CUMMINS INC
10-Qs and 10-Ks
PROXIES
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, 2024
Commission File Number
1-4949
(Exact name of registrant as specified in its charter)
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| (State of Incorporation) | (IRS Employer Identification No.) | |||||||
(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 | ||||||||||||
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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):
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x | Accelerated filer | ☐ | Non-accelerated filer | ☐ | ||||||||||||||||||
| Smaller reporting company |
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Emerging growth company |
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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, 2024, there were
137,047,646
shares of common stock outstanding with a par value of $
2.50
per share.
1
CUMMINS INC. AND SUBSIDIARIES
TABLE OF CONTENTS
QUARTERLY REPORT ON FORM 10-Q
| Page | ||||||||
| Condensed Consolidated Statements of Net Income for the three and six months ended June 30, 2024 and 2023 | ||||||||
| Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2024 and 2023 | ||||||||
| Condensed Consolidated Balance Sheets at June 30, 2024 and December 31, 2023 | ||||||||
| Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2024 and 2023 | ||||||||
| Condensed Consolidated Statements of Changes in Redeemable Noncontrolling Interests and Equity for the three and six months ended June 30, 2024 and 2023 | ||||||||
2
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 | |||||||||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||||||||
| In millions, except per share amounts | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||
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NET SALES
(Notes 1 and 2)
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| Cost of sales |
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| GROSS MARGIN |
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| OPERATING EXPENSES AND INCOME | ||||||||||||||||||||||||||
| Selling, general and administrative expenses |
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| Research, development and engineering expenses |
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| Equity, royalty and interest income from investees (Note 4) |
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| Other operating expense, net |
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| OPERATING INCOME |
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| Interest expense |
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| Other income, net (Note 14) |
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| INCOME BEFORE INCOME TAXES |
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| Income tax expense (Note 5) |
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| CONSOLIDATED NET INCOME |
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| Less: Net income attributable to noncontrolling interests |
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| NET INCOME ATTRIBUTABLE TO CUMMINS INC. | $ |
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$ |
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$ |
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$ |
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| EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC. | ||||||||||||||||||||||||||
| Basic | $ |
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$ |
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$ |
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$ |
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| Diluted | $ |
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$ |
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$ |
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$ |
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| WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING | ||||||||||||||||||||||||||
| Basic |
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| Dilutive effect of stock compensation awards |
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| Diluted |
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The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
3
CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| Three months ended | Six months ended | |||||||||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||||||||
| In millions | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||
| CONSOLIDATED NET INCOME | $ |
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$ |
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$ |
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$ |
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| Other comprehensive (loss) income, net of tax (Note 12) | ||||||||||||||||||||||||||
| Change in pension and other postretirement defined benefit plans |
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| Foreign currency translation adjustments |
(
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| Unrealized (loss) gain on derivatives |
(
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| Total other comprehensive loss, net of tax |
(
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(
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(
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| COMPREHENSIVE INCOME |
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| Less: Comprehensive income attributable to noncontrolling interests |
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| COMPREHENSIVE INCOME ATTRIBUTABLE TO CUMMINS INC. | $ |
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$ |
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$ |
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$ |
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The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
4
CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| In millions, except par value |
June 30,
2024 |
December 31,
2023 |
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| ASSETS | ||||||||||||||
| Current assets | ||||||||||||||
| Cash and cash equivalents | $ |
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$ |
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| Marketable securities (Note 6) |
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| Total cash, cash equivalents and marketable securities |
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| Accounts and notes receivable, net |
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| Inventories (Note 7) |
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| Prepaid expenses and other current assets |
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| Total current assets |
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| Long-term assets | ||||||||||||||
| Property, plant and equipment |
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| Accumulated depreciation |
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(
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| Property, plant and equipment, net |
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| Investments and advances related to equity method investees |
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| Goodwill |
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| Other intangible assets, net |
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| Pension assets (Note 3) |
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| Other assets (Note 8) |
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| Total assets | $ |
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$ |
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| LIABILITIES | ||||||||||||||
| Current liabilities | ||||||||||||||
| Accounts payable (principally trade) | $ |
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| Loans payable (Note 9) |
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| Commercial paper (Note 9) |
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| Current maturities of long-term debt (Note 9) |
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| Accrued compensation, benefits and retirement costs |
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| Current portion of accrued product warranty (Note 10) |
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| Current portion of deferred revenue (Note 2) |
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| Other accrued expenses (Note 8) |
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| Total current liabilities |
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| Long-term liabilities | ||||||||||||||
| Long-term debt (Note 9) |
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| Deferred revenue (Note 2) |
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| Other liabilities (Note 8) |
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| Total liabilities | $ |
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$ |
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| Commitments and contingencies (Note 11) |
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| EQUITY | ||||||||||||||
| Cummins Inc. shareholders’ equity | ||||||||||||||
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Common stock, $
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$ |
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| Retained earnings |
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Treasury stock, at cost,
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(
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(
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| Accumulated other comprehensive loss (Note 12) |
(
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(
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| Total Cummins Inc. shareholders’ equity |
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| Noncontrolling interests |
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| Total equity | $ |
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$ |
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| Total liabilities and equity | $ |
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$ |
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The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
5
CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Six months ended | ||||||||||||||
| June 30, | ||||||||||||||
| In millions | 2024 | 2023 | ||||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||||
| Consolidated net income | $ |
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$ |
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| Adjustments to reconcile consolidated net income to net cash (used in) provided by operating activities | ||||||||||||||
| Gain related to divestiture of Atmus (Note 14) |
(
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| Depreciation and amortization |
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| Deferred income taxes |
(
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(
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| Equity in income of investees, net of dividends |
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| Pension and OPEB expense (Note 3) |
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| Pension contributions and OPEB payments (Note 3) |
(
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| Changes in current assets and liabilities, net of acquisitions and divestitures | ||||||||||||||
| Accounts and notes receivable |
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| Inventories |
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| Other current assets |
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| Accounts payable |
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| Accrued expenses (Notes 1 and 11) |
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| Other, net |
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| Net cash (used in) provided by operating activities |
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| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||||
| Capital expenditures |
(
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(
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| Acquisition of businesses, net of cash acquired (Note 15) |
(
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| Investments in marketable securities—acquisitions |
(
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(
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| Investments in marketable securities—liquidations (Note 6) |
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| Cash associated with Atmus divestiture |
(
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| Other, net |
(
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(
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| Net cash used in investing activities |
(
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(
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| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||||
| Proceeds from borrowings |
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| Net borrowings (payments) of commercial paper |
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(
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| Payments on borrowings and finance lease obligations |
(
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(
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| Dividend payments on common stock |
(
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(
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| Other, net |
(
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(
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| Net cash provided by (used in) financing activities |
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(
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| EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS |
(
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(
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| Net decrease in cash and cash equivalents |
(
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(
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| Cash and cash equivalents at beginning of year |
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| CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ |
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$ |
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The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
6
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 MARCH 31, 2024 | $ |
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$ |
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$ |
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$ |
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$ |
(
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$ |
(
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$ |
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$ |
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$ |
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| Net income |
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| Other comprehensive loss, net of tax (Note 12) |
(
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(
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(
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(
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| Issuance of common stock |
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— |
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Cash dividends on common stock, $
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(
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(
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— |
(
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| Share-based awards |
(
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— |
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| Other shareholder transactions |
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(
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(
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| BALANCE AT JUNE 30, 2024 | $ |
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$ |
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$ |
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$ |
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$ |
(
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$ |
(
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$ |
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$ |
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$ |
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| BALANCE AT MARCH 31, 2023 | $ |
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$ |
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$ |
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$ |
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$ |
(
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$ |
(
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$ |
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| Net income |
(
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| Other comprehensive loss, net of tax (Note 12) |
(
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(
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(
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(
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| Issuance of common stock |
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— |
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Cash dividends on common stock, $
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(
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(
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— |
(
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| Distributions to noncontrolling interests | — |
(
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(
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| Share-based awards |
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| Fair value adjustment of redeemable noncontrolling interests |
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(
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— |
(
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| Acquisition of redeemable noncontrolling interests (Note 15) |
(
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— | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Sale of Atmus stock (Note 14) |
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(
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| Other shareholder transactions |
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— |
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| BALANCE AT JUNE 30, 2023 | $ |
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$ |
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$ |
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$ |
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(
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$ |
(
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$ |
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$ |
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The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
7
| Six 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 |
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| BALANCE AT DECEMBER 31, 2023 | $ |
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$ |
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$ |
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$ |
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$ |
(
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$ |
(
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$ |
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| Net income |
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| Other comprehensive loss, net of tax (Note 12) |
(
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(
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(
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(
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| Issuance of common stock |
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— |
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Cash dividends on common stock, $
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(
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(
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— |
(
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| Distributions to noncontrolling interests | — |
(
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(
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| Share-based awards |
(
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— |
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| Divestiture of Atmus (Note 14) |
(
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(
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(
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(
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| Other shareholder transactions |
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(
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(
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| BALANCE AT JUNE 30, 2024 | $ |
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$ |
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$ |
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$ |
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$ |
(
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$ |
(
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$ |
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$ |
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$ |
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| BALANCE AT DECEMBER 31, 2022 | $ |
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$ |
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$ |
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$ |
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$ |
(
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$ |
(
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$ |
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$ |
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$ |
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| Net income |
(
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| Other comprehensive (loss) income, net of tax (Note 12) |
(
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(
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(
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| Issuance of common stock |
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— |
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Cash dividends on common stock, $
|
(
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(
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— |
(
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| Distributions to noncontrolling interests | — |
(
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(
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| Share-based awards |
(
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— |
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| Fair value adjustment of redeemable noncontrolling interests |
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(
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(
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— |
(
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| Acquisition of redeemable noncontrolling interests (Note 15) |
(
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— | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Sale of Atmus stock (Note 14) |
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(
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| Other shareholder transactions |
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| BALANCE AT JUNE 30, 2023 | $ |
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$ |
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$ |
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$ |
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$ |
(
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$ |
(
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$ |
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$ |
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$ |
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The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
8
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 solutions leader comprised of five business segments - Components, Engine, Distribution, Power Systems and Accelera - supported by our global manufacturing and extensive service and support network, skilled workforce and vast technical expertise. Our products range from advanced diesel, natural gas, electric and hybrid powertrains and powertrain-related components including aftertreatment, turbochargers, fuel systems, valvetrain technologies, controls systems, air handling systems, automated transmissions, axles, drivelines, brakes, suspension systems, electric power generation systems, batteries, electrified power systems, hydrogen production technologies 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
450
wholly-owned, joint venture and independent distributor locations and more than
19,000
Cummins certified dealer locations in approximately
190
countries and territories.
Divestiture of Atmus
On March 18, 2024, we completed the divestiture of our remaining
80.5
percent ownership of Atmus Filtration Technologies Inc. (Atmus) common stock through a tax-free split-off. See NOTE 14, "ATMUS INITIAL PUBLIC OFFERING (IPO) AND DIVESTITURE," for additional information.
Settlement Agreements
In December 2023, we announced that we reached an agreement in principle with the U.S. Environmental Protection Agency (EPA), the California Air Resources Board (CARB), the Environmental and Natural Resources Division of the U.S. Department of Justice and the California Attorney General's Office to resolve certain regulatory civil claims regarding our emissions certification and compliance process for certain engines primarily used in pick-up truck applications in the U.S., which became final and effective in April 2024 (collectively, the Settlement Agreements). In the second quarter of 2024, we made $
1.9
billion of payments required by the Settlement Agreements. See NOTE 11, “COMMITMENTS AND CONTINGENCIES,” for additional information.
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 consolidated 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, 2023
. 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.
9
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, | June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Options excluded |
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|
|
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Related Party Transactions
In accordance with the provisions of various joint venture agreements, we may purchase products and components from our joint ventures, sell products and components to our joint ventures and our joint ventures may sell products and components to unrelated parties.
The following is a summary of sales to and purchases from nonconsolidated equity investees:
| Three months ended | Six months ended | |||||||||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||||||||
| In millions | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||
| Sales to nonconsolidated equity investees | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
| Purchases from nonconsolidated equity investees |
|
|
|
|
||||||||||||||||||||||
The following is a summary of accounts receivable from and accounts payable to nonconsolidated equity investees:
| In millions |
June 30,
2024 |
December 31,
2023 |
Balance Sheet Location | |||||||||||||||||
| Accounts receivable from nonconsolidated equity investees | $ |
|
$ |
|
Accounts and notes receivable, net | |||||||||||||||
| Accounts payable to nonconsolidated equity investees |
|
|
Accounts payable (principally trade) | |||||||||||||||||
Supply Chain Financing
We currently have supply chain financing programs with financial intermediaries, which provide certain vendors the option to be paid by financial intermediaries earlier than the due date on the applicable invoice. When a vendor utilizes the program and receives an early payment from a financial intermediary, they take a discount on the invoice. We then pay the financial intermediary the face amount of the invoice on the original due date, which generally have
60
to
90
day payment terms. The maximum amount that we could have outstanding under these programs was $
538
million at June 30, 2024. We do not reimburse vendors for any costs they incur for participation in the program, their participation is completely voluntary and there are no assets pledged as security or other forms of guarantees provided for the committed payment to the finance provider or intermediary. As a result, all amounts owed to the financial intermediaries are presented as accounts payable in our
Condensed Consolidated Balance Sheets
. Amounts due to the financial intermediaries reflected in accounts payable at June 30, 2024, and December 31, 2023, were $
212
million and $
199
million, respectively.
Accounts Receivable Sales Program
In May 2024, we entered into an accounts receivable sales agreement with Wells Fargo Bank, N.A., to sell certain accounts receivable up to a Board approved limit of $
500
million. We classify proceeds received from the sales of accounts receivable as an operating cash flow in the
Condensed Consolidated Statements of Cash Flows
, and we record the discount as other expense, net in the
Condensed Consolidated Statements of Net Income.
There was no material activity under the program in the second quarter of 2024.
10
NOTE 2. REVENUE FROM CONTRACTS WITH CUSTOMERS
Long-term Contracts
We have certain arrangements, primarily long-term maintenance agreements, construction contracts, product sales with associated performance obligations extending beyond a year, product sales with lead times extending beyond one year that are non-cancellable or for which the customer incurs a penalty for cancellation and extended warranty coverage arrangements that span a period in excess of one year. The aggregate amount of the transaction price for these contracts, excluding extended warranty coverage arrangements, as of June 30, 2024, was $
2.9
billion. We expect to recognize the related revenue of $
1.5
billion over the next
12
months and $
1.4
billion 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 |
June 30,
2024 |
December 31,
2023 |
||||||||||||
| Unbilled revenue | $ |
|
$ |
|
||||||||||
| Deferred revenue |
|
|
||||||||||||
We recognized revenue of $
250
million and $
498
million for the three and six months ended June 30, 2024, compared with $
178
million and $
384
million for the comparable periods in 2023, 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, 2024 or 2023.
