Cummins Reports Second Quarter 2022 Results

  • Second quarter revenues of $6.6 billion; GAAP1 Net Income of $702 million (10.7 percent of sales)
  • EBITDA in the second quarter was 16.0 percent of sales; Diluted EPS of $4.94
  • Second quarter results include $29 million ($0.16 per diluted share) of costs related to the separation of the Filtration business, and benefit of $47 million ($0.33 per diluted share) from adjusting the reserves related to the suspension of our operations in Russia.
  • The company is maintaining its full year 2022 guidance, expecting revenue to be up 8 percent and EBITDA of approximately 15.5 percent.

Cummins Inc. CMI today reported results for the second quarter of 2022.

Second quarter revenues of $6.6 billion increased 8 percent from the same quarter in 2021. Sales in North America increased 15 percent while international revenues decreased 2 percent, driven primarily by a slowdown in China and the indefinite suspension of our operations in Russia.

"The company achieved record revenues and solid profitability in the second quarter of 2022, with demand for our products remaining strong across most of our key markets and regions, apart from China," said President and CEO Jennifer Rumsey. "Employees across our organization have worked tirelessly in the face of supply chain challenges and rising costs that continue to impact our industry. While navigating these challenges, we will continue to focus on enabling our customers' success, driving cycle over cycle improvement in financial performance, investing in sustainable solutions that will protect our planet for future generations and returning excess cash to shareholders."

Net income attributable to Cummins in the second quarter was $702 million ($4.94 per diluted share) compared to $600 million ($4.10 per diluted share) in 2021.

Earnings before interest, taxes, depreciation and amortization (EBITDA) in the second quarter were $1.1 billion (16.0 percent of sales), compared to $974 million (15.9 percent of sales) a year ago. Second quarter results include costs of $29 million ($0.16 per diluted share) related to the separation of the Filtration business, and a $47 million benefit ($0.33 per diluted share) from adjusting the reserves related to the indefinite suspension of our operations in Russia. We also experienced $48 million ($0.34 per diluted share) of mark to market losses on investments that underpin our unqualified benefit plans in the second quarter, which compares to gains of $20 million a year ago. The tax rate in the second quarter was 17.3 percent including $36 million, or $0.25 per diluted share, of favorable discrete items.

2022 Outlook:

Based on the current forecast, Cummins is maintaining its full year 2022 guidance, expecting revenue to be up 8 percent and EBITDA of approximately 15.5 percent. The company plans to return approximately 50 percent of Operating Cash Flow to shareholders in the form of dividends and share repurchases.

Any expenses outside of the normal course of business associated with the separation of the Filtration business, the pending acquisition of Meritor, or indefinite suspension of our operations in Russia have been excluded from the outlook provided.

"High inflation and rising global interest rates have increased uncertainty about the pace of growth in the global economy. Demand for Cummins' products and services remains strong, and as a result we have maintained our projection for full year revenues and profitability from three months ago," said Rumsey. "We continue to monitor economic conditions closely and will adjust our operating plans should the outlook for our core markets weaken."

Second Quarter 2022 Highlights:

  • The company achieved significant milestones related to two previously announced acquisitions, Jacobs Vehicle Systems (JVS) and Meritor. In April 2022, Cummins completed the acquisition of JVS, adding engine braking and cylinder deactivation technologies which are key components to meeting current and future emissions regulations. On May 26th, Meritor's shareholders voted in favor of the Cummins acquisition bid, further validating the potential of what Cummins and Meritor can achieve together. The companies are working together to complete the acquisition this week as we have received all regulatory approvals to close the transaction.
  • The company announced several collaborations that further enable our customers to achieve their decarbonization goals. During the second quarter, Cummins announced collaborations with Daimler Truck North America and Scania to deliver fuel cell electric powertrains for heavy-duty truck applications, and with Komatsu on the development of zero-emissions haulage equipment, including hydrogen fuel cell solutions for large mining haul truck applications. Cummins, Chevron, and Walmart are also working together to integrate Cummins X15N natural gas engine, powered by renewable natural gas, into Walmart's heavy-duty truck fleet.
  • We continue to make progress on the planned separation of the Filtration business.
  • Cummins was ranked No. 4 on Forbes 2022 list of the Best Employers for Diversity, its highest ranking ever on that particular list, and named to 3BL Media's list of the 100 Best Corporate Citizens. In addition, the company posted its first Human Capital Management report detailing the ways the company strives to create a dynamic work environment, and published its 19th consecutive Sustainability Progress Report.
  • In July, the company announced Jennifer Rumsey, Cummins President & Chief Operating Officer, would assume the role of Chief Executive Officer, effective August 1, 2022. She is the seventh CEO, and first female, in the company's history. Tom Linebarger, Cummins long-standing CEO, assumed the role of Executive Chairman, which includes continuing to serve as Chairman on the Board of Directors and taking on select executive responsibilities, such as the pending acquisition of Meritor.

1 Generally Accepted Accounting Principles in the U.S.

Second quarter 2022 detail (all comparisons to same period in 2021):

The Engine, Distribution, Components and Power Systems results were all impacted by adjustments to the reserves related to the indefinite suspension of our operations in Russia.

