cmi-20220630

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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 June 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 June 30, 2022, there were 140,992,323 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 June 30, 2022 and July 4, 2021	3
	Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2022 and July 4, 2021	4

	Condensed Consolidated Balance Sheets at June 30, 2022 and December 31, 2021	5
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and July 4, 2021	6
	Condensed Consolidated Statements of Changes in Equity for the three and six months ended June 30, 2022 and July 4, 2021	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	52
ITEM 4.	Controls and Procedures	52
	PART II. OTHER INFORMATION
ITEM 1.	Legal Proceedings	52
ITEM 1A.	Risk Factors	53
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	54
ITEM 3.	Defaults Upon Senior Securities	54
ITEM 4.	Mine Safety Disclosures	54
ITEM 5.	Other Information	54
ITEM 6.	Exhibits	55
	Signatures	56

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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	June 30, 2022		July 4, 2021		June 30, 2022		July 4, 2021
NET SALES (a) (Note 2)	$	6,586	$	6,111	$	12,971	$	12,203
Cost of sales (Note 3)	4,860		4,633		9,713		9,239
GROSS MARGIN	1,726		1,478		3,258		2,964

OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses	622		600		1,237		1,174
Research, development and engineering expenses	299		276		597		536
Equity, royalty and interest income from investees (Notes 3 and 5)	95		137		191		303



Other operating expense, net (Note 3)	3		4		114		12
OPERATING INCOME	897		735		1,501		1,545


Interest expense	34		29		51		57
Other (expense) income, net	(8)		73		(17)		74
INCOME BEFORE INCOME TAXES	855		779		1,433		1,562

Income tax expense (Note 6)	148		167		303		339
CONSOLIDATED NET INCOME	707		612		1,130		1,223

Less: Net income attributable to noncontrolling interests	5		12		10		20
NET INCOME ATTRIBUTABLE TO CUMMINS INC.	$	702	$	600	$	1,120	$	1,203

EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
Basic	$	4.97	$	4.14	$	7.90	$	8.24
Diluted	$	4.94	$	4.10	$	7.86	$	8.16

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
Basic	141.2		145.1		141.7		146.0
Dilutive effect of stock compensation awards	0.8		1.4		0.8		1.4
Diluted	142.0		146.5		142.5		147.4



(a) Includes sales to nonconsolidated equity investees of $281 million and $625 million for the three and six months ended June 30, 2022, compared with $423 million and $901 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				Six months ended
In millions	June 30, 2022		July 4, 2021		June 30, 2022		July 4, 2021
CONSOLIDATED NET INCOME	$	707	$	612	$	1,130	$	1,223
Other comprehensive income (loss), net of tax (Note 13)
Change in pension and other postretirement defined benefit plans	6		17		22		46
Foreign currency translation adjustments	(245)		22		(241)		(34)

Unrealized gain (loss) on derivatives	43		(38)		71		34
Total other comprehensive (loss) income, net of tax	(196)		1		(148)		46
COMPREHENSIVE INCOME	511		613		982		1,269
Less: Comprehensive (loss) income attributable to noncontrolling interests	(10)		5		(13)		13
COMPREHENSIVE INCOME ATTRIBUTABLE TO CUMMINS INC.	$	521	$	608	$	995	$	1,256

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	June 30, 2022		December 31, 2021
ASSETS
Current assets
Cash and cash equivalents	$	2,462	$	2,592

Marketable securities (Note 7)	536		595
Total cash, cash equivalents and marketable securities	2,998		3,187
Accounts and notes receivable, net
Trade and other	3,869		3,565
Nonconsolidated equity investees	287		425
Inventories (Note 8)	4,765		4,355
Prepaid expenses and other current assets	843		777
Total current assets	12,762		12,309
Long-term assets
Property, plant and equipment	9,374		9,358
Accumulated depreciation	(4,985)		(4,936)
Property, plant and equipment, net	4,389		4,422
Investments and advances related to equity method investees	1,544		1,538
Goodwill	1,391		1,287
Other intangible assets, net	1,054		900
Pension assets (Note 4)	1,461		1,488
Other assets (Note 9)	1,876		1,766
Total assets	$	24,477	$	23,710

LIABILITIES
Current liabilities
Accounts payable (principally trade)	$	3,405	$	3,021
Loans payable (Note 10)	165		208
Commercial paper (Note 10)	705		313
Accrued compensation, benefits and retirement costs	443		683
Current portion of accrued product warranty (Note 11)	796		755
Current portion of deferred revenue (Note 2)	871		855

Other accrued expenses (Note 9)	1,221		1,190
Current maturities of long-term debt (Note 10)	65		59
Total current liabilities	7,671		7,084
Long-term liabilities
Long-term debt (Note 10)	3,490		3,579
Pensions and other postretirement benefits (Note 4)	589		604
Accrued product warranty (Note 11)	714		684
Deferred revenue (Note 2)	852		850
Other liabilities (Note 9)	1,506		1,508
Total liabilities	$	14,822	$	14,309

Commitments and contingencies (Note 12)

EQUITY
Cummins Inc. shareholders’ equity
Common stock, $2.50 par value, 500 shares authorized, 222.5 and 222.5 shares issued	$	2,423	$	2,427
Retained earnings	17,450		16,741
Treasury stock, at cost, 81.5 and 80.0 shares	(9,439)		(9,123)

Accumulated other comprehensive loss (Note 13)	(1,696)		(1,571)



Total Cummins Inc. shareholders’ equity	8,738		8,474
Noncontrolling interests	917		927
Total equity	$	9,655	$	9,401
Total liabilities and equity	$	24,477	$	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)


	Six months ended
In millions	June 30, 2022		July 4, 2021
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net income	$	1,130	$	1,223
Adjustments to reconcile consolidated net income to net cash provided by operating activities
Depreciation and amortization	328		337