Disaggregation of Revenue
Consolidated Revenue
The table below presents our consolidated net sales by geographic area based on the location of the customer:
| Three months ended | Six months ended | |||||||||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||||||||
| In millions | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||
| United States | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
| China |
|
|
|
|
||||||||||||||||||||||
| India |
|
|
|
|
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| Other international |
|
|
|
|
||||||||||||||||||||||
| Total net sales | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
Segment Revenue
Beginning in the second quarter of 2024, we realigned certain businesses within our Components segment to be consistent with how our segment manager now monitors performance. We reorganized the businesses to combine the engine components and software and electronics businesses into the newly formed components and software business. In addition, we rebranded our axles and brakes business as drivetrain and braking systems. We began reporting results for these changes within our Components segment effective April 1, 2024, and reflected these changes in the historical periods presented. The change had no impact on our consolidated results.
11
Components segment external sales by business were as follows:
| Three months ended | Six months ended | |||||||||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||||||||
| In millions | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||
| Drivetrain and braking systems | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
| Emission solutions |
|
|
|
|
||||||||||||||||||||||
| Components and software |
|
|
|
|
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| Automated transmissions |
|
|
|
|
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| Atmus |
|
|
|
(1)
|
|
|||||||||||||||||||||
| Total sales | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
|
(1)
Included sales through the March 18, 2024, divestiture. See NOTE 14, "ATMUS INITIAL PUBLIC OFFERING (IPO) AND DIVESTITURE," for additional information.
|
||||||||||||||||||||||||||
Engine segment external sales by market were as follows:
| Three months ended | Six months ended | |||||||||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||||||||
| In millions | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||
| Heavy-duty truck | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
| Medium-duty truck and bus |
|
|
|
|
||||||||||||||||||||||
| Light-duty automotive |
|
|
|
|
||||||||||||||||||||||
| Total on-highway |
|
|
|
|
||||||||||||||||||||||
| Off-highway |
|
|
|
|
||||||||||||||||||||||
| Total sales | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
Distribution segment external sales by region were as follows:
| Three months ended | Six months ended | |||||||||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||||||||
| In millions | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||
| North America | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
| Asia Pacific |
|
|
|
|
||||||||||||||||||||||
| Europe |
|
|
|
|
||||||||||||||||||||||
| China |
|
|
|
|
||||||||||||||||||||||
| India |
|
|
|
|
||||||||||||||||||||||
| Latin America |
|
|
|
|
||||||||||||||||||||||
| Africa and Middle East |
|
|
|
|
||||||||||||||||||||||
| Total sales | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
Distribution segment external sales by product line were as follows:
| Three months ended | Six months ended | |||||||||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||||||||
| In millions | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||
| Parts | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
| Power generation |
|
|
|
|
||||||||||||||||||||||
| Service |
|
|
|
|
||||||||||||||||||||||
| Engines |
|
|
|
|
||||||||||||||||||||||
| Total sales | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
12
Power Systems segment external sales by product line were as follows:
| Three months ended | Six months ended | |||||||||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||||||||
| In millions | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||
| Power generation | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
| Industrial |
|
|
|
|
||||||||||||||||||||||
| Generator technologies |
|
|
|
|
||||||||||||||||||||||
| Total sales | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
NOTE 3. PENSIONS AND OTHER POSTRETIREMENT BENEFITS
We sponsor funded and unfunded domestic and foreign defined benefit pension and other postretirement benefit (OPEB) plans.
Contributions to these plans were as follows:
| Three months ended | Six months ended | |||||||||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||||||||
| In millions | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||
| Defined benefit pension contributions | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
| OPEB payments, net |
|
|
|
|
||||||||||||||||||||||
| Defined contribution pension plans |
|
|
|
|
||||||||||||||||||||||
We anticipate making additional defined benefit pension contributions during the remainder of 2024 of $
22
million for our U.S. and U.K. qualified and non-qualified pension plans. These contributions may be made from trusts or company funds either to increase pension assets or to make direct benefit payments to plan participants. We expect our 2024 annual net periodic pension cost to approximate $
34
million.
The components of net periodic pension and OPEB expense (income) under our plans were as follows:
| Pension | ||||||||||||||||||||||||||||||||||||||
| U.S. Plans | U.K. Plans | OPEB | ||||||||||||||||||||||||||||||||||||
| Three months ended June 30, | ||||||||||||||||||||||||||||||||||||||
| In millions | 2024 | 2023 | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||||||||||||
| Service cost | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||||||
| Interest cost |
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
| Expected return on plan assets |
(
|
(
|
(
|
(
|
|
|
||||||||||||||||||||||||||||||||
| Amortization of prior service cost |
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
| Recognized net actuarial loss |
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
| Net periodic benefit expense (income) | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
$ |
|
||||||||||||||||||||||||||
| Pension | ||||||||||||||||||||||||||||||||||||||
| U.S. Plans | U.K. Plans | OPEB | ||||||||||||||||||||||||||||||||||||
| Six months ended June 30, | ||||||||||||||||||||||||||||||||||||||
| In millions | 2024 | 2023 | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||||||||||||
| Service cost | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||||||
| Interest cost |
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
| Expected return on plan assets |
(
|
(
|
(
|
(
|
|
|
||||||||||||||||||||||||||||||||
| Amortization of prior service cost |
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
| Recognized net actuarial loss (gain) |
|
|
|
|
(
|
(
|
||||||||||||||||||||||||||||||||
| Net periodic benefit expense (income) | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
$ |
|
||||||||||||||||||||||||||
13
NOTE 4. 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 | |||||||||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||||||||
| In millions | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||
| Manufacturing entities | ||||||||||||||||||||||||||
| Chongqing Cummins Engine Company, Ltd. | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
| Dongfeng Cummins Engine Company, Ltd. |
|
|
|
|
||||||||||||||||||||||
| Beijing Foton Cummins Engine Co., Ltd. |
|
|
|
|
||||||||||||||||||||||
| Tata Cummins, Ltd. |
|
|
|
|
||||||||||||||||||||||
| All other manufacturers |
|
|
|
|
||||||||||||||||||||||
| Distribution entities | ||||||||||||||||||||||||||
| Komatsu Cummins Chile, Ltda. |
|
|
|
|
||||||||||||||||||||||
| All other distributors |
|
|
|
|
||||||||||||||||||||||
| Cummins share of net income |
|
|
|
|
||||||||||||||||||||||
| Royalty and interest income |
|
|
|
|
||||||||||||||||||||||
| Equity, royalty and interest income from investees | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
NOTE 5. INCOME TAXES
Our effective tax rates for the three and six months ended June 30, 2024, were
23.0
percent and
13.1
percent, respectively. Our effective tax rates for the three and six months ended June 30, 2023, were
22.3
percent and
22.0
percent, respectively.
The three months ended June 30, 2024, contained favorable discrete tax items of $
9
million primarily due to share-based compensation tax benefits.
The six months ended June 30, 2024, contained favorable discrete tax items primarily due to the $
1.3
billion non-taxable gain on the Atmus split-off. Other discrete tax items were $
30
million favorable primarily due to adjustments related to audit settlements and share-based compensation benefits.
The three months ended June 30, 2023, contained net unfavorable discrete tax items of $
3
million.
The six months ended June 30, 2023, contained net discrete tax items of
zero
, as the result of offsetting amounts for the first two quarters, primarily due to share-based compensation tax benefits and other discrete items.
14
NOTE 6. MARKETABLE SECURITIES
A summary of marketable securities, all of which were classified as current, was as follows:
|
June 30,
2024 |
December 31,
2023 |
|||||||||||||||||||||||||||||||||||||
| In millions | Cost |
Gross unrealized gains/(losses)
(1)
|
Estimated
fair value |
Cost |
Gross unrealized gains/(losses)
(1)
|
Estimated
fair value |
||||||||||||||||||||||||||||||||
| Equity securities | ||||||||||||||||||||||||||||||||||||||
| Level 1 | ||||||||||||||||||||||||||||||||||||||
| Publicly-traded shares | $ |
|
$ |
(
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||||||
| Level 2 | ||||||||||||||||||||||||||||||||||||||
| Debt mutual funds |
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
| Certificates of deposit |
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
| Equity mutual funds |
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
| Debt securities |
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
| Marketable securities | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||||||
|
(1)
Unrealized gains and losses for debt securities are recorded in other comprehensive income while unrealized gains and losses for equity securities are recorded in our
Condensed Consolidated Statements of Net Income
.
|
||||||||||||||||||||||||||||||||||||||
The fair value of Level 1 securities is derived from the market price at the end of the period. The fair value of Level 2 securities is estimated using actively quoted prices for similar instruments from brokers and observable inputs where available, including market transactions and third-party pricing services, or net asset values provided to investors. We do not currently have any Level 3 securities, and there were no transfers between levels during the six months ended June 30, 2024, or the year ended December 31, 2023. All debt securities are classified as available-for-sale.
A description of the valuation techniques and inputs used for our Level 2 fair value measures is as follows:
•
Debt mutual funds
— The fair value measures for the vast majority of these investments are the daily net asset values published on a regulated governmental website. Daily quoted prices are available from the issuing brokerage and are used on a test basis to corroborate this Level 2 input measure.
•
Certificates of deposit
— These investments provide us with a contractual rate of return and generally range in maturity from
three months
to
five years
. The counterparties to these investments are reputable financial institutions with investment grade credit ratings. Since these instruments are not tradable and must be settled directly by us with the respective financial institution, our fair value measure is the financial institution's month-end statement.
•
Equity mutual funds
— The fair value measures for these investments are the net asset values published by the issuing brokerage. Daily quoted prices are available from reputable third-party pricing services and are used on a test basis to corroborate this Level 2 input measure.
•
Debt securities
— The fair value measures for these securities are broker quotes received from reputable firms. These securities are infrequently traded on a national exchange and these values are used on a test basis to corroborate our Level 2 input measure.
The proceeds from sales and maturities of marketable securities were as follows:
| Six months ended | ||||||||||||||
| June 30, | ||||||||||||||
| In millions | 2024 | 2023 | ||||||||||||
| Proceeds from sales of marketable securities | $ |
|
$ |
|
||||||||||
| Proceeds from maturities of marketable securities |
|
|
||||||||||||
| Investments in marketable securities - liquidations | $ |
|
$ |
|
||||||||||
15
NOTE 7. INVENTORIES
Inventories are stated at the lower of cost or net realizable value.
Inventories included the following:
| In millions |
June 30,
2024 |
December 31,
2023 |
||||||||||||
| Finished products | $ |
|
$ |
|
||||||||||
| Work-in-process and raw materials |
|
|
||||||||||||
| Inventories at FIFO cost |
|
|
||||||||||||
| Excess of FIFO over LIFO |
(
|
(
|
||||||||||||
| Inventories | $ |
|
$ |
|
||||||||||
NOTE 8. SUPPLEMENTAL BALANCE SHEET DATA
Other assets included the following:
| In millions |
June 30,
2024 |
December 31,
2023 |
||||||||||||
| Deferred income taxes | $ |
|
$ |
|
||||||||||
| Operating lease assets |
|
|
||||||||||||
| Corporate owned life insurance |
|
|
||||||||||||
| Other |
|
|
||||||||||||
| Other assets | $ |
|
$ |
|
||||||||||
Other accrued expenses included the following:
| In millions |
June 30,
2024 |
December 31,
2023 |
||||||||||||
| Marketing accruals | $ |
|
$ |
|
||||||||||
| Income taxes payable |
|
|
||||||||||||
| Other taxes payable |
|
|
||||||||||||
| Current portion of operating lease liabilities |
|
|
||||||||||||
|
Settlement Agreements
(1)
|
|
|
||||||||||||
| Other |
|
|
||||||||||||
| Other accrued expenses | $ |
|
$ |
|
||||||||||
|
(1)
See NOTE 11, "COMMITMENTS AND CONTINGENCIES," for additional information.
|
||||||||||||||
Other liabilities included the following:
| In millions |
June 30,
2024 |
December 31,
2023 |
||||||||||||
|
Accrued product warranty
(1)
|
$ |
|
$ |
|
||||||||||
| Pensions |
|
|
||||||||||||
| Deferred income taxes |
|
|
||||||||||||
| Operating lease liabilities |
|
|
||||||||||||
| Accrued compensation |
|
|
||||||||||||
| Other postretirement benefits |
|
|
||||||||||||
| Mark-to-market valuation on interest rate derivatives |
|
|
||||||||||||
| Long-term income taxes |
|
|
||||||||||||
| Other |
|
|
||||||||||||
| Other liabilities | $ |
|
$ |
|
||||||||||
|
(1)
See NOTE 10, "PRODUCT WARRANTY LIABILITY," for additional information.
|
||||||||||||||
16
NOTE 9. DEBT
Loans Payable and Commercial Paper
Loans payable, commercial paper and the related weighted-average interest rates were as follows:
| In millions |
June 30,
2024 |
December 31,
2023 |
||||||||||||
|
Loans payable
(1)
|
$ |
|
$ |
|
||||||||||
|
Commercial paper
(2)
|
|
|
||||||||||||
|
(1)
Loans payable consist primarily of notes payable to various domestic and international financial institutions. It is not practicable to aggregate these notes and calculate a quarterly weighted-average interest rate.
|
||||||||||||||
|
(2)
The weighted-average interest rate, inclusive of all brokerage fees, was
|
||||||||||||||
We can issue up to $
4.0
billion of unsecured, short-term promissory notes (commercial paper) pursuant to the Board of Directors authorized commercial paper programs. These programs facilitate the private placement of unsecured short-term debt through third-party brokers. We intend to use the net proceeds from the commercial paper borrowings for general corporate purposes.
Revolving Credit Facilities
On June 3, 2024, we entered into an amended and restated five-year credit agreement that allows us to borrow up to $
2.0
billion of unsecured funds at any time prior to June 3, 2029. The credit agreement amended and restated the prior $
2.0
billion five-year credit agreement that would have matured on August 18, 2026.
On June 3, 2024, we entered into an amended and restated 364-day credit agreement that allows us to borrow up to $
2.0
billion of unsecured funds at any time prior to June 2, 2025. This credit agreement amended and restated the prior $
2.0
billion 364-day credit facility that matured on June 3, 2024.