Engine Segment

  • Sales - $2.8 billion, up 11 percent
  • Segment EBITDA - $422 million, or 15.2 percent of sales, compared to $402 million or 16.1 percent of sales. EBITDA includes $1 million of additional costs related to the indefinite suspension of our operations in Russia.
  • On-highway revenues increased 16 percent driven by pricing actions and strong demand in the North American truck markets, strong aftermarket demand and recovery in the bus market which was severely impacted by Covid-19 in the previous year. Off-highway revenues decreased 8 percent driven by a slowdown in China construction.
  • Sales increased 15 percent in North America and 1 percent in international markets, with higher demand in Western Europe offset by a decline in China.

Distribution Segment

  • Sales - $2.3 billion, up 17 percent
  • Segment EBITDA - $297 million, or 13.2 percent of sales, compared to $201 million or 10.5 percent of sales. EBITDA includes $45 million of benefits from adjusting the reserves related to the indefinite suspension of our operations in Russia.
  • Revenues in North America increased 21 percent and international sales increased by 10 percent
  • Higher revenues were primarily driven by increased demand for parts and service.

Components Segment

  • Sales - $2.0 billion, down 2 percent
  • Segment EBITDA - $352 million, or 18.1 percent of sales, compared to $301 million or 15.1 percent of sales. EBITDA includes $2 million of benefits from adjusting the reserves related to the indefinite suspension of our operations in Russia.
  • Revenues in North America increased by 13 percent and international sales decreased by 19 percent due to lower demand in China from a high base in 2021.

Power Systems Segment

  • Sales - $1.2 billion, up 5 percent
  • Segment EBITDA - $128 million, or 10.6 percent of sales, compared to $139 million, or 12.2 percent of sales. EBITDA includes $1 million of benefits from adjusting the reserves related to the indefinite suspension of our operations in Russia.
  • Power generation revenues were flat. Industrial revenues increased 7 percent due to stronger demand in mining and oil and gas markets for both engine systems and aftermarket products. Demand for alternators increased 33 percent due to supply chain constraints on external customers.

New Power Segment

  • Sales - $42 million, up 75 percent
  • Segment EBITDA loss - $80 million
  • Revenues increased due to higher battery demand in the North American school bus market.
  • Costs associated with the development of fuel cells and electrolyzers as well as products to support battery electric vehicles are contributing to EBITDA losses.

About Cummins Inc.

Cummins Inc., a global power leader, is a corporation of complementary business segments that design, manufacture, distribute and service a broad portfolio of power solutions. The company's products range from 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 generation and fuel cell products. Headquartered in Columbus, Indiana (U.S.), since its founding in 1919, Cummins employs approximately 59,900 people committed to powering a more prosperous world through three global corporate responsibility priorities critical to healthy communities: education, environment and equality of opportunity. Cummins serves its customers online, through a network of company-owned and independent distributor locations, and through thousands of dealer locations worldwide and earned about $2.1 billion on sales of $24.0 billion in 2021. See how Cummins is powering a world that's always on by accessing news releases and more information at https://www.cummins.com/always-on.

Forward-looking disclosure statement

Information provided in this release that is not purely historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our forecasts, guidance, preliminary results, expectations, hopes, beliefs and intentions on strategies regarding the future. These forward-looking statements include, without limitation, statements relating to our plans and expectations for our revenues and EBITDA. Our actual future results could differ materially from those projected in such forward-looking statements because of a number of factors, including, but not limited to: any adverse results of our internal review into our emissions certification process and compliance with emission standards; increased scrutiny from regulatory agencies, as well as unpredictability in the adoption, implementation and enforcement of emission standards around the world; changes in international, national and regional trade laws, regulations and policies; any adverse effects of the U.S. government's COVID-19 vaccine mandates; changes in taxation; global legal and ethical compliance costs and risks; increasingly stringent environmental laws and regulations; future bans or limitations on the use of diesel-powered products; any adverse effects of the conflict between Russia and Ukraine and the global response (including government bans or restrictions on doing business in Russia); failure to successfully execute or integrate the acquisition of Meritor, Inc.; failure to realize all of the anticipated benefits from our announced acquisition of Meritor, Inc.; raw material, transportation and labor price fluctuations and supply shortages; aligning our capacity and production with our demand; the actions of, and income from, joint ventures and other investees that we do not directly control; large truck manufacturers' and original equipment manufacturers' customers discontinuing outsourcing their engine supply needs or experiencing financial distress, bankruptcy or change in control; product recalls; variability in material and commodity costs; the development of new technologies that reduce demand for our current products and services; lower than expected acceptance of new or existing products or services; product liability claims; our sales mix of products; failure to complete, adverse results from or failure to realize the expected benefits of the separation of our filtration business; our plan to reposition our portfolio of product offerings through exploration of strategic acquisitions and divestitures and related uncertainties of entering such transactions; challenging markets for talent and ability to attract, develop and retain key personnel; climate change and global warming; exposure to potential security breaches or other disruptions to our information technology environment and data security; political, economic and other risks from operations in numerous countries including political, economic and social uncertainty and the evolving globalization of our business; competitor activity; increasing competition, including increased global competition among our customers in emerging markets; labor relations or work stoppages; foreign currency exchange rate changes; the performance of our pension plan assets and volatility of discount rates; the price and availability of energy; continued availability of financing, financial instruments and financial resources in the amounts, at the times and on the terms required to support our future business; and other risks detailed from time to time in our SEC filings, including particularly in the Risk Factors section of our 2021 Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are made only as of the date of this press release and we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. More detailed information about factors that may affect our performance may be found in our filings with the SEC, which are available at http://www.sec.gov or at http://www.cummins.com in the Investor Relations section of our website.

