cmi-20211003

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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 October 3, 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 October 3, 2021, there were 143,031,848 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 nine months ended October 3, 2021 and September 27, 2020	3
	Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended October 3, 2021 and September 27, 2020	4

	Condensed Consolidated Balance Sheets at October 3, 2021 and December 31, 2020	5
	Condensed Consolidated Statements of Cash Flows for the nine months ended October 3, 2021 and September 27, 2020	6
	Condensed Consolidated Statements of Changes in Equity for the three and nine months ended October 3, 2021 and September 27, 2020	7
	Notes to Condensed Consolidated Financial Statements	9
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	48
ITEM 4.	Controls and Procedures	49
	PART II. OTHER INFORMATION
ITEM 1.	Legal Proceedings	49
ITEM 1A.	Risk Factors	49
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	50
ITEM 3.	Defaults Upon Senior Securities	50
ITEM 4.	Mine Safety Disclosures	50
ITEM 5.	Other Information	50
ITEM 6.	Exhibits	51
	Signatures	52

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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				Nine months ended
In millions, except per share amounts	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
NET SALES (a) (Note 2)	$	5,968	$	5,118	$	18,171	$	13,981
Cost of sales	4,554		3,769		13,793		10,448
GROSS MARGIN	1,414		1,349		4,378		3,533

OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses	571		533		1,745		1,549
Research, development and engineering expenses	266		224		802		651
Equity, royalty and interest income from investees (Note 4)	94		98		397		342



Other operating expense, net	(5)		(20)		(17)		(35)
OPERATING INCOME	666		670		2,211		1,640


Interest expense	28		25		85		71
Other income, net	37		41		111		134
INCOME BEFORE INCOME TAXES	675		686		2,237		1,703

Income tax expense (Note 5)	134		182		473		402
CONSOLIDATED NET INCOME	541		504		1,764		1,301

Less: Net income attributable to noncontrolling interests	7		3		27		13
NET INCOME ATTRIBUTABLE TO CUMMINS INC.	$	534	$	501	$	1,737	$	1,288

EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
Basic	$	3.72	$	3.39	$	11.96	$	8.69
Diluted	$	3.69	$	3.36	$	11.86	$	8.65

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
Basic	143.5		147.9		145.2		148.3
Dilutive effect of stock compensation awards	1.2		1.0		1.3		0.6
Diluted	144.7		148.9		146.5		148.9



(a) Includes sales to nonconsolidated equity investees of $385 million and $1,286 million for the three and nine months ended October 3, 2021, compared with $311 million and $906 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				Nine months ended
In millions	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
CONSOLIDATED NET INCOME	$	541	$	504	$	1,764	$	1,301
Other comprehensive income (loss), net of tax (Note 12)
Change in pension and other postretirement defined benefit plans	17		16		63		34
Foreign currency translation adjustments	—		111		(34)		(62)

Unrealized gain (loss) on derivatives	3		18		37		(63)
Total other comprehensive income (loss), net of tax	20		145		66		(91)
COMPREHENSIVE INCOME	561		649		1,830		1,210
Less: Comprehensive income attributable to noncontrolling interests	9		13		22		1
COMPREHENSIVE INCOME ATTRIBUTABLE TO CUMMINS INC.	$	552	$	636	$	1,808	$	1,209

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	October 3, 2021		December 31, 2020
ASSETS
Current assets
Cash and cash equivalents	$	2,588	$	3,401

Marketable securities (Note 6)	430		461
Total cash, cash equivalents and marketable securities	3,018		3,862
Accounts and notes receivable, net
Trade and other	3,752		3,440
Nonconsolidated equity investees	400		380
Inventories (Note 7)	4,322		3,425
Prepaid expenses and other current assets	828		790
Total current assets	12,320		11,897
Long-term assets
Property, plant and equipment	9,156		9,011
Accumulated depreciation	(4,971)		(4,756)
Property, plant and equipment, net	4,185		4,255
Investments and advances related to equity method investees (Note 4)	1,543		1,441
Goodwill	1,289		1,293
Other intangible assets, net	921		963
Pension assets (Note 3)	1,100		1,042
Other assets (Note 8)	1,705		1,733
Total assets	$	23,063	$	22,624

LIABILITIES
Current liabilities
Accounts payable (principally trade)	$	3,210	$	2,820
Loans payable (Note 9)	85		169
Commercial paper (Note 9)	200		323
Accrued compensation, benefits and retirement costs	626		484
Current portion of accrued product warranty (Note 10)	694		674
Current portion of deferred revenue (Note 2)	806		691

Other accrued expenses (Note 8)	1,185		1,112
Current maturities of long-term debt (Note 9)	55		62
Total current liabilities	6,861		6,335
Long-term liabilities
Long-term debt (Note 9)	3,602		3,610
Pensions and other postretirement benefits (Note 3)	623		630
Accrued product warranty (Note 10)	703		672
Deferred revenue (Note 2)	836		840
Other liabilities (Note 8)	1,435		1,548
Total liabilities	$	14,060	$	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	$	2,412	$	2,404
Retained earnings	16,555		15,419
Treasury stock, at cost, 79.4 and 74.8 shares	(8,974)		(7,779)

Accumulated other comprehensive loss (Note 12)	(1,911)		(1,982)



Total Cummins Inc. shareholders’ equity	8,082		8,062
Noncontrolling interests	921		927
Total equity	$	9,003	$	8,989
Total liabilities and equity	$	23,063	$	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)


