Europe	161		136		324