Presentation of Non-GAAP Financial Information

EBITDA is a non-GAAP measure used in this release and is defined and reconciled to what management believes to be the most comparable GAAP measure in a schedule attached to this release, except for forward-looking measures of EBITDA where a reconciliation to the corresponding GAAP measures is not available due to the variability, complexity and limited visibility of the non-cash items that are excluded from the non-GAAP outlook measure. Cummins presents this information as it believes it is useful to understanding the Company's operating performance, and because EBITDA is a measure used internally to assess the performance of the operating units.

Webcast information

Cummins management will host a teleconference to discuss these results today at 10 a.m. EDT. This teleconference will be webcast and available on the Investor Relations section of the Cummins website at www.cummins.com. Participants wishing to view the visuals available with the audio are encouraged to sign-in a few minutes prior to the start of the teleconference.

CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited) (a)

 

 

 

 

 

Three months ended

In millions, except per share amounts

 

June 30,
2022

 

July 4,
2021

NET SALES

 

$

6,586

 

 

$

6,111

Cost of sales

 

 

4,860

 

 

 

4,633

 

GROSS MARGIN

 

 

1,726

 

 

 

1,478

 

OPERATING EXPENSES AND INCOME

 

 

 

 

Selling, general and administrative expenses

 

 

622

 

 

 

600

 

Research, development and engineering expenses

 

 

299

 

 

 

276

 

Equity, royalty and interest income from investees

 

 

95

 

 

 

137

 

Other operating expense, net

 

 

3

 

 

 

4

 

OPERATING INCOME

 

 

897

 

 

 

735

 

Interest expense

 

 

34

 

 

 

29

 

Other (expense) income, net

 

 

(8

)

 

 

73

 

INCOME BEFORE INCOME TAXES

 

 

855

 

 

 

779

 

Income tax expense

 

 

148

 

 

 

167

 

CONSOLIDATED NET INCOME

 

 

707

 

 

 

612

 

Less: Net income attributable to noncontrolling interests

 

 

5

 

 

 

12

 

NET INCOME ATTRIBUTABLE TO CUMMINS INC.

 

$

702

 

 

$

600

 

 

 

 

 

 

EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.

 

 

 

 

Basic

 

$

4.97

 

 

$

4.14

 

Diluted

 

$

4.94

 

 

$

4.10

 

 

 

 

 

 

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING

 

 

 

 

Basic

 

 

141.2

 

 

 

145.1

 

Diluted

 

 

142.0

 

 

 

146.5

 

 

 

 

 

 

(a) Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America.

CUMMINS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF NET INCOME

(Unaudited) (a)

 

 

 

 

 

Six months ended

In millions, except per share amounts

 

June 30,
2022

 

July 4,
2021

NET SALES

 

$

12,971

 

 

$

12,203

Cost of sales

 

 

9,713

 

 

 

9,239

 

GROSS MARGIN

 

 

3,258

 

 

 

2,964

 

OPERATING EXPENSES AND INCOME

 

 

 

 

Selling, general and administrative expenses

 

 

1,237

 

 

 

1,174

 

Research, development and engineering expenses

 

 

597

 

 

 

536

 

Equity, royalty and interest income from investees

 

 

191

 

 

 

303

 

Other operating expense, net

 

 

114

 

 

 

12

 

OPERATING INCOME

 

 

1,501

 

 

 

1,545

 

Interest expense

 

 

51

 

 

 

57

 

Other (expense) income, net

 

 

(17

)

 

 

74

 

INCOME BEFORE INCOME TAXES

 

 

1,433

 

 

 

1,562

 

Income tax expense

 

 

303

 

 

 

339

 

CONSOLIDATED NET INCOME

 

 

1,130

 

 

 

1,223

 

Less: Net income attributable to noncontrolling interests

 

 

10

 

 

 

20

 

NET INCOME ATTRIBUTABLE TO CUMMINS INC.

 

$

1,120

 

 

$

1,203

 

 

 

 

 

 

EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.

 

 

 

 

Basic

 

$

7.90

 

 

$

8.24

 

Diluted

 

$

7.86

 

 

$

8.16

 

 

 

 

 

 

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING

 

 

 

 

Basic

 

 

141.7

 

 

 

146.0

 

Diluted

 

 

142.5

 

 

 

147.4

 

 

 

 

 

 

(a) Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America.