	Nine months ended
In millions	October 3, 2021		September 27, 2020
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net income	$	1,764	$	1,301
Adjustments to reconcile consolidated net income to net cash provided by operating activities
Depreciation and amortization	497		499



Deferred income taxes	44		(7)
Equity in income of investees, net of dividends	(150)		(136)
Pension and OPEB expense (Note 3)	62		81
Pension contributions and OPEB payments (Note 3)	(86)		(102)
Share-based compensation expense	25		22

Restructuring payments	(1)		(100)


Loss (gain) on corporate owned life insurance	11		(50)

Foreign currency remeasurement and transaction exposure	27		(7)
Changes in current assets and liabilities
Accounts and notes receivable	(353)		47
Inventories	(919)		(50)
Other current assets	(45)		73
Accounts payable	416		109
Accrued expenses	435		(236)
Changes in other liabilities	(59)		208

Other, net	(144)		(72)
Net cash provided by operating activities	1,524		1,580

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(362)		(268)
Investments in internal use software	(36)		(33)

Proceeds from sale of land	20		—
Investments in and advances to equity investees	3		(30)


Investments in marketable securities—acquisitions	(569)		(422)
Investments in marketable securities—liquidations (Note 6)	602		408


Cash flows from derivatives not designated as hedges	19		(15)
Other, net	45		23
Net cash used in investing activities	(278)		(337)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings	35		1,999
Net payments of commercial paper	(123)		(344)
Payments on borrowings and finance lease obligations	(57)		(41)
Net (payments) borrowings under short-term credit agreements	(93)		6
Distributions to noncontrolling interests	(28)		(26)
Dividend payments on common stock	(601)		(582)
Repurchases of common stock	(1,228)		(550)
Proceeds from issuing common stock	27		78

Other, net	(11)		24
Net cash (used in) provided by financing activities	(2,079)		564
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	20		31
Net (decrease) increase in cash and cash equivalents	(813)		1,838
Cash and cash equivalents at beginning of year	3,401		1,129
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	2,588	$	2,967

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 JULY 4, 2021	$	556	$	1,849	$	16,228	$	(8,838)	$	—	$	(1,929)	$	7,866	$	927	$	8,793

Net income					534								534		7		541
Other comprehensive income, net of tax (Note 12)											18		18		2		20


Repurchases of common stock							(138)						(138)		—		(138)
Cash dividends on common stock, $1.45 per share					(207)								(207)		—		(207)
Distributions to noncontrolling interests													—		(15)		(15)
Share-based awards							1						1		—		1

Other shareholder transactions			7				1						8		—		8
BALANCE AT OCTOBER 3, 2021	$	556	$	1,856	$	16,555	$	(8,974)	$	—	$	(1,911)	$	8,082	$	921	$	9,003

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 12)											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)
Share-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

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)



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

Net income					1,737								1,737		27		1,764
Other comprehensive income (loss), net of tax (Note 12)											71		71		(5)		66
Issuance of common stock			1										1		—		1

Repurchases of common stock							(1,228)						(1,228)		—		(1,228)
Cash dividends on common stock, $4.15 per share					(601)								(601)		—		(601)
Distributions to noncontrolling interests													—		(28)		(28)
Share-based awards			(4)				31						27		—		27

Other shareholder transactions			11				2						13		—		13
BALANCE AT OCTOBER 3, 2021	$	556	$	1,856	$	16,555	$	(8,974)	$	—	$	(1,911)	$	8,082	$	921	$	9,003

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					1,288								1,288		13		1,301
Other comprehensive loss, net of tax (Note 12)											(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													—		(26)		(26)
Share-based awards			(1)				79						78		—		78

Other shareholder transactions			3										3		8		11
BALANCE AT SEPTEMBER 27, 2020	$	556	$	1,829	$	15,118	$	(7,696)	$	—	$	(2,107)	$	7,700	$	941	$	8,641

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 nine 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 third quarters of 2021 and 2020 ended on October 3 and September 27, 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

Nine months ended

October 3,
2021

September 27,
2020

October 3,
2021

September 27,
2020

Options excluded

7,813

2,405

4,577

858,651

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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 October 3, 2021, was $774 million. We expect to recognize the related revenue of $134 million over the next 12 months and $640 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	October 3, 2021		December 31, 2020
Unbilled revenue	$	104	$	114
Deferred revenue, primarily extended warranty	1,642		1,531

We recognized revenue of $130 million and $410 million for the three and nine months ended October 3, 2021, compared with $84 million and $290 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 nine months ended October 3, 2021 or September 27, 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				Nine months ended
In millions	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
United States	$	3,177	$	2,805	$	9,500	$	7,522

China	679		705		2,468		2,037


India	294		166		841		406

Other international	1,818		1,442		5,362		4,016
Total net sales	$	5,968	$	5,118	$	18,171	$	13,981

Segment Revenue

Engine segment external sales by market were as follows:


	Three months ended				Nine months ended
In millions	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
Heavy-duty truck	$	662	$	486	$	1,941	$	1,226
Medium-duty truck and bus	501		389		1,461		1,177
Light-duty automotive	492		502		1,432		975
Total on-highway	1,655		1,377		4,834		3,378
Off-highway	306		240		942		755
Total sales	$	1,961	$	1,617	$	5,776	$	4,133

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Distribution segment external sales by region were as follows:

Three months ended

Nine months ended

In millions

October 3,
2021

September 27,
2020

October 3,
2021

September 27,
2020

North America

1,237

1,126