Our committed credit facilities provide access up to $
4.0
billion, including our $
2.0
billion 364-day facility that expires June 2, 2025, and our $
2.0
billion five-year facility that expires on June 3, 2029. We intend to maintain credit facilities at the current or higher aggregate amounts by renewing or replacing these facilities at or before expiration. These revolving credit facilities are maintained primarily to provide backup liquidity for our commercial paper borrowings and general corporate purposes. There were no outstanding borrowings under these facilities at June 30, 2024, and December 31, 2023. At June 30, 2024, the $
1.6
billion of outstanding commercial paper effectively reduced the $
4.0
billion of revolving credit capacity to $
2.4
billion.
At June 30, 2024, we also had an additional $
385
million available for borrowings under our international and other domestic credit facilities.
17
Long-term Debt
A summary of long-term debt was as follows:
| In millions | Interest Rate |
June 30,
2024 |
December 31,
2023 |
|||||||||||||||||
| Long-term debt | ||||||||||||||||||||
| Hydrogenics promissory notes, due 2024 and 2025 | —% | $ |
|
$ |
|
|||||||||||||||
|
Term loan, due 2025
(1) (2)
|
Variable |
|
|
|||||||||||||||||
|
Senior notes, due 2025
(3)
|
|
|
|
|||||||||||||||||
|
Atmus term loan, due 2027
(4)
|
Variable | — |
|
|||||||||||||||||
| Debentures, due 2027 |
|
|
|
|||||||||||||||||
| Debentures, due 2028 |
|
|
|
|||||||||||||||||
| Senior notes, due 2029 |
|
|
|
|||||||||||||||||
|
Senior notes, due 2030
(3)
|
|
|
|
|||||||||||||||||
| Senior notes, due 2034 |
|
|
|
|||||||||||||||||
| Senior notes, due 2043 |
|
|
|
|||||||||||||||||
| Senior notes, due 2050 |
|
|
|
|||||||||||||||||
| Senior notes, due 2054 |
|
|
|
|||||||||||||||||
|
Debentures, due 2098
(5)
|
|
|
|
|||||||||||||||||
| Other debt |
|
|
||||||||||||||||||
| Unamortized discount and deferred issuance costs |
(
|
(
|
||||||||||||||||||
| Fair value adjustments due to hedge on indebtedness |
(
|
(
|
||||||||||||||||||
| Finance leases |
|
|
||||||||||||||||||
| Total long-term debt |
|
|
||||||||||||||||||
| Less: Current maturities of long-term debt |
|
|
||||||||||||||||||
| Long-term debt | $ |
|
$ |
|
||||||||||||||||
|
(1)
During the first six months of 2024, we repaid $
|
||||||||||||||||||||
|
(2)
In 2023, we entered into a series of interest rate swaps in order to trade a portion of the floating rate debt into fixed rate. See "Interest Rate Risk" in NOTE 13, "DERIVATIVES," for additional information.
|
||||||||||||||||||||
|
(3)
In 2021, we entered into a series of interest rate swaps to effectively convert debt from a fixed rate to floating rate. See "Interest Rate Risk" in NOTE 13, "DERIVATIVES," for additional information.
|
||||||||||||||||||||
|
(4)
See NOTE 14, "ATMUS INITIAL PUBLIC OFFERING (IPO) AND DIVESTITURE," for additional information.
|
||||||||||||||||||||
|
(5)
The effective interest rate is
|
||||||||||||||||||||
On February 20, 2024, we issued $
2.25
billion aggregate principal amount of senior unsecured notes consisting of $
500
million aggregate principal amount of
4.90
percent senior unsecured notes due in 2029, $
750
million aggregate principal amount of
5.15
percent senior unsecured notes due in 2034 and $
1.0
billion aggregate principal amount of
5.45
percent senior unsecured notes due in 2054. We received net proceeds of $
2.2
billion. The senior unsecured notes pay interest semi-annually on February 20 and August 20, commencing on August 20, 2024. The indenture governing the senior unsecured notes contains covenants that, among other matters, limit (i) our ability to consolidate or merge into, or sell, assign, convey, lease, transfer or otherwise dispose of all or substantially all of our and our subsidiaries' assets to another person, (ii) our and certain of our subsidiaries' ability to create or assume liens and (iii) our and certain of our subsidiaries' ability to engage in sale and leaseback transactions.
Principal payments required on long-term debt during the next five years are as follows:
| In millions | 2024 | 2025 | 2026 | 2027 | 2028 | |||||||||||||||||||||||||||
| Principal payments | $ |
|
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||
18
Fair Value of Debt
Based on borrowing rates currently available to us for bank loans with similar terms and average maturities, considering our risk premium, the fair values and carrying values of total debt, including current maturities, were as follows:
| In millions |
June 30,
2024 |
December 31,
2023 |
||||||||||||
|
Fair value of total debt
(1)
|
$ |
|
$ |
|
||||||||||
| Carrying value of total debt |
|
|
||||||||||||
|
(1)
The fair value of debt is derived from Level 2 input measures.
|
||||||||||||||
NOTE 10. PRODUCT WARRANTY LIABILITY
A tabular reconciliation of the product warranty liability, including the deferred revenue related to our extended warranty coverage and accrued product campaigns, was as follows:
| Six months ended | ||||||||||||||
| June 30, | ||||||||||||||
| In millions | 2024 | 2023 | ||||||||||||
| Balance at beginning of year | $ |
|
$ |
|
||||||||||
| Provision for base warranties issued |
|
|
||||||||||||
| Deferred revenue on extended warranty contracts sold |
|
|
||||||||||||
| Provision for product campaigns issued |
|
|
||||||||||||
| Payments made during period |
(
|
(
|
||||||||||||
| Amortization of deferred revenue on extended warranty contracts |
(
|
(
|
||||||||||||
| Changes in estimates for pre-existing product warranties and campaigns |
|
|
||||||||||||
| Foreign currency translation adjustments and other |
(
|
|
||||||||||||
| Balance at end of period | $ |
|
$ |
|
||||||||||
We recognized supplier recoveries of $
12
million and $
34
million for the three and six months ended June 30, 2024, compared with $
2
million and $
12
million for the comparable periods in 2023.
Warranty related deferred revenues and warranty liabilities on our
Condensed Consolidated Balance Sheets
were as follows:
| In millions |
June 30,
2024 |
December 31,
2023 |
Balance Sheet Location | |||||||||||||||||
| Deferred revenue related to extended coverage programs | ||||||||||||||||||||
| Current portion | $ |
|
$ |
|
Current portion of deferred revenue | |||||||||||||||
| Long-term portion |
|
|
Deferred revenue | |||||||||||||||||
| Total | $ |
|
$ |
|
||||||||||||||||
| Product warranty | ||||||||||||||||||||
| Current portion | $ |
|
$ |
|
Current portion of accrued product warranty | |||||||||||||||
| Long-term portion |
|
|
Other liabilities | |||||||||||||||||
| Total | $ |
|
$ |
|
||||||||||||||||
| Total warranty accrual | $ |
|
$ |
|
||||||||||||||||
19
NOTE 11. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
We are subject to numerous lawsuits and claims arising out of the ordinary course of our business, including actions related to product liability; personal injury; the use and performance of our products; warranty matters; product recalls; patent, trademark or other intellectual property infringement; contractual liability; the conduct of our business; tax reporting in foreign jurisdictions; distributor termination; workplace safety; environmental and regulatory matters, including the enforcement of environmental and emissions standards; and asbestos claims. We also have been identified as a potentially responsible party at multiple waste disposal sites under U.S. federal and related state environmental statutes and regulations and may have joint and several liability for any investigation and remediation costs incurred with respect to such sites. We have denied liability with respect to many of these lawsuits, claims and proceedings and are vigorously defending such lawsuits, claims and proceedings. We carry various forms of commercial, property and casualty, product liability and other forms of insurance; however, such insurance may not be applicable or adequate to cover the costs associated with a judgment against us with respect to these lawsuits, claims and proceedings. We do not believe that these lawsuits are material individually or in the aggregate. While we believe we have also established adequate accruals for our expected future liability with respect to pending lawsuits, claims and proceedings, where the nature and extent of any such liability can be reasonably estimated based upon then presently available information, there can be no assurance that the final resolution of any existing or future lawsuits, claims or proceedings will not have a material adverse effect on our business, results of operations, financial condition or cash flows.
We conduct significant business operations in Brazil that are subject to the Brazilian federal, state and local labor, social security, tax and customs laws. While we believe we comply with such laws, they are complex, subject to varying interpretations and we are often engaged in litigation regarding the application of these laws to particular circumstances.
In December 2023, we announced that we reached an agreement in principle with the EPA, CARB, the Environmental and Natural Resources Division of the U.S. Department of Justice and the California Attorney General’s Office to resolve certain regulatory civil claims regarding our emissions certification and compliance process for certain engines primarily used in pick-up truck applications in the U.S., which became final and effective in April 2024 (collectively, the Settlement Agreements). As part of the Settlement Agreements, among other things, we agreed to pay civil penalties, complete recall requirements, undertake mitigation projects, provide extended warranties, undertake certain testing, take certain corporate compliance measures and make other payments. Failure to comply with the Settlement Agreements will subject us to stipulated penalties. We recorded a charge of $
2.0
billion in the fourth quarter of 2023 to resolve the matters addressed by the Settlement Agreements involving approximately one million of our pick-up truck applications in the U.S. This charge was in addition to the previously announced charges of $
59
million for the recalls of model years 2013 through 2018 RAM 2500 and 3500 trucks and model years 2016 through 2019 Titan trucks. We made $
1.9
billion of payments required by the Settlement Agreements in the second quarter of 2024.
We have also been in communication with other non-U.S. regulators regarding matters related to the emission systems in our engines and may also become subject to additional regulatory review in connection with these matters.
In connection with our announcement of our entry into the agreement in principle, we became subject to shareholder, consumer and third-party litigation regarding the matters covered by the Settlement Agreements, and we may become subject to additional litigation in connection with these matters.
The consequences resulting from the resolution of the foregoing matters are uncertain and the related expenses and reputational damage could have a material adverse impact on our results of operations, financial condition and cash flows.
Guarantees and Commitments
Periodically, we enter into guarantee arrangements, including guarantees of non-U.S. distributor financings, residual value guarantees on equipment under operating leases and other miscellaneous guarantees of joint ventures or third-party obligations. At June 30, 2024, the maximum potential loss related to these guarantees was $
49
million.
We have arrangements with certain suppliers that require us to purchase minimum volumes or be subject to monetary penalties. At June 30, 2024, if we were to stop purchasing from each of these suppliers, the aggregate amount of the penalty would be approximately $
584
million. These arrangements enable us to secure supplies of critical components and IT services. We do not currently anticipate paying any penalties under these contracts.
We enter into physical forward contracts with suppliers of platinum, palladium and iridium to purchase certain volumes of the commodities at contractually stated prices for various periods, which generally fall within
two years
. At June 30, 2024, the total commitments under these contracts were $
67
million. These arrangements enable us to guarantee the prices of these commodities, which otherwise are subject to market volatility.
20
We have guarantees with certain customers that require us to satisfactorily honor contractual or regulatory obligations, or compensate for monetary losses related to nonperformance. These performance bonds and other performance-related guarantees were $
220
million at June 30, 2024.
Indemnifications
Periodically, we enter into various contractual arrangements where we agree to indemnify a third-party against certain types of losses. Common types of indemnities include:
•
product liability and license, patent or trademark indemnifications;
•
asset sale agreements where we agree to indemnify the purchaser against future environmental exposures related to the asset sold; and
•
any contractual agreement where we agree to indemnify the counterparty for losses suffered as a result of a misrepresentation in the contract.
We regularly evaluate the probability of having to incur costs associated with these indemnities and accrue for expected losses that are probable. Because the indemnifications are not related to specified known liabilities and due to their uncertain nature, we are unable to estimate the maximum amount of the potential loss associated with these indemnifications.
21
NOTE 12. ACCUMULATED OTHER COMPREHENSIVE LOSS
Following are the changes in accumulated other comprehensive income (loss) by component for the three months ended:
| In millions | Change in pension and OPEB plans |
Foreign currency
translation adjustment |
Unrealized gain
(loss) on derivatives |
Total
attributable to Cummins Inc. |
Noncontrolling
interests |
Total | ||||||||||||||||||||||||||||||||
| Balance at March 31, 2024 | $ |
(
|
$ |
(
|
$ |
|
$ |
(
|
||||||||||||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | ||||||||||||||||||||||||||||||||||||||
| Before-tax amount |
|
(
|
|
(
|
$ |
(
|
$ |
(
|
||||||||||||||||||||||||||||||
| Tax benefit (expense) |
|
|
(
|
|
|
|
||||||||||||||||||||||||||||||||
| After-tax amount |
|
(
|
|
(
|
(
|
(
|
||||||||||||||||||||||||||||||||
|
Amounts reclassified from accumulated other comprehensive income (loss)
(1)
|
|
|
(
|
|
|
|
||||||||||||||||||||||||||||||||
| Net current period other comprehensive income (loss) |
|
(
|
(
|
(
|
$ |
(
|
$ |
(
|
||||||||||||||||||||||||||||||
| Balance at June 30, 2024 | $ |
(
|
$ |
(
|
$ |
|
$ |
(
|
||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ |
(
|
$ |
(
|
$ |
|
$ |
(
|
||||||||||||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | ||||||||||||||||||||||||||||||||||||||
| Before-tax amount |
|
(
|
|
(
|
$ |
(
|
$ |
(
|
||||||||||||||||||||||||||||||
| Tax benefit (expense) |
|
|
(
|
|
|
|
||||||||||||||||||||||||||||||||
| After-tax amount |
|
(
|
|
(
|
(
|
(
|
||||||||||||||||||||||||||||||||
|
Amounts reclassified from accumulated other comprehensive income (loss)
(1)
|
|
|
(
|
(
|
|
(
|
||||||||||||||||||||||||||||||||
| Net current period other comprehensive income (loss) |
|
(
|
|
(
|
$ |
(
|
$ |
(
|
||||||||||||||||||||||||||||||
| Balance at June 30, 2023 | $ |
(
|
$ |
(
|
$ |
|
$ |
(
|
||||||||||||||||||||||||||||||
|
(1)
Amounts are net of tax. Reclassifications out of accumulated other comprehensive income (loss) and the related tax effects are immaterial for separate disclosure.