CUMMINS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited) (a)

 

 

 

 

 

In millions, except par value

 

June 30,
2022

 

December 31,
2021

ASSETS

 

 

 

 

Current assets

 

 

 

 

Cash and cash equivalents

 

$

2,462

 

 

$

2,592

 

Marketable securities

 

 

536

 

 

 

595

 

Total cash, cash equivalents and marketable securities

 

 

2,998

 

 

 

3,187

 

Accounts and notes receivable, net

 

 

4,156

 

 

 

3,990

 

Inventories

 

 

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, 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

 

 

1,461

 

 

 

1,488

 

Other assets

 

 

1,876

 

 

 

1,766

 

Total assets

 

$

24,477

 

 

$

23,710

 

 

 

 

 

 

LIABILITIES

 

 

 

 

Current liabilities

 

 

 

 

Accounts payable (principally trade)

 

$

3,405

 

 

$

3,021

 

Loans payable

 

 

165

 

 

 

208

 

Commercial paper

 

 

705

 

 

 

313

 

Accrued compensation, benefits and retirement costs

 

 

443

 

 

 

683

 

Current portion of accrued product warranty

 

 

796

 

 

 

755

 

Current portion of deferred revenue

 

 

871

 

 

 

855

 

Other accrued expenses

 

 

1,221

 

 

 

1,190

 

Current maturities of long-term debt

 

 

65

 

 

 

59

 

Total current liabilities

 

 

7,671

 

 

 

7,084

 

Long-term liabilities

 

 

 

 

Long-term debt

 

 

3,490

 

 

 

3,579

 

Pensions and other postretirement benefits

 

 

589

 

 

 

604

 

Accrued product warranty

 

 

714

 

 

 

684

 

Deferred revenue

 

 

852

 

 

 

850

 

Other liabilities

 

 

1,506

 

 

 

1,508

 

Total liabilities

 

$

14,822

 

 

$

14,309

 

 

 

 

 

 

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

 

 

(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

 

 

 

 

 

 

(a) Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America.

CUMMINS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) (a)

 

 

 

 

 

Three months ended

In millions

 

June 30,
2022

 

July 4,
2021

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

Consolidated net income

 

$

707

 

 

$

612

 

Adjustments to reconcile consolidated net income to net cash provided by operating activities

 

 

Depreciation and amortization

 

 

167

 

 

 

167

 

Deferred income taxes

 

 

(46

)

 

 

9

 

Equity in income of investees, net of dividends

 

 

14

 

 

 

22

 

Pension and OPEB expense

 

 

8

 

 

 

21

 

Pension contributions and OPEB payments

 

 

(12

)

 

 

(17

)

Share-based compensation expense

 

 

9

 

 

 

10

 

Russian suspension recoveries

 

 

(47

)

 

 

 

Loss (gain) on corporate owned life insurance

 

 

48

 

 

 

(20

)

Foreign currency remeasurement and transaction exposure

 

 

(3

)

 

 

9

 

Changes in current assets and liabilities, net of acquisitions

 

 

 

 

Accounts and notes receivable

 

 

165

 

 

 

43

 

Inventories

 

 

(209

)

 

 

(292

)

Other current assets

 

 

(8

)

 

 

6

 

Accounts payable

 

 

(58

)

 

 

(88

)

Accrued expenses

 

 

(30

)

 

 

193

 

Changes in other liabilities

 

 

(81

)

 

 

(34

)

Other, net

 

 

(25

)

 

 

(25

)

Net cash provided by operating activities

 

 

599

 

 

 

616

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

Capital expenditures

 

 

(147

)

 

 

(125

)

Investments in internal use software

 

 

(13

)

 

 

(11

)

Proceeds from sale of land

 

 

 

 

 

20

 

Investments in and net advances (to) from equity investees

 

 

(21

)

 

 

34

 

Acquisitions of businesses, net of cash acquired

 

 

(328

)

 

 

 

Investments in marketable securities—acquisitions

 

 

(236

)

 

 

(219

)

Investments in marketable securities—liquidations

 

 

207

 

 

 

174

 

Cash flows from derivatives not designated as hedges

 

 

(30

)

 

 

(2

)

Other, net

 

 

2

 

 

 

8

 

Net cash used in investing activities

 

 

(566

)

 

 

(121

)

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

Proceeds from borrowings

 

 

42

 

 

 

20

 

Net borrowings (payments) of commercial paper

 

 

394

 

 

 

(117

)

Payments on borrowings and finance lease obligations

 

 

(47

)

 

 

(17

)

Net borrowings under short-term credit agreements

 

 

(53

)

 

 

 

Dividend payments on common stock

 

 

(204

)

 

 

(197

)

Repurchases of common stock

 

 

(36

)

 

 

(672

)

Proceeds from issuing common stock

 

 

10

 

 

 

8

 

Other, net

 

 

 

 

 

(2

)

Net cash provided by (used in) financing activities

 

 

106

 

 

 

(977

)

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS

 

 

47

 

 

 

5

 

Net increase (decrease) in cash and cash equivalents

 

 

186

 

 

 

(477

)

Cash and cash equivalents at beginning of period

 

 

2,276

 

 

 

2,958

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

 

$

2,462

 

 

$

2,481

 

 

 

 

 

 

(a) Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America.

 

CUMMINS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) (a)

 

 

 

 

 

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

 

 

17

 

 

 

41

 

Pension contributions and OPEB payments

 

 

(55

)

 

 

(68

)

Share-based compensation expense

 

 

14

 

 

 

18

 

Russian suspension costs, net of recoveries

 

 

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

 

 

(245

)

 

 

 

Investments in marketable securities—acquisitions

 

 

(433

)

 

 

(362

)

Investments in marketable securities—liquidations

 

 

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

 

 

 

 

 

 

(a) Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America.

