cmi-20220930

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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 30, 2022

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 30, 2022, there were 141,022,462 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 September 30, 2022 and October 3, 2021	3
	Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2022 and October 3, 2021	4

	Condensed Consolidated Balance Sheets at September 30, 2022 and December 31, 2021	5
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and October 3, 2021	6
	Condensed Consolidated Statements of Changes in Redeemable Noncontrolling Interests and Equity for the three and nine months ended September 30, 2022 and October 3, 2021	7
	Notes to Condensed Consolidated Financial Statements	9
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	58
ITEM 4.	Controls and Procedures	58
	PART II. OTHER INFORMATION
ITEM 1.	Legal Proceedings	60
ITEM 1A.	Risk Factors	60
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	61
ITEM 3.	Defaults Upon Senior Securities	62
ITEM 4.	Mine Safety Disclosures	62
ITEM 5.	Other Information	62
ITEM 6.	Exhibits	62
	Signatures	64

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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	September 30, 2022		October 3, 2021		September 30, 2022		October 3, 2021
NET SALES (a) (Note 2)	$	7,333	$	5,968	$	20,304	$	18,171
Cost of sales (Note 3)	5,691		4,554		15,404		13,793
GROSS MARGIN	1,642		1,414		4,900		4,378

OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses	708		571		1,945		1,745
Research, development and engineering expenses	348		266		945		802
Equity, royalty and interest income from investees (Notes 3 and 5)	70		94		261		397



Other operating expense, net (Note 3)	30		5		144		17
OPERATING INCOME	626		666		2,127		2,211


Interest expense	61		28		112		85
Other income, net	43		37		26		111
INCOME BEFORE INCOME TAXES	608		675		2,041		2,237

Income tax expense (Note 6)	199		134		502		473
CONSOLIDATED NET INCOME	409		541		1,539		1,764

Less: Net income attributable to noncontrolling interests	9		7		19		27
NET INCOME ATTRIBUTABLE TO CUMMINS INC.	$	400	$	534	$	1,520	$	1,737

EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
Basic	$	2.83	$	3.72	$	10.74	$	11.96
Diluted	$	2.82	$	3.69	$	10.68	$	11.86

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
Basic	141.1		143.5		141.5		145.2
Dilutive effect of stock compensation awards	0.9		1.2		0.8		1.3
Diluted	142.0		144.7		142.3		146.5



(a) Includes sales to nonconsolidated equity investees of $295 million and $920 million for the three and nine months ended September 30, 2022, compared with $385 million and $1,286 million for the comparable periods in 2021.

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 30, 2022		October 3, 2021		September 30, 2022		October 3, 2021
CONSOLIDATED NET INCOME	$	409	$	541	$	1,539	$	1,764
Other comprehensive income (loss), net of tax (Note 15)
Change in pension and other postretirement defined benefit plans	6		17		28		63
Foreign currency translation adjustments	(379)		—		(620)		(34)

Unrealized gain on derivatives	41		3		112		37
Total other comprehensive (loss) income, net of tax	(332)		20		(480)		66
COMPREHENSIVE INCOME	77		561		1,059		1,830
Less: Comprehensive (loss) income attributable to noncontrolling interests	(6)		9		(19)		22
COMPREHENSIVE INCOME ATTRIBUTABLE TO CUMMINS INC.	$	83	$	552	$	1,078	$	1,808

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 30, 2022		December 31, 2021
ASSETS
Current assets
Cash and cash equivalents	$	2,499	$	2,592

Marketable securities (Note 7)	466		595
Total cash, cash equivalents and marketable securities	2,965		3,187
Accounts and notes receivable, net
Trade and other	4,450		3,565
Nonconsolidated equity investees	349		425
Inventories (Note 8)	5,543		4,355
Prepaid expenses and other current assets	1,091		777
Total current assets	14,398		12,309
Long-term assets
Property, plant and equipment	10,231		9,358
Accumulated depreciation	(5,030)		(4,936)
Property, plant and equipment, net	5,201		4,422
Investments and advances related to equity method investees	1,826		1,538
Goodwill (Note 9)	2,229		1,287
Other intangible assets, net (Note 9)	2,602		900
Pension assets (Note 4)	1,536		1,488
Other assets (Note 10)	1,977		1,766
Total assets	$	29,769	$	23,710

LIABILITIES
Current liabilities
Accounts payable (principally trade)	$	4,000	$	3,021
Loans payable (Note 11)	217		208
Commercial paper (Note 11)	2,393		313
Accrued compensation, benefits and retirement costs	575		683
Current portion of accrued product warranty (Note 12)	801		755
Current portion of deferred revenue (Note 2)	921		855