|
||||||||||||||||||||||||||||||||||||||
22
Following are the changes in accumulated other comprehensive income (loss) by component for the six months ended:
| In millions | Change in pension and OPEB plans |
Foreign currency
translation adjustment |
Unrealized
gain (loss) on derivatives |
Total
attributable to Cummins Inc. |
Noncontrolling
interests |
Total | ||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ |
(
|
$ |
(
|
$ |
|
$ |
(
|
||||||||||||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | ||||||||||||||||||||||||||||||||||||||
| Before-tax amount |
(
|
(
|
|
(
|
$ |
(
|
$ |
(
|
||||||||||||||||||||||||||||||
| Tax benefit (expense) |
|
(
|
(
|
(
|
|
(
|
||||||||||||||||||||||||||||||||
| After-tax amount |
(
|
(
|
|
(
|
(
|
(
|
||||||||||||||||||||||||||||||||
|
Amounts reclassified from accumulated other comprehensive income (loss)
(1)
|
|
|
(2)
|
(
|
|
|
|
|||||||||||||||||||||||||||||||
| Net current period other comprehensive (loss) income |
|
(
|
|
(
|
$ |
(
|
$ |
(
|
||||||||||||||||||||||||||||||
| Balance at June 30, 2024 | $ |
(
|
$ |
(
|
$ |
|
$ |
(
|
||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ |
(
|
$ |
(
|
$ |
|
$ |
(
|
||||||||||||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | ||||||||||||||||||||||||||||||||||||||
| Before-tax amount |
(
|
(
|
|
(
|
$ |
|
$ |
(
|
||||||||||||||||||||||||||||||
| Tax benefit (expense) |
|
|
(
|
|
|
|
||||||||||||||||||||||||||||||||
| After-tax amount |
(
|
(
|
|
(
|
|
(
|
||||||||||||||||||||||||||||||||
|
Amounts reclassified from accumulated other comprehensive income (loss)
(1)
|
|
|
(
|
(
|
|
(
|
||||||||||||||||||||||||||||||||
| Net current period other comprehensive (loss) income |
(
|
(
|
|
(
|
$ |
|
$ |
(
|
||||||||||||||||||||||||||||||
| Balance at June 30, 2023 | $ |
(
|
$ |
(
|
$ |
|
$ |
(
|
||||||||||||||||||||||||||||||
|
(1)
Amounts are net of tax. Reclassifications out of accumulated other comprehensive income (loss) and the related tax effects are immaterial for separate disclosure.
|
||||||||||||||||||||||||||||||||||||||
|
(2)
Primarily related to the divestiture of Atmus. See NOTE 14, "ATMUS INITIAL PUBLIC OFFERING (IPO) AND DIVESTITURE," for additional information.
|
||||||||||||||||||||||||||||||||||||||
23
NOTE 13. DERIVATIVES
We are exposed to financial risk resulting from volatility in foreign exchange rates, interest rates and commodity prices. This risk is closely monitored and managed through the use of physical forward contracts (which are not considered derivatives) and financial derivative instruments including foreign currency forward contracts, commodity swap contracts and interest rate swaps. Financial derivatives are used expressly for hedging purposes and under no circumstances are they used for speculative purposes. When material, we adjust the estimated fair value of our derivative contracts for counterparty or our credit risk. None of our derivative instruments are subject to collateral requirements. Substantially all of our derivative contracts are subject to master netting arrangements, which provide us with the option to settle certain contracts on a net basis when they settle on the same day with the same currency. In addition, these arrangements provide for a net settlement of all contracts with a given counterparty in the event that the arrangement is terminated due to the occurrence of default or a termination event.
Foreign Currency Exchange Rate Risk
We had foreign currency forward contracts with notional amounts of $
4.4
billion at June 30, 2024, with the following currencies comprising
84
percent of outstanding foreign currency forward contracts: British pound, Chinese renminbi, Australian dollar, Canadian dollar and Euro. We had foreign currency forward contracts with notional amounts of $
4.5
billion at December 31, 2023, with the following currencies comprising
85
percent of outstanding foreign currency forward contracts: British pound, Chinese renminbi, Canadian dollar, Australian dollar and Swedish krona.
We are further exposed to foreign currency exchange risk as many of our subsidiaries are subject to fluctuations as the functional currencies of the underlying entities are not our U.S. dollar reporting currency. To help reduce volatility in the equity value of our subsidiaries, we enter into foreign exchange forwards designated as net investment hedges for certain of our investments. Under the current terms of our foreign exchange forwards, we agreed with third parties to sell British pounds and Chinese renminbi in exchange for U.S. dollar currency at a specified rate at the maturity of the contract. The notional amount of these hedges at June 30, 2024, was $
890
million.
The following table summarizes the net investment hedge activity in accumulated other comprehensive loss (AOCL):
| Three months ended | Six months ended | |||||||||||||||||||||||||||||||||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||||||||||||||||||||||||||||||||
| In millions | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||||||||||||||||||||||||||
| Type of Derivative |
Gain (Loss)
Recognized in AOCL |
Gain (Loss) Reclassified from AOCL into Earnings |
Gain (Loss)
Recognized in AOCL |
Gain (Loss) Reclassified from AOCL into Earnings |
Gain (Loss)
Recognized in AOCL |
Gain (Loss) Reclassified from AOCL into Earnings |
Gain (Loss)
Recognized in AOCL |
Gain (Loss) Reclassified from AOCL into Earnings | ||||||||||||||||||||||||||||||||||||||||||
| Foreign exchange forwards | $ |
(
|
$ |
|
$ |
(
|
$ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
||||||||||||||||||||||||||||||||||
Interest Rate Risk
In September 2023, we entered into a series of interest rate swaps with a total notional value of $
500
million in order to trade a portion of the floating rate into a fixed rate on our term loan, due in 2025. The maturity date of the interest rate swaps is August 1, 2025. The weighted-average interest rate of the interest rate swaps was
5.72
percent. We designated the swaps as cash flow hedges. The gains and losses on these derivative instruments are initially recorded in other comprehensive income and reclassified into earnings as interest expense in the
Condensed Consolidated Financial Statements
as each interest payment is accrued. In the second quarter of 2024, we settled a portion of these interest rate swaps with a notional amount of $
400
million, and $
100
million of the notional amount remained unsettled at June 30, 2024. The loss recognized on settlement was immaterial.
The following table summarizes the interest rate swap activity in AOCL:
| Three months ended | Six months ended | |||||||||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||||||||
| In millions | 2024 | 2024 | ||||||||||||||||||||||||
| Type of Swap |
Gain (Loss)
Recognized in AOCL |
Gain (Loss) Reclassified from AOCL into Interest Expense |
Gain (Loss)
Recognized in AOCL |
Gain (Loss) Reclassified from AOCL into Interest Expense | ||||||||||||||||||||||
| Interest rate swaps | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
24
In 2021, we entered into a series of interest rate swaps to effectively convert our $
500
million senior notes, due in 2025, from a fixed rate of
0.75
percent to a floating rate equal to the three-month London Interbank Offered Rate (
LIBOR
) plus a spread (subsequently adjusted to Secured Overnight Financing Rate (
SOFR
) under a fallback protocol in our derivative agreements in the third quarter of 2023), and $
400
million of the notional amount remained unsettled at June 30, 2024. We also entered into a series of interest rate swaps to effectively convert $
765
million of our $
850
million senior notes, due in 2030, from a fixed rate of
1.50
percent to a floating rate equal to the three-month
LIBOR
plus a spread (also similarly adjusted to
SOFR
). We designated the swaps as fair value hedges. The gain or loss on these derivative instruments, as well as the offsetting gain or loss on the hedged item attributable to the hedged risk, are recognized in current income as interest expense. The net swap settlements that accrue each period are also reported in the
Condensed Consolidated Financial Statements
as interest expense.
The following table summarizes the gains and losses:
| Three months ended | Six months ended | |||||||||||||||||||||||||||||||||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||||||||||||||||||||||||||||||||
| In millions | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||||||||||||||||||||||||||
| Type of Swap |
Gain (Loss)
on Swaps |
Gain (Loss) on Borrowings |
Gain (Loss)
on Swaps |
Gain (Loss) on Borrowings |
Gain (Loss)
on Swaps |
Gain (Loss) on Borrowings |
Gain (Loss)
on Swaps |
Gain (Loss) on Borrowings | ||||||||||||||||||||||||||||||||||||||||||
|
Interest rate swaps
(1)
|
$ |
|
$ |
(
|
$ |
(
|
$ |
|
$ |
(
|
$ |
|
$ |
|
$ |
(
|
||||||||||||||||||||||||||||||||||
|
(1)
The difference between the gain (loss) on swaps and borrowings represents hedge ineffectiveness.
|
||||||||||||||||||||||||||||||||||||||||||||||||||
Derivatives Not Designated as Hedging Instruments
The following table summarizes the effect on our
Condensed Consolidated Statements of Net Income
for derivative instruments not designated as hedging instruments:
| Three months ended | Six months ended | |||||||||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||||||||
| In millions | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||
|
Gain (loss) recognized in income - Cost of sales
(1)
|
$ |
|
$ |
(
|
$ |
|
$ |
(
|
||||||||||||||||||
|
Loss recognized in income - Other income (expense), net
(1)
|
(
|
(
|
(
|
(
|
||||||||||||||||||||||
|
(1)
Includes foreign currency forward contracts.
|
||||||||||||||||||||||||||
Fair Value Amount and Location of Derivative Instruments
The following table summarizes the location and fair value of derivative instruments on our
Condensed Consolidated Balance Sheets
:
| Derivatives Designated as Hedging Instruments | Derivatives Not Designated as Hedging Instruments | |||||||||||||||||||||||||
| In millions |
June 30,
2024 |
December 31,
2023 |
June 30,
2024 |
December 31,
2023 |
||||||||||||||||||||||
| Notional amount | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
| Derivative assets | ||||||||||||||||||||||||||
|
Prepaid expenses and other current assets
(1)
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
| Derivative liabilities | ||||||||||||||||||||||||||
| Other accrued expenses | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
| Other liabilities |
|
|
|
|
||||||||||||||||||||||
|
Total derivative liabilities
(1)
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
|
(1)
Estimates of the fair value of all derivative assets and liabilities above are derived from Level 2 inputs, which are estimated using actively quoted prices for similar instruments from brokers and observable inputs where available, including market transactions and third-party pricing services, or net asset values provided to investors. We do not currently have any Level 3 input measures and there were no transfers into or out of Level 2 or 3 during the six months ended June 30, 2024, or the year ended December 31, 2023.
|
||||||||||||||||||||||||||
25
We elected to present our derivative contracts on a gross basis in our
Condensed Consolidated Balance Sheets
. Had we chosen to present on a net basis, we would have derivatives in a net asset position of $
17
million and $
4
million and derivatives in a net liability position of $
133
million and $
148
million at June 30, 2024, and December 31, 2023, respectively.
NOTE 14. ATMUS INITIAL PUBLIC OFFERING (IPO) AND DIVESTITURE
IPO
On May 23, 2023, in connection with the Atmus IPO, Cummins issued approximately $
350
million of commercial paper with certain lenders. On May 26, 2023, Atmus shares began trading on the New York Stock Exchange under the symbol "ATMU." The IPO was completed on May 30, 2023, whereby Cummins exchanged
19.5
percent (approximately
16
million shares) of its ownership in Atmus, at $
19.50
per share, to retire $
299
million of the commercial paper as proceeds from the offering through a non-cash transaction.
In connection with the completion of the IPO, through a series of asset and equity contributions, we transferred the filtration business to Atmus. In exchange, Atmus transferred consideration of $
650
million to Cummins, which consisted primarily of the net proceeds from a term loan facility and revolver executed by Atmus during May 2023. The commercial paper issued and retired through the IPO proceeds, coupled with the $
650
million received, was used for the retirement of our historical debt and payment of dividends. The difference between the commercial paper retired from the IPO, other IPO related fees and the net book value of our divested interest was $
285
million and recorded as an offset to additional paid-in capital. Of our consolidated cash and cash equivalents at December 31, 2023, $
166
million was retained by Atmus for its working capital purposes.
Divestiture
On March 18, 2024, we completed the divestiture of our remaining
80.5
percent ownership of Atmus common stock through a tax-free split-off. The transaction involved the exchange of our shares in Atmus for shares of Cummins stock with a
7.0
percent discount on the exchange ratio for Atmus shares. The exchange ratio was determined based on each entity's respective stock price using the daily volume weighted-average stock price for three days preceding the final exchange offer date. Based on the final exchange ratio, we exchanged all
67
million of our Atmus shares for
5.6
million shares of Cummins stock, which was recorded as treasury stock based on the fair value of the Cummins shares obtained.
We evaluated the full divestiture of Atmus and determined the transaction did not qualify for discontinued operation presentation. We recognized a gain related to the divestiture of approximately $
1.3
billion (based on the difference between the fair value of the Cummins shares obtained less the carrying value of our Atmus investment), which was recorded as other income in the
Condensed Consolidated Statements of Net Income
for the six months ended June 30, 2024. Approximately $
114
million of goodwill was included in the carrying value of the Atmus investment for purposes of calculating the gain. The operating results of Atmus were reported in the
Condensed Consolidated Financial Statements
through March 18, 2024, the date of divestiture.
As part of the divestiture, the $
600
million term loan remained with Atmus after the split. In addition, a net $
61
million of other comprehensive income and $
19
million of noncontrolling interests related to Atmus were written-off and netted against the gain recognized upon the split.
We entered into a transitional services agreement (TSA) with Atmus that is designed to facilitate the orderly transfer of various services to Atmus. The TSA relates primarily to administrative services, which are generally to be provided over the next
24
months. This agreement is not material and does not confer upon us the ability to influence the operating and/or financial policies of Atmus subsequent to March 18, 2024.