CUMMINS INC. AND SUBSIDIARIES

SEGMENT INFORMATION

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In millions

 

Engine

 

Distribution

 

Components

 

Power Systems

 

New Power

 

Total Segments

 

Intersegment
Eliminations (1)

 

Total

Three months ended June 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

External sales

 

$

2,092

 

 

$

2,247

 

 

$

1,477

 

 

$

734

 

 

$

36

 

 

$

6,586

 

 

$

 

 

$

6,586

 

Intersegment sales

 

 

683

 

 

 

6

 

 

 

473

 

 

 

469

 

 

 

6

 

 

 

1,637

 

 

 

(1,637

)

 

 

 

Total sales

 

 

2,775

 

 

 

2,253

 

 

 

1,950

 

 

 

1,203

 

 

 

42

 

 

 

8,223

 

 

 

(1,637

)

 

 

6,586

 

Research, development and engineering expenses

 

 

116

 

 

 

13

 

 

 

73

 

 

 

58

 

 

 

39

 

 

 

299

 

 

 

 

 

 

299

 

Equity, royalty and interest income (loss) from investees

 

 

59

 

 

 

21

 

 

 

9

 

 

 

10

 

 

 

(4

)

 

 

95

 

 

 

 

 

 

95

 

Interest income

 

 

1

 

 

 

3

 

 

 

2

 

 

 

1

 

 

 

 

 

 

7

 

 

 

 

 

 

7

 

Russian suspension costs (recoveries) (2)

 

 

1

 

 

 

(45

)

 

 

(2

)

 

 

(1

)

 

 

 

 

 

(47

)

 

 

 

 

 

(47

)

EBITDA (3)

 

 

422

 

 

 

297

 

 

 

352

 

 

 

128

 

 

 

(80

)

 

 

1,119

 

 

 

(64

)

 

 

1,055

 

Depreciation and amortization (4)

 

 

49

 

 

 

29

 

 

 

49

 

 

 

31

 

 

 

8

 

 

 

166

 

 

 

 

 

 

166

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA as a percentage of segment sales

 

 

15.2

%

 

 

13.2

%

 

 

18.1

%

 

 

10.6

%

 

 

NM

 

 

 

13.6

%

 

 

 

 

16.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended July 4, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

External sales

 

$

1,920

 

 

$

1,913

 

 

$

1,556

 

 

$

699

 

 

$

23

 

 

$

6,111

 

 

$

 

 

$

6,111

 

Intersegment sales

 

 

571

 

 

 

7

 

 

 

438

 

 

 

444

 

 

 

1

 

 

 

1,461

 

 

 

(1,461

)

 

 

 

Total sales

 

 

2,491

 

 

 

1,920

 

 

 

1,994

 

 

 

1,143

 

 

 

24

 

 

 

7,572

 

 

 

(1,461

)

 

 

6,111

 

Research, development and engineering expenses

 

 

99

 

 

 

12

 

 

 

79

 

 

 

60

 

 

 

26

 

 

 

276

 

 

 

 

 

 

276

 

Equity, royalty and interest income (loss) from investees

 

 

104

 

 

 

15

 

 

 

12

 

 

 

9

 

 

 

(3

)

 

 

137

 

 

 

 

 

 

137

 

Interest income

 

 

1

 

 

 

2

 

 

 

1

 

 

 

1

 

 

 

 

 

 

5

 

 

 

 

 

 

5

 

EBITDA (3)

 

 

402

 

 

 

201

 

 

 

301

 

 

 

139

 

 

 

(60

)

 

 

983

 

 

 

(9

)

 

 

974

 

Depreciation and amortization (4)

 

 

50

 

 

 

30

 

 

 

46

 

 

 

33

 

 

 

7

 

 

 

166

 

 

 

 

 

 

166

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA as a percentage of segment sales

 

 

16.1

%

 

 

10.5

%

 

 

15.1

%

 

 

12.2

%

 

 

NM

 

 

 

13.0

%

 

 

 

 

15.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

"NM" - not meaningful information

(1) Includes intersegment sales, intersegment profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the three months ended June 30, 2022 and July 4, 2021, except for $24 million of filtration separation costs in 2022.

(2) See "RUSSIAN OPERATIONS" note for additional information.

(3) EBITDA is defined as earnings or losses before interest expense, income taxes, depreciation and amortization and noncontrolling interests.

(4) Depreciation and amortization, as shown on a segment basis, excludes the amortization of debt discount and deferred costs included in the Condensed Consolidated Statements of Net Income as Interest expense. A portion of depreciation expense is included in Research, development and engineering expenses.