Other accrued expenses (Note 10)	1,568		1,190
Current maturities of long-term debt (Note 11)	55		59
Total current liabilities	10,530		7,084
Long-term liabilities
Long-term debt (Note 11)	5,450		3,579
Pensions and other postretirement benefits (Note 4)	678		604
Accrued product warranty (Note 12)	742		684
Deferred revenue (Note 2)	867		850
Other liabilities (Note 10)	1,892		1,508
Total liabilities	$	20,159	$	14,309

Commitments and contingencies (Note 13)
Redeemable noncontrolling interests (Notes 1 and 14)	$	252	$	366

EQUITY
Cummins Inc. shareholders’ equity
Common stock, $2.50 par value, 500 shares authorized, 222.5 and 222.5 shares issued	$	2,214	$	2,099
Retained earnings	17,628		16,741
Treasury stock, at cost, 81.5 and 80.0 shares	(9,449)		(9,123)

Accumulated other comprehensive loss (Note 15)	(2,013)		(1,571)



Total Cummins Inc. shareholders’ equity	8,380		8,146
Noncontrolling interests	978		889
Total equity	$	9,358	$	9,035
Total liabilities, redeemable noncontrolling interests and equity	$	29,769	$	23,710

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 30, 2022		October 3, 2021
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net income	$	1,539	$	1,764
Adjustments to reconcile consolidated net income to net cash provided by operating activities
Depreciation and amortization	544		497



Deferred income taxes	(194)		44
Equity in income of investees, net of dividends	(30)		(150)
Pension and OPEB expense (Note 4)	23		62
Pension contributions and OPEB payments (Note 4)	(71)		(86)
Share-based compensation expense	24		25




Russian suspension costs, net of recoveries (Note 3)	112		—
Asset impairments and other charges	36		—
Loss on corporate owned life insurance	114		11

Foreign currency remeasurement and transaction exposure	(136)		27
Changes in current assets and liabilities, net of acquisitions
Accounts and notes receivable	(333)		(353)
Inventories	(597)		(919)
Other current assets	(18)		(45)
Accounts payable	353		416
Accrued expenses	(124)		435
Changes in other liabilities	(41)		(59)

Other, net	(56)		(145)
Net cash provided by operating activities	1,145		1,524

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(453)		(362)
Investments in internal use software	(44)		(36)

Proceeds from sale of land	—		20
Investments in and net advances from (to) equity investees	(50)		3
Acquisitions of businesses, net of cash acquired (Note 16)	(3,008)		—

Investments in marketable securities—acquisitions	(738)		(569)
Investments in marketable securities—liquidations (Note 7)	819		602


Cash flows from derivatives not designated as hedges	(29)		19
Other, net	7		45
Net cash used in investing activities	(3,496)		(278)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings (Notes 11 and 16)	2,076		35
Net borrowings (payments) of commercial paper	2,080		(123)
Payments on borrowings and finance lease obligations	(1,070)		(57)
Net borrowings (payments) under short-term credit agreements	21		(93)
Distributions to noncontrolling interests	(38)		(28)
Dividend payments on common stock	(633)		(601)
Repurchases of common stock	(370)		(1,228)
Proceeds from issuing common stock	36		27

Other, net	9		(11)
Net cash provided by (used in) financing activities	2,111		(2,079)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	147		20
Net decrease in cash and cash equivalents	(93)		(813)
Cash and cash equivalents at beginning of year	2,592		3,401
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	2,499	$	2,588

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 REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY

(Unaudited)


	Three months ended
In millions, except per share amounts	Redeemable Noncontrolling Interests		Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Loss		Total Cummins Inc. Shareholders’ Equity		Noncontrolling Interests		Total Equity
BALANCE AT JUNE 30, 2022	$	226	$	556	$	1,668	$	17,450	$	(9,439)	$	(1,696)	$	8,539	$	890	$	9,429

Net income	(7)						400						400		16		416
Other comprehensive loss, net of tax (Note 15)											(317)		(317)		(15)		(332)
Issuance of common stock					7								7		—		7

Repurchases of common stock									(23)				(23)		—		(23)
Cash dividends on common stock, $1.57 per share							(222)						(222)		—		(222)
Distributions to noncontrolling interests													—		(24)		(24)
Share-based awards					4				13				17		—		17
Acquisition of business													—		111		111
Fair value adjustment of redeemable noncontrolling interests	33				(33)								(33)		—		(33)
Other shareholder transactions					12								12		—		12
BALANCE AT SEPTEMBER 30, 2022	$	252	$	556	$	1,658	$	17,628	$	(9,449)	$	(2,013)	$	8,380	$	978	$	9,358