26
NOTE 15. ACQUISITIONS
Acquisitions for the six months ended June 30, 2024 and 2023, were as follows:
| Entity Acquired (Dollars in millions) | Date of Acquisition | Additional Percent Interest Acquired | Payments to Former Owners | Acquisition Related Debt Retirements | Total Purchase Consideration |
Type of Acquisition
(1)
|
Goodwill Acquired |
Intangibles Recognized
(2)
|
||||||||||||||||||||||||||||||||||||||||||
| 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Engendren Corporation | 02/16/24 |
|
$ |
|
$ |
|
$ |
|
COMB | $ |
|
$ |
|
|||||||||||||||||||||||||||||||||||||
|
2023
(3)
|
||||||||||||||||||||||||||||||||||||||||||||||||||
| Hydrogenics Corporation | 06/29/23 |
|
$ |
|
$ |
|
$ |
|
(4)
|
EQUITY | $ |
|
$ |
|
||||||||||||||||||||||||||||||||||||
| Teksid Hierro de Mexico, S.A. de C.V. | 04/03/23 |
|
|
|
|
COMB |
|
|
||||||||||||||||||||||||||||||||||||||||||
|
(1)
All results from acquired entities were included in segment results subsequent to the acquisition date. Previously consolidated entities were accounted for as equity transactions (EQUITY). Newly consolidated entities were accounted for as business combinations (COMB).
|
||||||||||||||||||||||||||||||||||||||||||||||||||
|
(2)
Intangible assets acquired in the business combination were mostly customer and trade name related.
|
||||||||||||||||||||||||||||||||||||||||||||||||||
|
(3)
See
NOTE 24, "ACQUISITIONS,"
of
the Notes to the Consolidated Financial Statements of our 2023 Form 10-K
for additional information on prior year acquisitions.
|
||||||||||||||||||||||||||||||||||||||||||||||||||
|
(4)
Hydrogenics entered into three non-interest-bearing promissory notes with $
|
||||||||||||||||||||||||||||||||||||||||||||||||||
NOTE 16. OPERATING SEGMENTS
Operating segments under GAAP are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the Chief Operating Decision Maker (CODM), or decision-making group, in deciding how to allocate resources and in assessing performance. Our CODM is the Chief Executive Officer.
Our reportable operating segments consist of Components, Engine, Distribution, Power Systems and Accelera. This reporting structure is organized according to the products and markets each segment serves. The Components segment sells axles, drivelines, brakes and suspension systems for commercial diesel and natural gas applications, aftertreatment systems, turbochargers, fuel systems, valvetrain technologies, automated transmissions and electronics. The Engine segment produces engines (15 liters and smaller) and associated parts for sale to customers in on-highway and various off-highway markets. Our engines are used in trucks of all sizes, buses and recreational vehicles, as well as in various industrial applications, including construction, agriculture, power generation systems and other off-highway applications. The Distribution segment includes wholly-owned and partially-owned distributorships engaged in wholesaling engines, generator sets and service parts, as well as performing service and repair activities on our products and maintaining relationships with various OEMs throughout the world. The Power Systems segment is an integrated power provider, which designs, manufactures and sells engines (16 liters and larger) for industrial applications (including mining, oil and gas, marine and rail), standby and prime power generator sets, alternators and other power components. The Accelera segment designs, manufactures, sells and supports hydrogen production technologies as well as electrified power systems with innovative components and subsystems, including battery, fuel cell and electric powertrain technologies. The Accelera segment is currently in the early stages of commercializing these technologies with efforts primarily focused on the development of our electrolyzers for hydrogen production and electrified power systems and related components and subsystems. We continue to serve all our markets as they adopt electrification and alternative power technologies, meeting the needs of our OEM partners and end customers.
We use segment earnings or losses before interest expense, income taxes, depreciation and amortization and noncontrolling interests (EBITDA) as the basis for the CODM to evaluate the performance of each of our reportable operating segments. 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. Segment amounts exclude certain expenses not specifically identifiable to segments.
The accounting policies of our operating segments are the same as those applied in our
Condensed Consolidated Financial Statements.
We prepared the financial results of our operating segments on a basis that is consistent with the manner in which we internally disaggregate financial information to assist in making internal operating decisions. We allocate certain common costs and expenses, primarily corporate functions, among segments differently than we would for stand-alone financial information prepared in accordance with GAAP. These include certain costs and expenses of shared services, such as information technology, human resources, legal, finance and supply chain management. We do not allocate gains or losses of corporate owned life insurance and the gain and certain costs related to the divestiture of Atmus. See NOTE 14, "ATMUS INITIAL PUBLIC OFFERING (IPO) AND DIVESTITURE," for additional information. EBITDA may not be consistent with measures used by other companies.
27
Summarized financial information regarding our reportable operating segments for the three and six months ended June 30, 2024 and 2023 is shown in the table below:
| In millions | Components | Engine | Distribution | Power Systems | Accelera | Total Segments | ||||||||||||||||||||||||||||||||
| Three months ended June 30, 2024 | ||||||||||||||||||||||||||||||||||||||
| External sales | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||||||
| Intersegment sales |
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
| Total sales |
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
| Research, development and engineering expenses |
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
| Equity, royalty and interest income (loss) from investees |
|
|
|
|
(
|
|
||||||||||||||||||||||||||||||||
| Interest income |
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
| Segment EBITDA |
|
|
|
|
(
|
|
||||||||||||||||||||||||||||||||
|
Depreciation and amortization
(1)
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
| Three months ended June 30, 2023 | ||||||||||||||||||||||||||||||||||||||
| External sales | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||||||
| Intersegment sales |
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
| Total sales |
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
| Research, development and engineering expenses |
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
| Equity, royalty and interest income (loss) from investees |
|
|
|
|
(
|
|
||||||||||||||||||||||||||||||||
| Interest income |
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
| Segment EBITDA |
|
(2)
|
|
|
|
(
|
|
|||||||||||||||||||||||||||||||
|
Depreciation and amortization
(1)
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
| Six months ended June 30, 2024 | ||||||||||||||||||||||||||||||||||||||
| External sales | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||||||
| Intersegment sales |
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
| Total sales |
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
| Research, development and engineering expenses |
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
| Equity, royalty and interest income (loss) from investees |
|
|
|
|
(
|
|
||||||||||||||||||||||||||||||||
| Interest income |
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
| Segment EBITDA |
|
(2)
|
|
|
|
(
|
|
|||||||||||||||||||||||||||||||
|
Depreciation and amortization
(1)
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
| Six months ended June 30, 2023 | ||||||||||||||||||||||||||||||||||||||
| External sales | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||||||
| Intersegment sales |
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
| Total sales |
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
| Research, development and engineering expenses |
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
| Equity, royalty and interest income (loss) from investees |
|
|
|
|
(
|
|
||||||||||||||||||||||||||||||||
| Interest income |
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
| Segment EBITDA |
|
(2)
|
|
|
|
(
|
|
|||||||||||||||||||||||||||||||
|
Depreciation and amortization
(1)
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
|
(1)
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)
Included $
|
||||||||||||||||||||||||||||||||||||||
28
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 | ||||||||||||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||||||||||||
| In millions | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||||
| TOTAL SEGMENT EBITDA | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||
|
Intersegment eliminations and other
(1)
|
(
|
|
(2)
|
|
(3)
|
(
|
(2)
|
||||||||||||||||||||||
| Less: | |||||||||||||||||||||||||||||
| Interest expense |
|
|
|
|
|||||||||||||||||||||||||
| Depreciation and amortization |
|
|
|
|
|||||||||||||||||||||||||
| INCOME BEFORE INCOME TAXES | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||
|
(1)
Included intersegment sales, intersegment profit in inventory and unallocated corporate expenses.
|
|||||||||||||||||||||||||||||
|
(2)
Included $
|
|||||||||||||||||||||||||||||
|
(3)
Included $
|
|||||||||||||||||||||||||||||
NOTE 17. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
29
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cummins Inc. and its consolidated subsidiaries are hereinafter sometimes referred to as “Cummins,” “we,” “our” or “us.”
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
Certain parts of this quarterly report contain forward-looking statements intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. Forward-looking statements include those that are based on current expectations, estimates and projections about the industries in which we operate and management’s beliefs and assumptions. Forward-looking statements are generally accompanied by words such as "anticipates," "expects," "forecasts," "intends," "plans," "believes," "seeks," "estimates," "could," "should," "may" or words of similar meaning. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which we refer to as "future factors," which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. Some future factors that could cause our results to differ materially from the results discussed in such forward-looking statements are discussed below and shareholders, potential investors and other readers are urged to consider these future factors carefully in evaluating forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. Future factors that could affect the outcome of forward-looking statements include the following:
GOVERNMENT REGULATION
•
any adverse consequences resulting from entering into the Settlement Agreements, including required additional mitigation projects, adverse reputational impacts and potential resulting legal actions;
•
increased scrutiny from regulatory agencies, as well as unpredictability in the adoption, implementation and enforcement of emission standards around the world;
•
evolving environmental and climate change legislation and regulatory initiatives;
•
changes in international, national and regional trade laws, regulations and policies;
•
changes in taxation;
•
global legal and ethical compliance costs and risks;
•
future bans or limitations on the use of diesel-powered products;
BUSINESS CONDITIONS / DISRUPTIONS
•
failure to successfully integrate and / or failure to fully realize all of the anticipated benefits of the 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, or change in control;
PRODUCTS AND TECHNOLOGY
•
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;
30
GENERAL
•
climate change, global warming, more stringent climate change regulations, accords, mitigation efforts, greenhouse gas regulations or other legislation designed to address climate change;
•
our plan to reposition our portfolio of product offerings through exploration of strategic acquisitions and divestitures and related uncertainties of entering such transactions;
•
increasing interest rates;
•
challenging markets for talent and ability to attract, develop and retain key personnel;
•
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;
•
failure to meet environmental, social and governance (ESG) expectations or standards, or achieve our ESG goals;
•
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 risk factors described in Part II, Item 1A in this quarterly report and our
2023 Form 10-K, Part I, Item 1A
, both under the caption "Risk Factors."
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 quarterly report and we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.
31
ORGANIZATION OF INFORMATION
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) was prepared to provide the reader with a view and perspective of our business through the eyes of management and should be read in conjunction with our
Management's Discussion and Analysis of Financial Condition and Results of Operations section of our 2023 Form 10-K
. Our MD&A is presented in the following sections:
•
EXECUTIVE SUMMARY AND FINANCIAL HIGHLIGHTS
•
RESULTS OF OPERATIONS
•
OPERATING SEGMENT RESULTS
•
OUTLOOK
•
LIQUIDITY AND CAPITAL RESOURCES
•
APPLICATION OF CRITICAL ACCOUNTING ESTIMATES
•
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
EXECUTIVE SUMMARY AND FINANCIAL HIGHLIGHTS
Overview
We are a global power solutions leader comprised of five business segments - Components, Engine, Distribution, Power Systems and Accelera - supported by our global manufacturing and extensive service and support network, skilled workforce and vast technical expertise. Our products range from advanced diesel, natural gas, electric and hybrid powertrains and powertrain-related components including aftertreatment, turbochargers, fuel systems, valvetrain technologies, controls systems, air handling systems, automated transmissions, axles, drivelines, brakes, suspension systems, electric power generation systems, batteries, electrified power systems, hydrogen production technologies and fuel cell products. We sell our products to original equipment manufacturers (OEMs), distributors, dealers and other customers worldwide. We have long-standing relationships with many of the leading manufacturers in the markets we serve, including PACCAR Inc, Traton Group, Daimler Trucks North America and Stellantis N.V. We serve our customers through a service network of approximately 450 wholly-owned, joint venture and independent distributor locations and more than 19,000 Cummins certified dealer locations in approximately 190 countries and territories.
Our segment reporting structure is organized according to the products and markets each segment serves. The Components segment sells axles, drivelines, brakes and suspension systems for commercial diesel and natural gas applications, aftertreatment systems, turbochargers, fuel systems, valvetrain technologies, automated transmissions and electronics. The Engine segment produces engines (15 liters and smaller) and associated parts for sale to customers in on-highway and various off-highway markets. Our engines are used in trucks of all sizes, buses and recreational vehicles, as well as in various industrial applications, including construction, agriculture, power generation systems and other off-highway applications. The Distribution segment includes wholly-owned and partially-owned distributorships engaged in wholesaling engines, generator sets and service parts, as well as performing service and repair activities on our products and maintaining relationships with various OEMs throughout the world. The Power Systems segment is an integrated power provider, which designs, manufactures and sells engines (16 liters and larger) for industrial applications (including mining, oil and gas, marine and rail), standby and prime power generator sets, alternators and other power components. The Accelera segment designs, manufactures, sells and supports hydrogen production technologies as well as electrified power systems with innovative components and subsystems, including battery, fuel cell and electric powertrain technologies. The Accelera segment is currently in the early stages of commercializing these technologies with efforts primarily focused on the development of our electrolyzers for hydrogen production and electrified power systems and related components and subsystems. We continue to serve all our markets as they adopt electrification and alternative power technologies, meeting the needs of our OEM partners and end customers.
Our financial performance depends, in large part, on varying conditions in the markets we serve, particularly the on-highway, off-highway, power generation and general industrial markets. Demand in these markets tends to fluctuate in response to overall economic conditions. Our sales may also be impacted by OEM inventory levels, production schedules, stoppages and supply chain challenges. Economic downturns in markets we serve generally result in reduced sales of our products and can result in price reductions in certain products and/or markets. As a worldwide business, our operations are also affected by geopolitical risks, currency fluctuations, political and economic uncertainty, public health crises (epidemics or pandemics) and regulatory matters, including adoption and enforcement of environmental and emission standards, in the countries we serve. As part of our growth strategy, we invest in businesses in certain countries that carry higher levels of these risks such as China, Brazil, India, Mexico and other countries in Europe, the Middle East and Africa. At the same time, our geographic diversity and broad product and service offerings have helped
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limit the impact from a drop in demand in any one industry, region, the economy of any single country or customer on our consolidated results.
Divestiture of Atmus
On March 18, 2024, we completed the divestiture of our remaining 80.5 percent ownership of Atmus Filtration Technologies Inc. (Atmus) common stock through a tax-free split-off. The exchange resulted in a reduction of shares of our common stock outstanding by 5.6 million shares. See NOTE 14, "ATMUS INITIAL PUBLIC OFFERING (IPO) AND DIVESTITURE," to the
Condensed Consolidated Financial Statements
for additional information.
Settlement Agreements
In December 2023, we announced that we reached an agreement in principle with the U.S. Environmental Protection Agency (EPA), the California Air Resources Board (CARB), the Environmental and Natural Resources Division of the U.S. Department of Justice and the California Attorney General’s Office to resolve certain regulatory civil claims regarding our emissions certification and compliance process for certain engines primarily used in pick-up truck applications in the U.S., which became final and effective in April 2024 (collectively, the Settlement Agreements). In the second quarter of 2024, we made $1.9 billion of payments required by the Settlement Agreements. See NOTE 11, “COMMITMENTS AND CONTINGENCIES,” to our
Condensed Consolidated Financial Statements
for additional information.