CUMMINS INC. AND SUBSIDIARIES

SEGMENT INFORMATION

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In millions

 

Engine

 

Distribution

 

Components

 

Power Systems

 

New Power

 

Total Segments

 

Intersegment
Eliminations (1)

 

Total

Six months ended June 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

External sales

 

$

4,141

 

 

$

4,358

 

 

$

2,994

 

 

$

1,417

 

 

$

61

 

 

$

12,971

 

 

$

 

 

$

12,971

 

Intersegment sales

 

 

1,387

 

 

 

12

 

 

 

944

 

 

 

946

 

 

 

12

 

 

 

3,301

 

 

 

(3,301

)

 

 

 

Total sales

 

 

5,528

 

 

 

4,370

 

 

 

3,938

 

 

 

2,363

 

 

 

73

 

 

 

16,272

 

 

 

(3,301

)

 

 

12,971

 

Research, development and engineering expenses

 

 

225

 

 

 

26

 

 

 

149

 

 

 

122

 

 

 

75

 

 

 

597

 

 

 

 

 

 

597

 

Equity, royalty and interest income (loss) from investees

 

 

103

 

(2)

 

37

 

 

 

37

 

 

 

21

 

 

 

(7

)

 

 

191

 

 

 

 

 

 

191

 

Interest income

 

 

5

 

 

 

5

 

 

 

3

 

 

 

2

 

 

 

 

 

 

15

 

 

 

 

 

 

15

 

Russian suspension costs (3)

 

 

33

 

(4)

 

55

 

 

 

4

 

 

 

19

 

 

 

 

 

 

111

 

 

 

 

 

 

111

 

EBITDA (5)

 

 

814

 

 

 

407

 

 

 

672

 

 

 

218

 

 

 

(147

)

 

 

1,964

 

 

 

(154

)

 

 

1,810

 

Depreciation and amortization (6)

 

 

100

 

 

 

57

 

 

 

92

 

 

 

62

 

 

 

15

 

 

 

326

 

 

 

 

 

 

326

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA as a percentage of total sales

 

 

14.7

%

 

 

9.3

%

 

 

17.1

%

 

 

9.2

%

 

 

NM

 

 

 

12.1

%

 

 

 

 

14.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended July 4, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

External sales

 

$

3,815

 

 

$

3,740

 

 

$

3,280

 

 

$

1,311

 

 

$

57

 

 

$

12,203

 

 

$

 

 

$

12,203

 

Intersegment sales

 

 

1,135

 

 

 

15

 

 

 

866

 

 

 

854

 

 

 

2

 

 

 

2,872

 

 

 

(2,872

)

 

 

 

Total sales

 

 

4,950

 

 

 

3,755

 

 

 

4,146

 

 

 

2,165

 

 

 

59

 

 

 

15,075

 

 

 

(2,872

)

 

 

12,203

 

Research, development and engineering expenses

 

 

191

 

 

 

25

 

 

 

154

 

 

 

117

 

 

 

49

 

 

 

536

 

 

 

 

 

 

536

 

Equity, royalty and interest income from investees

 

 

217

 

 

 

32

 

 

 

31

 

 

 

21

 

 

 

2

 

 

 

303

 

 

 

 

 

 

303

 

Interest income

 

 

4

 

 

 

3

 

 

 

2

 

 

 

2

 

 

 

 

 

 

11

 

 

 

 

 

 

11

 

EBITDA (5)

 

 

756

 

 

 

361

 

 

 

722

 

 

 

265

 

 

 

(111

)

 

 

1,993

 

 

 

(39

)

 

 

1,954

 

Depreciation and amortization (6)

 

 

101

 

 

 

60

 

 

 

94

 

 

 

68

 

 

 

12

 

 

 

335

 

 

 

 

 

 

335

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA as a percentage of total sales

 

 

15.3

%

 

 

9.6

%

 

 

17.4

%

 

 

12.2

%

 

 

NM

 

 

 

13.2

%

 

 

 

 

16.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

"NM" - not meaningful information

(1) Includes intersegment sales, intersegment profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the six months ended June 30, 2022 and July 4, 2021, except for $41 million of filtration separation costs in 2022.

(2) Includes a $28 million impairment of our joint venture with KAMAZ and $3 million of royalty charges as part of our costs associated with the suspension of our Russian operations. See "RUSSIAN OPERATIONS" note below for additional information.

(3) See "RUSSIAN OPERATIONS" note for additional information.

(4) Includes $31 million of Russian suspension costs reflected in the Equity, royalty and interest income (loss) from investees line above.

(5) EBITDA is defined as earnings or losses before interest expense, income taxes, depreciation and amortization and noncontrolling interests.

(6) Depreciation and amortization, as shown on a segment basis, excludes the amortization of debt discount and deferred costs included in the Condensed Consolidated Statements of Net Income as Interest expense. The amortization of debt discount and deferred costs was $2 million and $2 million for the six months ended June 30, 2022 and July 4, 2021, respectively. A portion of depreciation expense is included in Research, development and engineering expenses.