Deferred income taxes	(112)		17
Equity in income of investees, net of dividends	(62)		(114)
Pension and OPEB expense (Note 4)	17		41
Pension contributions and OPEB payments (Note 4)	(55)		(68)
Share-based compensation expense	14		18




Russian suspension costs, net of recoveries (Note 3)	111		—
Asset impairments and other charges	36		—
Loss on corporate owned life insurance	85		12

Foreign currency remeasurement and transaction exposure	(10)		10
Changes in current assets and liabilities, net of acquisitions
Accounts and notes receivable	(252)		(331)
Inventories	(498)		(628)
Other current assets	(65)		(18)
Accounts payable	426		377
Accrued expenses	(281)		169
Changes in other liabilities	(11)		(34)

Other, net	(38)		(56)
Net cash provided by operating activities	763		955

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(251)		(212)
Investments in internal use software	(24)		(22)

Proceeds from sale of land	—		20
Investments in and net advances (to) from equity investees	(53)		10
Acquisitions of businesses, net of cash acquired (Note 14)	(245)		—

Investments in marketable securities—acquisitions	(433)		(362)
Investments in marketable securities—liquidations (Note 7)	461		381


Cash flows from derivatives not designated as hedges	(32)		12
Other, net	1		27
Net cash used in investing activities	(576)		(146)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings	56		20
Net borrowings (payments) of commercial paper	392		(123)
Payments on borrowings and finance lease obligations	(71)		(33)
Net payments under short-term credit agreements	(24)		(102)
Distributions to noncontrolling interests	(14)		(13)
Dividend payments on common stock	(411)		(394)
Repurchases of common stock	(347)		(1,090)
Proceeds from issuing common stock	19		26

Other, net	9		(13)
Net cash used in financing activities	(391)		(1,722)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	74		(7)
Net decrease in cash and cash equivalents	(130)		(920)
Cash and cash equivalents at beginning of year	2,592		3,401
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	2,462	$	2,481

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		Accumulated Other Comprehensive Loss		Total Cummins Inc. Shareholders’ Equity		Noncontrolling Interests		Total Equity
BALANCE AT MARCH 31, 2022	$	556	$	1,855	$	16,952	$	(9,412)	$	(1,515)	$	8,436	$	927	$	9,363

Net income					702						702		5		707
Other comprehensive loss, net of tax (Note 13)									(181)		(181)		(15)		(196)
Issuance of common stock			1								1		—		1

Repurchases of common stock							(36)				(36)		—		(36)
Cash dividends on common stock, $1.45 per share					(204)						(204)		—		(204)

Share-based awards			2				8				10		—		10

Other shareholder transactions			9				1				10		—		10
BALANCE AT JUNE 30, 2022	$	556	$	1,867	$	17,450	$	(9,439)	$	(1,696)	$	8,738	$	917	$	9,655

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 13)									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

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		Accumulated Other Comprehensive Loss		Total Cummins Inc. Shareholders’ Equity		Noncontrolling Interests		Total Equity
BALANCE AT DECEMBER 31, 2021	$	556	$	1,871	$	16,741	$	(9,123)	$	(1,571)	$	8,474	$	927	$	9,401

Net income					1,120						1,120		10		1,130
Other comprehensive loss, net of tax (Note 13)									(125)		(125)		(23)		(148)
Issuance of common stock			1								1		—		1

Repurchases of common stock							(347)				(347)		—		(347)
Cash dividends on common stock, $2.90 per share					(411)						(411)		—		(411)
Distributions to noncontrolling interests											—		(14)		(14)
Share-based awards			(7)				26				19		—		19

Other shareholder transactions			2				5				7		17		24
BALANCE AT JUNE 30, 2022	$	556	$	1,867	$	17,450	$	(9,439)	$	(1,696)	$	8,738	$	917	$	9,655

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 13)									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

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 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.

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 second quarters of 2022 and 2021 ended on June 30 and July 4, 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 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.

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

June 30,
2022

July 4,
2021

June 30,
2022

July 4,
2021

Options excluded

33,100

3,137

26,782

2,958

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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 June 30, 2022, was $723 million. We expect to recognize the related revenue of $128 million over the next 12 months and $595 million over periods up to 10 years. See NOTE 11, "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	June 30, 2022		December 31, 2021
Unbilled revenue	$	128	$	100
Deferred revenue, primarily extended warranty	1,723		1,705

We recognized revenue of $176 million and $416 million for the three and six months ended June 30, 2022, compared with $133 million and $302 million for the comparable periods in 2021, 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 June 30, 2022 or July 4, 2021.

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	June 30, 2022		July 4, 2021		June 30, 2022		July 4, 2021
United States	$	3,788	$	3,263	$	7,245	$	6,323

China	520		832		1,173		1,789


India	311		217		620		547

Other international	1,967		1,799		3,933		3,544
Total net sales	$	6,586	$	6,111	$	12,971	$	12,203

Segment Revenue

Engine segment external sales by market were as follows:


	Three months ended				Six months ended
In millions	June 30, 2022		July 4, 2021		June 30, 2022		July 4, 2021
Heavy-duty truck	$	797	$	666	$	1,481	$	1,279
Medium-duty truck and bus	620		477		1,211		960
Light-duty automotive	425		466		912		940
Total on-highway	1,842		1,609		3,604		3,179
Off-highway	250		311		537		636
Total sales	$	2,092	$	1,920	$	4,141	$	3,815

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Distribution segment external sales by region were as follows:


	Three months ended				Six months ended
In millions	June 30, 2022		July 4, 2021		June 30, 2022		July 4, 2021
North America	$	1,491	$	1,228	$	2,862	$	2,394
Asia Pacific	242		226		486		439
Europe	177