2024 Second Quarter and Year-to-Date Results
A summary of our results is as follows:
| Three months ended | Six months ended | |||||||||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||||||||
| In millions, except per share amounts | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||
| Net sales | $ | 8,796 | $ | 8,638 | $ | 17,199 | $ | 17,091 | ||||||||||||||||||
| Net income attributable to Cummins Inc. | 726 | 720 | 2,719 | 1,510 | ||||||||||||||||||||||
| Earnings per common share attributable to Cummins Inc. | ||||||||||||||||||||||||||
| Basic | $ | 5.30 | $ | 5.08 | $ | 19.53 | $ | 10.66 | ||||||||||||||||||
| Diluted | 5.26 | 5.05 | 19.42 | 10.60 | ||||||||||||||||||||||
The table below presents our consolidated net sales by geographic area based on the location of the customer:
| Three months ended | Favorable/ | Six months ended | Favorable/ | |||||||||||||||||||||||||||||||||||||||||||||||
| June 30, | (Unfavorable) | June 30, | (Unfavorable) | |||||||||||||||||||||||||||||||||||||||||||||||
| In millions | 2024 | 2023 | Amount | Percent | 2024 | 2023 | Amount | Percent | ||||||||||||||||||||||||||||||||||||||||||
| United States and Canada | $ | 5,501 | $ | 5,274 | $ | 227 | 4 | % | $ | 10,612 | $ | 10,402 | $ | 210 | 2 | % | ||||||||||||||||||||||||||||||||||
| International | 3,295 | 3,364 | (69) | (2) | % | 6,587 | 6,689 | (102) | (2) | % | ||||||||||||||||||||||||||||||||||||||||
| Total net sales | $ | 8,796 | $ | 8,638 | $ | 158 | 2 | % | $ | 17,199 | $ | 17,091 | $ | 108 | 1 | % | ||||||||||||||||||||||||||||||||||
Worldwide revenues increased by 2 percent in the three months ended June 30, 2024, compared to the same period in 2023, due to increased power generation demand and higher demand in North American on-highway truck markets, partially offset by decreased sales due to the divestiture of Atmus. Net sales in the U.S. and Canada improved 4 percent primarily due to higher demand in on-highway truck markets and power generation markets, partially offset by lower sales due to the divestiture of Atmus. International demand (excludes the U.S. and Canada) declined 2 percent primarily due to lower sales in Europe and China, partially offset with higher sales in Asia Pacific and Latin America. The slight decrease in international sales was primarily due to decreased sales resulting from the divestiture of Atmus, mostly offset with higher demand across most Distribution product lines and increased demand for power generation products (especially in China). Unfavorable foreign currency fluctuations impacted international sales by 2 percent (primarily the Chinese renminbi and South African rand).
Worldwide revenues increased by 1 percent in the six months ended June 30, 2024, compared to the same period in 2023, due to increased power generation demand and higher demand in North American on-highway truck markets, partially offset by decreased sales due to the divestiture of Atmus as well as weaker demand in global construction markets. Net sales in the U.S. and Canada improved 2 percent primarily due to higher demand in on-highway truck markets and power generation markets, partially offset by lower sales due to the divestiture of Atmus. International demand (excludes the U.S. and Canada) declined 2 percent primarily due to lower sales in Europe and China, partially offset with higher sales Latin America. The decrease in international sales was primarily due to decreased sales due to the divestiture of Atmus and lower demand in construction markets (especially in China and Western
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Europe), largely offset by higher demand across most Distribution product lines and increased demand in power generation markets (mainly China and Asia Pacific). Unfavorable foreign currency fluctuations impacted international sales by 1 percent (primarily the Chinese renminbi).
The following tables contain sales and EBITDA (defined as earnings or losses before interest expense, income taxes, depreciation and amortization and noncontrolling interests) by operating segment for the three and six months ended June 30, 2024 and 2023. See NOTE 16, "OPERATING SEGMENTS," to the
Condensed Consolidated Financial Statements
for additional information and a reconciliation of our segment information to the corresponding amounts in our
Condensed Consolidated Statements of Net Income
.
| Three months ended June 30, | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating Segments | 2024 | 2023 | Percent change | |||||||||||||||||||||||||||||||||||||||||||||||
| Percent | Percent | 2024 vs. 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||
| In millions | Sales | of Total | EBITDA | Sales | of Total | EBITDA | Sales | EBITDA | ||||||||||||||||||||||||||||||||||||||||||
| Components | $ | 2,982 | 34 | % | $ | 406 | $ | 3,425 | 40 | % | $ | 486 | (13) | % | (16) | % | ||||||||||||||||||||||||||||||||||
| Engine | 3,151 | 36 | % | 445 | 2,988 | 34 | % | 425 | 5 | % | 5 | % | ||||||||||||||||||||||||||||||||||||||
| Distribution | 2,829 | 32 | % | 314 | 2,595 | 30 | % | 299 | 9 | % | 5 | % | ||||||||||||||||||||||||||||||||||||||
| Power Systems | 1,589 | 18 | % | 301 | 1,457 | 17 | % | 201 | 9 | % | 50 | % | ||||||||||||||||||||||||||||||||||||||
| Accelera | 111 | 1 | % | (117) | 85 | 1 | % | (114) | 31 | % | (3) | % | ||||||||||||||||||||||||||||||||||||||
| Intersegment eliminations | (1,866) | (21) | % | (4) | (1,912) | (22) | % | 7 | (2) | % | NM | |||||||||||||||||||||||||||||||||||||||
| Total | $ | 8,796 | 100 | % | $ | 1,345 | $ | 8,638 | 100 | % | $ | 1,304 |
(1)
|
2 | % | 3 | % | |||||||||||||||||||||||||||||||||
| "NM" - not meaningful information | ||||||||||||||||||||||||||||||||||||||||||||||||||
|
(1)
EBITDA included $23 million of costs associated with the IPO and divestiture of Atmus for the three months ended June 30, 2023.
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Net income attributable to Cummins Inc. was $726 million, or $5.26 per diluted share, on sales of $8.8 billion for the three months ended June 30, 2024, versus the comparable prior year period net income attributable to Cummins Inc. of $720 million, or $5.05 per diluted share, on sales of $8.6 billion. The increases in net income attributable to Cummins Inc. and earnings per diluted share were driven by lower expenses resulting from the divestiture of Atmus and improved gross margin, partially offset by lower equity, royalty and interest income from investees and unfavorable foreign currency fluctuations (primarily in the Chinese renminbi and Mexican peso). The increase in gross margin was primarily due to favorable pricing and higher volumes, partially offset by the divestiture of Atmus, higher compensation expenses and increased product coverage.
| Six months ended June 30, | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating Segments | 2024 | 2023 | Percent change | |||||||||||||||||||||||||||||||||||||||||||||||
| Percent | Percent | 2024 vs. 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||
| In millions | Sales | of Total | EBITDA | Sales | of Total | EBITDA | Sales | EBITDA | ||||||||||||||||||||||||||||||||||||||||||
| Components | $ | 6,314 | 37 | % | $ | 879 | $ | 6,982 | 41 | % | $ | 993 | (10) | % | (11) | % | ||||||||||||||||||||||||||||||||||
| Engine | 6,079 | 36 | % | 859 | 5,974 | 35 | % | 882 | 2 | % | (3) | % | ||||||||||||||||||||||||||||||||||||||
| Distribution | 5,364 | 31 | % | 608 | 5,001 | 29 | % | 634 | 7 | % | (4) | % | ||||||||||||||||||||||||||||||||||||||
| Power Systems | 2,978 | 17 | % | 538 | 2,800 | 16 | % | 420 | 6 | % | 28 | % | ||||||||||||||||||||||||||||||||||||||
| Accelera | 204 | 1 | % | (218) | 170 | 1 | % | (208) | 20 | % | (5) | % | ||||||||||||||||||||||||||||||||||||||
| Intersegment eliminations | (3,740) | (22) | % | 1,251 | (3,836) | (22) | % | (56) | (3) | % | NM | |||||||||||||||||||||||||||||||||||||||
| Total | $ | 17,199 | 100 | % | $ | 3,917 |
(1)
|
$ | 17,091 | 100 | % | $ | 2,665 |
(2)
|
1 | % | 47 | % | ||||||||||||||||||||||||||||||||
|
"NM" - not meaningful information
|
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|
(1)
EBITDA included $1.3 billion of gain recognized on the divestiture of Atmus and $35 million of costs associated with the divestiture of Atmus for the six months ended June 30, 2024.
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|
(2)
EBITDA included $41 million of costs associated with the IPO and divestiture of Atmus for the six months ended June 30, 2023.
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Net income attributable to Cummins Inc. was $2.7 billion, or $19.42 per diluted share, on sales of $17.2 billion for the six months ended June 30, 2024, versus the comparable prior year period net income attributable to Cummins Inc. of $1.5 billion, or $10.60 per diluted share, on sales of $17.1 billion. The increases in net income attributable to Cummins Inc. and earnings per diluted share were driven by the gain recognized on the divestiture of Atmus, partially offset by higher compensation and consulting expenses. The increase in gross margin was primarily due to favorable pricing and lower material costs, partially offset by higher compensation expenses, the divestiture of Atmus and increased product coverage. Diluted earnings per common share for the six months ended June 30, 2024, benefited $0.45 from fewer weighted-average shares outstanding due to treasury shares reacquired in the Atmus divestiture.
34
2024 Highlights
We used $575 million in cash from operations for the six months ended June 30, 2024, compared to generating $978 million for the comparable period in 2023. See the section titled "Cash Flows" in the "LIQUIDITY AND CAPITAL RESOURCES" section for a discussion of items impacting cash flows.
Our debt to capital ratio (total capital defined as debt plus equity) at June 30, 2024, was 41.5 percent, compared to 40.3 percent at December 31, 2023. The increase was primarily due to higher debt balances at June 30, 2024. At June 30, 2024, we had $2.2 billion in cash and marketable securities on hand and access to our $4.0 billion credit facilities (net of $1.6 billion of commercial paper outstanding), if necessary, to meet working capital, investment, acquisition and funding needs.
In July 2024, we settled the remaining $100 million of interest rate swaps and repaid the outstanding $100 million of our related term loan due in 2025.
In July 2024, the Board authorized an increase to our quarterly dividend of approximately 8 percent from $1.68 per share to $1.82 per share.
On June 3, 2024, we entered into an amended and restated five-year credit agreement that allows us to borrow up to $2.0 billion of unsecured funds at any time prior to June 3, 2029. The credit agreement amended and restated the prior $2.0 billion five-year credit agreement that would have matured on August 18, 2026.
On June 3, 2024, we entered into an amended and restated 364-day credit agreement that allows us to borrow up to $2.0 billion of unsecured funds at any time prior to June 2, 2025. This credit agreement amended and restated the prior $2.0 billion 364-day credit facility that matured on June 3, 2024.
In May 2024, we entered into an accounts receivable factoring agreement with Wells Fargo Bank, N.A., to sell certain accounts receivable up to $500 million. See NOTE 1, "NATURE OF OPERATIONS AND BASIS OF PRESENTATION," to our
Condensed Consolidated Financial Statements
for additional information.
In the second quarter of 2024, we made $1.9 billion of required payments towards the Settlement Agreements. See NOTE 11, “COMMITMENTS AND CONTINGENCIES,” to our
Condensed Consolidated Financial Statements
for additional information.
In the second quarter of 2024, we settled $400 million of interest rate swaps and paid $400 million of our related term loan due in 2025. See NOTE 9, “DEBT,” and NOTE 13, "DERIVATIVES," to our
Condensed Consolidated Financial Statements
for additional information.
On February 20, 2024, we issued $2.25 billion aggregate principal amount of senior unsecured notes consisting of $500 million aggregate principal amount of 4.90 percent senior unsecured notes due in 2029, $750 million aggregate principal amount of 5.15 percent senior unsecured notes due in 2034 and $1.0 billion aggregate principal amount of 5.45 percent senior unsecured notes due in 2054. We received net proceeds of $2.2 billion. See NOTE 9, "DEBT," to the
Condensed Consolidated Financial Statements
for additional information.
In the first six months of 2024, the investment gain on our U.S. pension trusts was 2.0 percent, while our U.K. pension trusts' loss was 4.3 percent. We anticipate making additional defined benefit pension contributions during the remainder of 2024 of $22 million for our U.S. and U.K. qualified and non-qualified pension plans. We expect our 2024 annual net periodic pension cost to approximate $34 million.
As of the date of this filing, our credit ratings and outlooks from the credit rating agencies remain unchanged.
35
RESULTS OF OPERATIONS
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| In millions, except per share amounts | 2024 | 2023 | Amount | Percent | 2024 | 2023 | Amount | Percent | |||||||||||||||||||||||||||||||||||||||||||||
| NET SALES | $ | 8,796 | $ | 8,638 | $ | 158 | 2 | % | $ | 17,199 | $ | 17,091 | $ | 108 | 1 | % | |||||||||||||||||||||||||||||||||||||
| Cost of sales | 6,603 | 6,490 | (113) | (2) | % | 12,965 | 12,914 | (51) | — | % | |||||||||||||||||||||||||||||||||||||||||||
| GROSS MARGIN | 2,193 | 2,148 | 45 | 2 | % | 4,234 | 4,177 | 57 | 1 | % | |||||||||||||||||||||||||||||||||||||||||||
| OPERATING EXPENSES AND INCOME | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Selling, general and administrative expenses | 828 | 873 | 45 | 5 | % | 1,667 | 1,626 | (41) | (3) | % | |||||||||||||||||||||||||||||||||||||||||||
| Research, development and engineering expenses | 379 | 384 | 5 | 1 | % | 748 | 734 | (14) | (2) | % | |||||||||||||||||||||||||||||||||||||||||||
| Equity, royalty and interest income from investees | 103 | 133 | (30) | (23) | % | 226 | 252 | (26) | (10) | % | |||||||||||||||||||||||||||||||||||||||||||
| Other operating expense, net | 44 | 27 | (17) | (63) | % | 77 | 46 | (31) | (67) | % | |||||||||||||||||||||||||||||||||||||||||||
| OPERATING INCOME | 1,045 | 997 | 48 | 5 | % | 1,968 | 2,023 | (55) | (3) | % | |||||||||||||||||||||||||||||||||||||||||||
| Interest expense | 109 | 99 | (10) | (10) | % | 198 | 186 | (12) | (6) | % | |||||||||||||||||||||||||||||||||||||||||||
| Other income, net | 41 | 51 | (10) | (20) | % | 1,428 | 141 | 1,287 | NM | ||||||||||||||||||||||||||||||||||||||||||||
| INCOME BEFORE INCOME TAXES | 977 | 949 | 28 | 3 | % | 3,198 | 1,978 | 1,220 | 62 | % | |||||||||||||||||||||||||||||||||||||||||||
| Income tax expense | 225 | 212 | (13) | (6) | % | 418 | 435 | 17 | 4 | % | |||||||||||||||||||||||||||||||||||||||||||
| CONSOLIDATED NET INCOME | 752 | 737 | 15 | 2 | % | 2,780 | 1,543 | 1,237 | 80 | % | |||||||||||||||||||||||||||||||||||||||||||
| Less: Net income attributable to noncontrolling interests | 26 | 17 | (9) | (53) | % | 61 | 33 | (28) | (85) | % | |||||||||||||||||||||||||||||||||||||||||||
| NET INCOME ATTRIBUTABLE TO CUMMINS INC. | $ | 726 | $ | 720 | $ | 6 | 1 | % | $ | 2,719 | $ | 1,510 | $ | 1,209 | 80 | % | |||||||||||||||||||||||||||||||||||||
| Diluted Earnings Per Common Share Attributable to Cummins Inc. | $ | 5.26 | $ | 5.05 | $ | 0.21 | 4 | % | $ | 19.42 | $ | 10.60 | $ | 8.82 | 83 | % | |||||||||||||||||||||||||||||||||||||
| "NM" - not meaningful information | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Three months ended |
Favorable/
(Unfavorable) |
Six months ended |
Favorable/
(Unfavorable) |
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| June 30, | June 30, | |||||||||||||||||||||||||||||||||||||
| Percent of sales | 2024 | 2023 | Percentage Points | 2024 | 2023 | Percentage Points | ||||||||||||||||||||||||||||||||
| Gross margin | 24.9 | % | 24.9 | % | — | 24.6 | % | 24.4 | % | 0.2 | ||||||||||||||||||||||||||||
| Selling, general and administrative expenses | 9.4 | % | 10.1 | % | 0.7 | 9.7 | % | 9.5 | % | (0.2) | ||||||||||||||||||||||||||||
| Research, development and engineering expenses | 4.3 | % | 4.4 | % | 0.1 | 4.3 | % | 4.3 | % | — | ||||||||||||||||||||||||||||
Net Sales
Net sales for the three months ended June 30, 2024, increased by $158 million
versus the comparable period in 2023. The primary drivers were as follows:
•
Distribution segment sales increased 9 percent principally due to higher demand in power generation markets, especially in North America and Europe.