CUMMINS INC. AND SUBSIDIARIES

SEGMENT INFORMATION

(Unaudited)

 

A reconciliation of our segment information to the corresponding amounts in the Condensed Consolidated Statements of Net Income is shown in the table below:

 

 

 

Three months ended

 

Six months ended

In millions

 

June 30,
2022

 

July 4,
2021

 

June 30,
2022

 

July 4,
2021

EBITDA

 

$

1,055

 

 

$

974

 

 

$

1,810

 

 

$

1,954

 

 

 

 

 

 

 

 

 

 

EBITDA as a percentage of net sales

 

 

16.0

%

 

 

15.9

%

 

 

14.0

%

 

 

16.0

%

 

 

 

 

 

 

 

 

 

Less:

 

 

 

 

 

 

 

 

Interest expense

 

 

34

 

 

 

29

 

 

 

51

 

 

 

57

 

Depreciation and amortization

 

 

166

 

 

 

166

 

 

 

326

 

 

 

335

 

INCOME BEFORE INCOME TAXES

 

 

855

 

 

 

779

 

 

 

1,433

 

 

 

1,562

 

Less: Income tax expense

 

 

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

 

 

 

 

 

 

 

 

 

 

Net income attributable to Cummins Inc. as a percentage of net sales

 

 

10.7

%

 

 

9.8

%

 

 

8.6

%

 

 

9.9

%

 

We believe EBITDA is a useful measure of our operating performance as it assists investors and debt holders in comparing our performance on a consistent basis without regard to financing methods, capital structure, income taxes or depreciation and amortization methods, which can vary significantly depending upon many factors. This statement excludes forward looking measures of EBITDA where a reconciliation to the corresponding GAAP measures is not available due to the variability, complexity and limited visibility of non-cash items that are excluded from the non-GAAP outlook measure.

 

EBITDA is not in accordance with, or an alternative for, accounting principles generally accepted in the United States (GAAP) and may not be consistent with measures used by other companies. It should be considered supplemental data; however, the amounts included in the EBITDA calculation are derived from amounts included in the Condensed Consolidated Statements of Net Income. Above is a reconciliation of EBITDA to "Net income attributable to Cummins Inc." for each of the applicable periods.

CUMMINS INC. AND SUBSIDIARIES

SELECT FOOTNOTE DATA

(Unaudited)

 

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 periods was as follows:

 

 

 

Three months ended

 

Six months ended

In millions

 

June 30,
2022

 

July 4,
2021

 

June 30,
2022

 

July 4,
2021

Manufacturing entities

 

 

 

 

 

 

 

 

Beijing Foton Cummins Engine Co., Ltd.

 

$

14

 

$

46

 

$

28

 

$

85

Dongfeng Cummins Engine Company, Ltd.

 

 

11

 

 

 

21

 

 

 

27

 

 

 

52

 

Chongqing Cummins Engine Company, Ltd.

 

 

7

 

 

 

10

 

 

 

16

 

 

 

20

 

Tata Cummins, Ltd.

 

 

5

 

 

 

1

 

 

 

14

 

 

 

7

 

All other manufacturers

 

 

13

 

 

 

28

 

 

 

3

 

(1)

 

83

 

Distribution entities

 

 

 

 

 

 

 

 

Komatsu Cummins Chile, Ltda.

 

 

12

 

 

 

9

 

 

 

19

 

 

 

15

 

All other distributors

 

 

3

 

 

 

1

 

 

 

5

 

 

 

4

 

Cummins share of net income

 

 

65

 

 

 

116

 

 

 

112

 

 

 

266

 

Royalty and interest income

 

 

30

 

 

 

21

 

 

 

79

 

 

 

37

 

Equity, royalty and interest income from investees

 

$

95

 

 

$

137

 

 

$

191

 

 

$

303

 

 

 

 

 

 

 

 

 

 

(1) Includes a $28 million impairment of our joint venture with KAMAZ and $3 million of royalty charges as part of our costs associated with the suspension of our Russian operations. In addition, on February 7, 2022, we purchased Westport Fuel System Inc.'s stake in Cummins Westport Joint Venture. See "RUSSIAN OPERATIONS" note below for additional information.

RUSSIAN OPERATIONS

 

On March 17, 2022, the Board of Directors (the Board) decided to indefinitely suspend our operations in Russia due to the ongoing conflict in Ukraine. At the time of suspension, our Russian operations included a wholly-owned distributor in Russia, an unconsolidated joint venture (the Unconsolidated JV) with KAMAZ Publicly Traded Company (KAMAZ), a Russian truck manufacturer with whom we share the Unconsolidated JV, and direct sales into Russia from our other business segments. As a result of the suspension of operations, we evaluated the recoverability of assets in Russia and assessed other potential liabilities. We experienced and expect to continue to experience, an inability to collect customer receivables and may be the subject of litigation as a consequence of our suspension of commercial operations in Russia. We recorded a charge of $158 million in the first quarter related to these actions. In the second quarter, we recovered certain inventory and other expense amounts reserved in the first quarter and incurred some small additional charges resulting in a net recovery of $47 million. As of June 30, 2022, we had approximately $17 million of inventory and $26 million of receivables in Russia, all of which are fully reserved. In addition, we have cash balances of $84 million, some of which will be used to fund ongoing employee, tax and contract settlement obligations. The following summarizes the costs (recoveries) associated with the suspension of our Russian operations in our Condensed Consolidated Statements of Net Income:

 

 

 

Three months ended

 

Six months ended

 

 

In millions

 

June 30,
2022

 

June 30,
2022

 

Statement of Net Income Location

Inventory write-downs

 

$

(40

)

 

$

19

 

Cost of sales

Accounts receivable reserves

 

 

 

 

 

43

 

 

Other operating expense, net

Impairment and other joint venture costs

 

 

 

 

 

31

 

 

Equity, royalty and interest income from investees

Other

 

 

(7

)

 

 

18

 

 

Other operating expense, net

Total

 

$

(47

)

 

$

111

 

 

 

We will continue to evaluate the situation as conditions evolve and may take additional actions as deemed necessary in future periods.