BALANCE AT JULY 4, 2021	$	346	$	556	$	1,548	$	16,228	$	(8,838)	$	(1,929)	$	7,565	$	882	$	8,447

Net income	(3)						534						534		10		544
Other comprehensive income, net of tax (Note 15)											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

Fair value adjustment of redeemable noncontrolling interests	(42)				42								42		—		42
Other shareholder transactions					7				1				8		—		8
BALANCE AT OCTOBER 3, 2021	$	301	$	556	$	1,597	$	16,555	$	(8,974)	$	(1,911)	$	7,823	$	879	$	8,702

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 REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY

(Unaudited)



	Nine months ended
In millions, except per share amounts	Redeemable Noncontrolling Interests		Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Loss		Total Cummins Inc. Shareholders’ Equity		Noncontrolling Interests		Total Equity
BALANCE AT DECEMBER 31, 2021	$	366	$	556	$	1,543	$	16,741	$	(9,123)	$	(1,571)	$	8,146	$	889	$	9,035

Net income	(18)						1,520						1,520		37		1,557
Other comprehensive loss, net of tax (Note 15)											(442)		(442)		(38)		(480)
Issuance of common stock					8								8		—		8

Repurchases of common stock									(370)				(370)		—		(370)
Cash dividends on common stock, $4.47 per share							(633)						(633)		—		(633)
Distributions to noncontrolling interests													—		(38)		(38)
Share-based awards					(3)				39				36		—		36
Acquisition of business													—		111		111
Fair value adjustment of redeemable noncontrolling interests	(96)				96								96		—		96
Other shareholder transactions					14				5				19		17		36
BALANCE AT SEPTEMBER 30, 2022	$	252	$	556	$	1,658	$	17,628	$	(9,449)	$	(2,013)	$	8,380	$	978	$	9,358

BALANCE AT DECEMBER 31, 2020	$	282	$	556	$	1,617	$	15,419	$	(7,779)	$	(1,982)	$	7,831	$	876	$	8,707

Net income	(9)						1,737						1,737		36		1,773
Other comprehensive income (loss), net of tax (Note 15)											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

Fair value adjustment of redeemable noncontrolling interests	28				(28)								(28)		—		(28)
Other shareholder transactions					11				2				13		—		13
BALANCE AT OCTOBER 3, 2021	$	301	$	556	$	1,597	$	16,555	$	(8,974)	$	(1,911)	$	7,823	$	879	$	8,702

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, axles, drivelines, brakes, suspension systems, electric power generation systems, batteries, electrified power systems, electric powertrains, 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 service network of approximately 500 wholly-owned, joint venture and independent distributor locations and more than 10,000 Cummins certified dealer locations in approximately 190 countries and territories.

Meritor Acquisition

On August 3, 2022, we completed the acquisition of Meritor, Inc. (Meritor) with a purchase price of $2.9 billion (including debt repaid concurrent with the acquisition). Our consolidated results and segment results include Meritor's activity since the date of acquisition. The results are included in our Components segment in the axles and brakes business while the electric powertrain portion is included in our New Power segment. See NOTE 16, "ACQUISITIONS," for additional information.

Reporting Period

Beginning in 2022, we transitioned to a Gregorian calendar with our reporting period ending on the last day of the quarterly calendar period. In 2021 and prior, our reporting period ended on the Sunday closest to the last day of the quarterly calendar period. The third quarters of 2022 and 2021 ended on September 30 and October 3, respectively. Our fiscal year ends on December 31, regardless of the day of the week on which December 31 falls.

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, 2021. 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.

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Revisions

During the third quarter of 2022, we determined that a put right held by a minority shareholder in one of our subsidiaries, which became exercisable in September 2022, was incorrectly classified as noncontrolling interests (NCI) as opposed to mezzanine equity in our Condensed Consolidated Balance Sheets. Because the put right was exercisable at fair value (as defined in the governing documents of the subsidiary), the NCI should have also been reflected at fair value at each balance sheet date with an offset to additional paid-in-capital (APIC). As a result, we have revised our historical financial statements to reflect the NCI at its estimated fair value as redeemable noncontrolling interests in our Condensed Consolidated Balance Sheets with a corresponding offset in NCI and APIC. This error did not impact our Condensed Consolidated Statements of Net Income, Condensed Consolidated Statements of Comprehensive Income or Condensed Consolidated Statements of Cash Flows for any period. The amount reclassified from NCI and APIC was as follows:


In millions	Noncontrolling Interests		Additional Paid-in Capital		Total Correction to Mezzanine Equity
December 31, 2019	$	58	$	—	$	58