•
Engine segment sales increased 5 percent largely due to stronger demand in North American on-highway truck markets.
•
Power Systems segment sales increased 9 percent primarily due to higher demand in power generation markets, especially in North America and China.
These increases were partially offset by a Components segment sales decrease of 13 percent mainly due to the divestiture of Atmus on March 18, 2024.
Net sales for the six months ended June 30, 2024, increased $108 million
versus the comparable period in 2023. The primary drivers were as follows:
•
Distribution segment sales increased 7 percent principally due to higher demand in power generation markets, especially in North America, Europe and Asia.
•
Power Systems segment sales increased 6 percent primarily due to higher demand in power generation markets, especially in North America.
36
•
Engine segment sales increased 2 percent largely due to stronger demand in North American medium-duty truck markets, partially offset by lower demand in global construction markets.
These increases were partially offset by a Components segment sales decrease of 10 percent mainly due to the divestiture of Atmus on March 18, 2024.
Sales to international markets (excluding the U.S. and Canada), based on location of customers, for the three and six months ended June 30, 2024, were 37 percent and 38 percent of total net sales compared with 39 percent and 39 percent of total net sales for the comparable periods in 2023. A more detailed discussion of sales by segment is presented in the “OPERATING SEGMENT RESULTS” section.
Cost of Sales
The types of expenses included in cost of sales are the following: parts and material consumption, including direct and indirect materials; compensation and related expenses, including variable compensation, salaries and fringe benefits; depreciation on production equipment and facilities and amortization of technology intangibles; estimated costs of warranty programs and campaigns; production utilities; production-related purchasing; warehousing, including receiving and inspection; freight costs; engineering support costs; repairs and maintenance; production and warehousing facility property insurance and rent for production facilities and other production overhead.
Gross Margin
Gross margin increased $45 million for the three months ended June 30, 2024, and remained flat as a percentage of net sales versus the comparable period in 2023. The increase in gross margin was primarily due to favorable pricing and higher volumes, partially offset by the divestiture of Atmus, higher compensation expenses and increased product coverage. Compensation and related expenses included salaries, fringe benefits and variable compensation.
Gross margin increased $57 million for the six months ended June 30, 2024, and increased 0.2 points as a percentage of sales versus the comparable period in 2023. The increase in gross margin and gross margin as a percentage of sales was primarily due to favorable pricing and lower material costs, partially offset by higher compensation expenses, the divestiture of Atmus and increased product coverage.
The provision for base warranties issued as a percent of sales for the three and six months ended June 30, 2024, was 1.9 percent and 1.9 percent, respectively, compared to 1.8 percent and 1.8 percent for the comparable periods in 2023.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased $45 million for the three months ended June 30, 2024, versus the comparable period in 2023, primarily due to lower expenses resulting from the divestiture of Atmus. Overall, selling, general and administrative expenses as a percentage of net sales decreased to 9.4 percent in the three months ended June 30, 2024, from 10.1 percent in the comparable period in 2023.
Selling, general and administrative expenses increased $41 million for the six months ended June 30, 2024, versus the comparable period in 2023, primarily due to higher consulting and compensation expenses. Compensation and related expenses included salaries, fringe benefits and variable compensation. Overall, selling, general and administrative expenses as a percentage of sales increased to 9.7 percent in the six months ended June 30, 2024, from 9.5 percent in the comparable period in 2023.
Research, Development and Engineering Expenses
Research, development and engineering expenses decreased $5 million for the three months ended June 30, 2024, versus the comparable period in 2023, primarily due to lower consulting expenses. Overall, research, development and engineering expenses as a percentage of net sales decreased to 4.3 percent in the three months ended June 30, 2024, from 4.4 percent in the comparable period in 2023.
Research, development and engineering expenses increased $14 million for the six months ended June 30, 2024, versus the comparable period in 2023, primarily due to lower expense recoveries, partially offset by lower consulting expenses. Overall, research, development and engineering expenses as a percentage of net sales remained flat at 4.3 percent for both the six months ended June 30, 2024 and 2023.
Research activities continue to focus on development of new products and improvements of current technologies to meet future emission standards around the world, improvements in fuel economy performance of diesel and natural gas-powered engines and related components, as well as development activities around hydrogen engine solutions, battery electric, fuel cell electric and hydrogen production technologies.
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Equity, Royalty and Interest Income from Investees
Equity, royalty and interest income from investees decreased $30 million and $26 million for the three and six months ended June 30, 2024, versus the comparable periods in 2023, primarily due to lower royalty and interest income from investees, losses at NPROXX and lower earnings from Komatsu Cummins Chile, Ltda., partially offset by higher earnings at Chongqing Cummins Engine Co., Ltd.
Other Operating Expense, Net
Other operating (expense) income, net was as follows:
| Three months ended | Six months ended | |||||||||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||||||||
| In millions | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||
| Amortization of intangible assets | $ | (33) | $ | (34) |
|
$ | (65) | $ | (66) | |||||||||||||||||
| Other, net | (11) | 7 | (12) | 20 | ||||||||||||||||||||||
| Total other operating expense, net | $ | (44) | $ | (27) | $ | (77) | $ | (46) | ||||||||||||||||||
Interest Expense
Interest expense was $109 million and $198 million for the three and six months ended June 30, 2024, versus $99 million and $186 million for the comparable periods in 2023. Interest expense increased $10 million and $12 million, respectively, primarily due to higher weighted-average interest rates, partially offset by lower weighted-average debt balances.
Other Income, Net
Other income (expense), net was as follows:
| Three months ended | Six months ended | |||||||||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||||||||
| In millions | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||
| Interest income | $ | 30 | $ | 25 | $ | 59 | $ | 43 | ||||||||||||||||||
| Non-service pension and OPEB income | 22 | 31 | 52 | 62 | ||||||||||||||||||||||
|
Gain related to divestiture of Atmus
(1)
|
— | — | 1,333 | — | ||||||||||||||||||||||
| Gain on marketable securities, net | — | 3 | 4 | 8 | ||||||||||||||||||||||
| (Loss) gain on corporate owned life insurance | (2) | 1 | — | 20 | ||||||||||||||||||||||
| Foreign currency (loss) gain, net | (12) | (11) | (23) | 1 | ||||||||||||||||||||||
| Other, net | 3 | 2 | 3 | 7 | ||||||||||||||||||||||
| Total other income, net | $ | 41 | $ | 51 | $ | 1,428 | $ | 141 | ||||||||||||||||||
|
(1)
See NOTE 14, "ATMUS IPO AND DIVESTITURE," to our
Condensed Consolidated Financial Statements
for additional information.
|
||||||||||||||||||||||||||
Income Tax Expense
Our effective tax rate for 2024 is expected to approximate 24.0 percent, excluding any discrete items that may arise.
Our effective tax rates for the three and six months ended June 30, 2024, were 23.0 percent and 13.1 percent, respectively. Our effective tax rates for the three and six months ended June 30, 2023, were 22.3 percent and 22.0 percent, respectively.
The three months ended June 30, 2024, contained favorable discrete tax items of $9 million primarily due to share-based compensation tax benefits.
The six months ended June 30, 2024, contained favorable discrete tax items primarily due to the $1.3 billion non-taxable gain on the Atmus split-off. Other discrete tax items were $30 million favorable primarily due to adjustments related to audit settlements and share-based compensation benefits.
The three months ended June 30, 2023, contained net unfavorable discrete tax items of $3 million.
The six months ended June 30, 2023, contained net discrete tax items of zero, as the result of offsetting amounts for the first two quarters, primarily due to share-based compensation tax benefits and other discrete items.
38
Noncontrolling Interests
Noncontrolling interests eliminate the income or loss attributable to non-Cummins ownership interests in our consolidated entities. Noncontrolling interests in income of consolidated subsidiaries for the three and six months ended June 30, 2024, increased $9 million and $28 million versus the comparable periods in 2023. The increase for the three months ended June 30, 2024, was primarily due to the absence of losses at Hydrogenics Corporation resulting from the June 2023 acquisition, partially offset by lower earnings at Eaton Cummins Joint Venture. The increase for the six months ended June 30, 2024, was primarily due to the absence of losses at Hydrogenics Corporation and higher earnings at Cummins India Limited, partially offset by lower earnings at Eaton Cummins Joint Venture.
Comprehensive Income - Foreign Currency Translation Adjustment
The foreign currency translation adjustment was a net loss of $83 million and $143 million, for the three and six months ended June 30, 2024, respectively, compared to a net loss of $110 million and $28 million, for the three and six months ended June 30, 2023, respectively, driven by the following:
| Three months ended | ||||||||||||||||||||||||||
| June 30, | ||||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||||
| In millions | Translation adjustment | Primary currency driver vs. U.S. dollar | Translation adjustment | Primary currency driver vs. U.S. dollar | ||||||||||||||||||||||
| Wholly-owned subsidiaries | $ | (69) | Brazilian real, Chinese renminbi | $ | (72) | Chinese renminbi, partially offset by Brazilian real and British pound | ||||||||||||||||||||
| Equity method investments | (12) | Chinese renminbi, Brazilian real | (36) | Chinese renminbi | ||||||||||||||||||||||
| Consolidated subsidiaries with a noncontrolling interest | (2) | Indian rupee | (2) | Chinese renminbi | ||||||||||||||||||||||
| Total | $ | (83) | $ | (110) | ||||||||||||||||||||||
| Six months ended | ||||||||||||||||||||||||||
| June 30, | ||||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||||
| In millions | Translation adjustment | Primary currency driver vs. U.S. dollar | Translation adjustment | Primary currency driver vs. U.S. dollar | ||||||||||||||||||||||
| Wholly-owned subsidiaries | $ | (123) | Brazilian real, Chinese renminbi | $ | 1 | Chinese renminbi, partially offset by Brazilian real, British pound and Euro | ||||||||||||||||||||
| Equity method investments | (15) | Chinese renminbi, partially offset by Indian rupee | (30) | Chinese renminbi, partially offset by Brazilian real | ||||||||||||||||||||||
| Consolidated subsidiaries with a noncontrolling interest | (5) | Indian rupee, Chinese renminbi | 1 | Indian rupee, partially offset by Chinese renminbi | ||||||||||||||||||||||
| Total | $ | (143) | $ | (28) | ||||||||||||||||||||||
39
OPERATING SEGMENT RESULTS
Our reportable operating segments consist of the Components, Engine, Distribution, Power Systems and Accelera segments. This reporting structure is organized according to the products and markets each segment serves. We use segment EBITDA as the basis for the Chief Operating Decision Maker to evaluate the performance of each of our reportable operating segments. 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. Segment amounts exclude certain expenses not specifically identifiable to segments. See NOTE 16, "OPERATING SEGMENTS," to the
Condensed Consolidated Financial Statements
for additional information and a reconciliation of our segment information to the corresponding amounts in our
Condensed Consolidated Statements of Net Income
.
Following is a discussion of results for each of our operating segments.
Components Segment Results
Financial data for the Components segment was as follows:
| Three months ended | Favorable/ | Six months ended | Favorable/ | |||||||||||||||||||||||||||||||||||||||||||||||
| June 30, | (Unfavorable) | June 30, | (Unfavorable) | |||||||||||||||||||||||||||||||||||||||||||||||
| In millions | 2024 | 2023 | Amount | Percent | 2024 | 2023 | Amount | Percent | ||||||||||||||||||||||||||||||||||||||||||
| External sales | $ | 2,518 | $ | 2,924 | $ | (406) | (14) | % | $ | 5,360 | $ | 5,967 | $ | (607) | (10) | % | ||||||||||||||||||||||||||||||||||
| Intersegment sales | 464 | 501 | (37) | (7) | % | 954 | 1,015 | (61) | (6) | % | ||||||||||||||||||||||||||||||||||||||||
| Total sales | 2,982 | 3,425 | (443) | (13) | % | 6,314 | 6,982 | (668) | (10) | % | ||||||||||||||||||||||||||||||||||||||||
| Research, development and engineering expenses | 81 | 103 | 22 | 21 | % | 165 | 194 | 29 | 15 | % | ||||||||||||||||||||||||||||||||||||||||
| Equity, royalty and interest income from investees | 13 | 24 | (11) | (46) | % | 39 | 45 | (6) | (13) | % | ||||||||||||||||||||||||||||||||||||||||
| Interest income | 9 | 7 | 2 | 29 | % | 17 | 13 | 4 | 31 | % | ||||||||||||||||||||||||||||||||||||||||
|
Segment EBITDA
(1)
|
406 | 486 | (80) | (16) | % | 879 | 993 | (114) | (11) | % | ||||||||||||||||||||||||||||||||||||||||
| Percentage Points | Percentage Points | |||||||||||||||||||||||||||||||||||||||||||||||||
| Segment EBITDA as a percentage of total sales | 13.6 | % | 14.2 | % | (0.6) | 13.9 | % | 14.2 | % | (0.3) | ||||||||||||||||||||||||||||||||||||||||
|
(1)
Included $21 million of costs associated with the divestiture of Atmus for the six months ended June 30, 2024. Included $18 million and $30 million of costs associated with the divestiture of Atmus for the three and six months ended June 30, 2023, respectively. See NOTE 14, "ATMUS IPO AND DIVESTITURE," to the
Condensed Consolidated Financial Statements
for additional information.
|
||||||||||||||||||||||||||||||||||||||||||||||||||
On March 18, 2024, we completed the divestiture of our remaining 80.5 percent ownership of Atmus common stock through a tax-free split-off. See NOTE 14, "ATMUS IPO AND DIVESTITURE," to the
Condensed Consolidated Financial Statements
for additional information.