ACQUISITIONS

On April 8, 2022, we completed the acquisition of Jacobs Vehicle Systems business (Jacobs) from Altra Industrial Motion Corp. Sales of this business were $194 million in 2021. The purchase price was $346 million in cash, subject to typical adjustments related to closing working capital and other amounts and does not contain any contingent consideration. Jacobs is a supplier of engine braking, cylinder deactivation and start and stop thermal management technologies. The acquisition furthers our investment in key technologies and capabilities to drive growth, while securing our supply base.

On February 21, 2022, we entered into an Agreement and Plan of Merger (the Merger Agreement) with Meritor, Inc. (Meritor) and Rose NewCo Inc. (Merger Sub) pursuant to which we agreed to acquire Meritor, a global leader of drivetrain, mobility, braking, aftermarket and electric powertrain solutions for commercial vehicle and industrial markets. At closing, Merger Sub will merge into Meritor with Meritor as the surviving entity and becoming our wholly-owned subsidiary. This acquisition will be reported in our Components and New Power segments. Pursuant to the terms of the Merger Agreement, we will pay $36.50 in cash per share of Meritor common stock, for a total transaction value of approximately $3.7 billion, including assumed debt and net of acquired cash. We plan to fund this acquisition with a combination of debt, commercial paper and cash.

On May 26th, Meritor's shareholders voted in favor of our acquisition bid. The companies are working together to complete the acquisition this week as we have received all regulatory approvals to close the transaction.

INCOME TAXES

Our effective tax rate for 2022 is expected to approximate 21.5 percent, excluding any discrete items that may arise.

Our effective tax rate for the three months ended June 30, 2022, was 17.3 percent and contained favorable discrete tax items of $36 million, or $0.25 per share, primarily due to $36 million of favorable changes in tax reserves, $10 million of favorable changes associated with uncertainty in our Russian operations and $8 million of net favorable other discrete tax items, partially offset by $18 million of unfavorable tax costs associated with internal restructuring ahead of the planned separation of our filtration business.

Our effective tax rate for the six months ended June 30, 2022, was 21.1 percent and contained favorable discrete tax items of $5 million, or $0.04 per share, primarily due to $27 million of favorable changes in tax reserves and $4 million of net favorable other discrete tax items, partially offset by $18 million of unfavorable tax costs associated with internal restructuring ahead of the planned separation of our filtration business and $8 million of unfavorable changes associated with uncertainty in our Russian operations.

Our effective tax rate for the three months ended July 4, 2021, was 21.4 percent and contained unfavorable discrete items of $7 million, or $0.05 per share, primarily due to a $10 million unfavorable statutory change in tax rates (mostly in the UK), partially offset by $3 million of other favorable discrete items.

Our effective tax rate for the six months ended July 4, 2021, was 21.7 percent and contained unfavorable discrete items of $3 million, or $0.02 per share, primarily due to a $10 million unfavorable statutory change in tax rates (mostly in the UK), partially offset by $7 million of other favorable discrete items.

CUMMINS INC. AND SUBSIDIARIES
BUSINESS UNIT SALES DATA
(Unaudited)

Engine Segment Sales by Market and Unit Shipments by Engine Classification

Sales for our Engine segment by market were as follows:

2022

 

 

 

 

 

 

 

 

 

 

In millions

 

Q1

 

Q2

 

Q3

 

Q4

 

YTD

Heavy-duty truck

 

$

908

 

$

1,001

 

$

 

$

 

$

1,909

Medium-duty truck and bus

 

 

848

 

 

 

875

 

 

 

 

 

 

 

 

 

1,723

 

Light-duty automotive

 

 

498

 

 

 

456

 

 

 

 

 

 

 

 

 

954

 

Off-highway

 

 

499

 

 

 

443

 

 

 

 

 

 

 

 

 

942

 

Total sales

 

$

2,753

 

 

$

2,775

 

 

$

 

 

$

 

 

$

5,528

 

 

 

 

 

 

 

 

 

 

 

 

2021

 

 

 

 

 

 

 

 

 

 

In millions

 

Q1

 

Q2

 

Q3

 

Q4

 

YTD

Heavy-duty truck

 

$

827

 

 

$

839

 

 

$

861

 

 

$

801

 

 

$

3,328

 

Medium-duty truck and bus

 

 

674

 

 

 

688

 

 

 

713

 

 

 

702

 

 

 

2,777

 

Light-duty automotive

 

 

481

 

 

 

484

 

 

 

515

 

 

 

432

 

 

 

1,912

 

Off-highway

 

 

477

 

 

 

480

 

 

 

489

 

 

 

491

 

 

 

1,937

 

Total sales

 

$

2,459

 

 

$

2,491

 

 

$

2,578

 

 

$

2,426

 

 

$

9,954

 

Unit shipments by engine classification (including unit shipments to Power Systems and off-highway engine units included in their respective classification) were as follows:

2022

 

 

 

 

 

 

 

 

 

 

Units

 

Q1

 

Q2

 

Q3

 

Q4

 

YTD