Beginning in the second quarter of 2024, we realigned certain businesses within our Components segment to be consistent with how our segment manager now monitors performance. We reorganized the businesses to combine the engine components and software and electronics businesses into the newly formed components and software business. In addition, we rebranded our axles and brakes business as drivetrain and braking systems. We began reporting results for these changes within our Components segment effective April 1, 2024, and reflected these changes in the historical periods presented. The change had no impact on our consolidated results.
Sales for our Components segment by business were as follows:
| Three months ended | Favorable/ | Six months ended | Favorable/ | |||||||||||||||||||||||||||||||||||||||||||||||
| June 30, | (Unfavorable) | June 30, | (Unfavorable) | |||||||||||||||||||||||||||||||||||||||||||||||
| In millions | 2024 | 2023 | Amount | Percent | 2024 | 2023 | Amount | Percent | ||||||||||||||||||||||||||||||||||||||||||
| Drivetrain and braking systems | $ | 1,256 | $ | 1,249 | $ | 7 | 1 | % | $ | 2,488 | $ | 2,521 | $ | (33) | (1) | % | ||||||||||||||||||||||||||||||||||
| Emission solutions | 941 | 964 | (23) | (2) | % | 1,912 | 2,020 | (108) | (5) | % | ||||||||||||||||||||||||||||||||||||||||
| Components and software | 623 | 616 | 7 | 1 | % | 1,234 | 1,249 | (15) | (1) | % | ||||||||||||||||||||||||||||||||||||||||
| Automated transmissions | 162 | 179 | (17) | (9) | % | 327 | 358 | (31) | (9) | % | ||||||||||||||||||||||||||||||||||||||||
| Atmus | — | 417 | (417) | (100) | % | 353 |
(1)
|
834 | (481) | (58) | % | |||||||||||||||||||||||||||||||||||||||
| Total sales | $ | 2,982 | $ | 3,425 | $ | (443) | (13) | % | $ | 6,314 | $ | 6,982 | $ | (668) | (10) | % | ||||||||||||||||||||||||||||||||||
|
(1)
Included sales through the March 18, 2024, divestiture. See NOTE 14, "ATMUS IPO AND DIVESTITURE," to the
Condensed Consolidated Financial Statements
for additional information.
|
||||||||||||||||||||||||||||||||||||||||||||||||||
40
Sales
Components segment sales for the three months ended June 30, 2024, decreased $443 million versus the comparable period in 2023. The following were the primary drivers by business:
•
Sales decreased $417 million due to the Atmus divestiture on March 18, 2024.
•
Emission solutions sales decreased $23 million primarily due to weaker demand in China and North America, partially offset by higher demand in Mexico.
Components segment sales for the six months ended June 30, 2024, decreased $668 million versus the comparable period in 2023. The following were the primary drivers by business:
•
Sales decreased $481 million due to the Atmus divestiture on March 18, 2024.
•
Emission solutions sales decreased $108 million principally due to lower demand in China and North America, partially offset by higher demand in Mexico.
Segment EBITDA
Components segment EBITDA for the three and six months ended June 30, 2024, decreased $80 million and $114 million, respectively, versus the comparable periods in 2023, mainly due to the divestiture of Atmus.
Engine Segment Results
Financial data for the Engine segment was as follows:
| Three months ended | Favorable/ | Six months ended | Favorable/ | |||||||||||||||||||||||||||||||||||||||||||||||
| June 30, | (Unfavorable) | June 30, | (Unfavorable) | |||||||||||||||||||||||||||||||||||||||||||||||
| In millions | 2024 | 2023 | Amount | Percent | 2024 | 2023 | Amount | Percent | ||||||||||||||||||||||||||||||||||||||||||
| External sales | $ | 2,468 | $ | 2,263 | $ | 205 | 9 | % | $ | 4,708 | $ | 4,515 | $ | 193 | 4 | % | ||||||||||||||||||||||||||||||||||
| Intersegment sales | 683 | 725 | (42) | (6) | % | 1,371 | 1,459 | (88) | (6) | % | ||||||||||||||||||||||||||||||||||||||||
| Total sales | 3,151 | 2,988 | 163 | 5 | % | 6,079 | 5,974 | 105 | 2 | % | ||||||||||||||||||||||||||||||||||||||||
| Research, development and engineering expenses | 167 | 148 | (19) | (13) | % | 321 | 282 | (39) | (14) | % | ||||||||||||||||||||||||||||||||||||||||
| Equity, royalty and interest income from investees | 48 | 71 | (23) | (32) | % | 105 | 136 | (31) | (23) | % | ||||||||||||||||||||||||||||||||||||||||
| Interest income | 7 | 7 | — | — | % | 14 | 10 | 4 | 40 | % | ||||||||||||||||||||||||||||||||||||||||
| Segment EBITDA | 445 | 425 | 20 | 5 | % | 859 | 882 | (23) | (3) | % | ||||||||||||||||||||||||||||||||||||||||
| Percentage Points | Percentage Points | |||||||||||||||||||||||||||||||||||||||||||||||||
| Segment EBITDA as a percentage of total sales | 14.1 | % | 14.2 | % | (0.1) | 14.1 | % | 14.8 | % | (0.7) | ||||||||||||||||||||||||||||||||||||||||
Sales for our Engine segment by market were as follows:
| Three months ended | Favorable/ | Six months ended | Favorable/ | |||||||||||||||||||||||||||||||||||||||||||||||
| June 30, | (Unfavorable) | June 30, | (Unfavorable) | |||||||||||||||||||||||||||||||||||||||||||||||
| In millions | 2024 | 2023 | Amount | Percent | 2024 | 2023 | Amount | Percent | ||||||||||||||||||||||||||||||||||||||||||
| Heavy-duty truck | $ | 1,184 | $ | 1,117 | $ | 67 | 6 | % | $ | 2,243 | $ | 2,231 | $ | 12 | 1 | % | ||||||||||||||||||||||||||||||||||
| Medium-duty truck and bus | 1,074 | 942 | 132 | 14 | % | 2,069 | 1,845 | 224 | 12 | % | ||||||||||||||||||||||||||||||||||||||||
| Light-duty automotive | 461 | 445 | 16 | 4 | % | 899 | 884 | 15 | 2 | % | ||||||||||||||||||||||||||||||||||||||||
| Total on-highway | 2,719 | 2,504 | 215 | 9 | % | 5,211 | 4,960 | 251 | 5 | % | ||||||||||||||||||||||||||||||||||||||||
| Off-highway | 432 | 484 | (52) | (11) | % | 868 | 1,014 | (146) | (14) | % | ||||||||||||||||||||||||||||||||||||||||
| Total sales | $ | 3,151 | $ | 2,988 | $ | 163 | 5 | % | $ | 6,079 | $ | 5,974 | $ | 105 | 2 | % | ||||||||||||||||||||||||||||||||||
| Percentage Points | Percentage Points | |||||||||||||||||||||||||||||||||||||||||||||||||
| On-highway sales as percentage of total sales | 86 | % | 84 | % | 2 | 86 | % | 83 | % | 3 | ||||||||||||||||||||||||||||||||||||||||
41
Unit shipments by engine classification (including unit shipments to Power Systems and off-highway engine units included in their respective classification) were as follows:
| Three months ended | Favorable/ | Six months ended | Favorable/ | |||||||||||||||||||||||||||||||||||||||||||||||
| June 30, | (Unfavorable) | June 30, | (Unfavorable) | |||||||||||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Amount | Percent | 2024 | 2023 | Amount | Percent | |||||||||||||||||||||||||||||||||||||||||||
| Heavy-duty | 37,500 | 36,400 | 1,100 | 3 | % | 71,100 | 71,100 | — | — | % | ||||||||||||||||||||||||||||||||||||||||
| Medium-duty | 79,600 | 76,000 | 3,600 | 5 | % | 155,400 | 154,900 | 500 | — | % | ||||||||||||||||||||||||||||||||||||||||
| Light-duty | 57,200 | 53,600 | 3,600 | 7 | % | 112,000 | 108,600 | 3,400 | 3 | % | ||||||||||||||||||||||||||||||||||||||||
| Total unit shipments | 174,300 | 166,000 | 8,300 | 5 | % | 338,500 | 334,600 | 3,900 | 1 | % | ||||||||||||||||||||||||||||||||||||||||
Sales
Engine segment sales for the three months ended June 30, 2024, increased $163 million versus the comparable period in 2023. The following were the primary drivers by market:
•
Medium-duty truck and bus sales
increased $132 million primarily due to higher truck demand, especially in North America with shipments up 12 percent, and increased pricing.
•
Heavy-duty truck sales increased $67 million mainly due to stronger demand in North America with shipments up 5 percent and favorable pricing.
These increases were partially offset by decreased o
ff-highway sales of
$52 million mainly due to lower demand in global construction markets, especially in China, Western Europe and North America.
Engine segment sales for the six months ended June 30, 2024, increased $105 million versus the comparable period in 2023. The primary driver by market was an increase in medium-duty truck and bus sales of $224 million principally due to higher truck demand, especially in North America with shipments up 16 percent, and favorable pricing. The increase was partially offset by decreased off-highway sales of $146 million mainly due to lower demand in global construction markets, especially in China and Western Europe.
Segment EBITDA
Engine segment EBITDA for the three months ended June 30, 2024, increased $20 million versus the comparable period in 2023, primarily due to favorable pricing, partially offset by higher compensation expenses, lower equity, royalty and interest income from investees and unfavorable mix.
Engine segment EBITDA for the six months ended June 30, 2024, decreased $23 million versus the comparable period in 2023, primarily due to higher compensation expenses, increased product coverage, lower equity, royalty and interest income from investees, lower parts volumes and unfavorable mix, partially offset by favorable pricing.
Distribution Segment Results
Financial data for the Distribution segment was as follows:
| Three months ended | Favorable/ | Six months ended | Favorable/ | |||||||||||||||||||||||||||||||||||||||||||||||
| June 30, | (Unfavorable) | June 30, | (Unfavorable) | |||||||||||||||||||||||||||||||||||||||||||||||
| In millions | 2024 | 2023 | Amount | Percent | 2024 | 2023 | Amount | Percent | ||||||||||||||||||||||||||||||||||||||||||
| External sales | $ | 2,821 | $ | 2,576 | $ | 245 | 10 | % | $ | 5,350 | $ | 4,975 | $ | 375 | 8 | % | ||||||||||||||||||||||||||||||||||
| Intersegment sales | 8 | 19 | (11) | (58) | % | 14 | 26 | (12) | (46) | % | ||||||||||||||||||||||||||||||||||||||||
| Total sales | 2,829 | 2,595 | 234 | 9 | % | 5,364 | 5,001 | 363 | 7 | % | ||||||||||||||||||||||||||||||||||||||||
| Research, development and engineering expenses | 14 | 15 | 1 | 7 | % | 28 | 29 | 1 | 3 | % | ||||||||||||||||||||||||||||||||||||||||
| Equity, royalty and interest income from investees | 24 | 24 | — | — | % | 48 | 48 | — | — | % | ||||||||||||||||||||||||||||||||||||||||
| Interest income | 11 | 8 | 3 | 38 | % | 22 | 15 | 7 | 47 | % | ||||||||||||||||||||||||||||||||||||||||
| Segment EBITDA | 314 | 299 | 15 | 5 | % | 608 | 634 | (26) | (4) | % | ||||||||||||||||||||||||||||||||||||||||
| Percentage Points | Percentage Points | |||||||||||||||||||||||||||||||||||||||||||||||||
| Segment EBITDA as a percentage of total sales | 11.1 | % | 11.5 | % | (0.4) | 11.3 | % | 12.7 | % | (1.4) | ||||||||||||||||||||||||||||||||||||||||
42
Sales for our Distribution segment by region were as follows:
| Three months ended | Favorable/ | Six months ended | Favorable/ | |||||||||||||||||||||||||||||||||||||||||||||||
| June 30, | (Unfavorable) | June 30, | (Unfavorable) | |||||||||||||||||||||||||||||||||||||||||||||||
| In millions | 2024 | 2023 | Amount | Percent | 2024 | 2023 | Amount | Percent | ||||||||||||||||||||||||||||||||||||||||||
| North America | $ | 1,901 | $ | 1,797 | $ | 104 | 6 | % | $ | 3,624 | $ | 3,492 | $ | 132 | 4 | % | ||||||||||||||||||||||||||||||||||
| Asia Pacific | 310 | 266 | 44 | 17 | % | 595 | 506 | 89 | 18 | % | ||||||||||||||||||||||||||||||||||||||||
| Europe | 285 | 213 | 72 | 34 | % | 525 | 408 | 117 | 29 | % | ||||||||||||||||||||||||||||||||||||||||
| China | 130 | 113 | 17 | 15 | % | 232 | 215 | 17 | 8 | % | ||||||||||||||||||||||||||||||||||||||||
| India | 79 | 65 | 14 | 22 | % | 150 | 124 | 26 | 21 | % | ||||||||||||||||||||||||||||||||||||||||
| Latin America | 64 | 61 | 3 | 5 | % | 124 | 114 | 10 | 9 | % | ||||||||||||||||||||||||||||||||||||||||
| Africa and Middle East | 60 | 80 | (20) | (25) | % | 114 | 142 | (28) | (20) | % | ||||||||||||||||||||||||||||||||||||||||
| Total sales | $ | 2,829 | $ | 2,595 | $ | 234 | 9 | % | $ | 5,364 | $ | 5,001 | $ | 363 | 7 | % | ||||||||||||||||||||||||||||||||||
Sales for our Distribution segment by product line were as follows:
| Three months ended | Favorable/ | Six months ended | Favorable/ | |||||||||||||||||||||||||||||||||||||||||||||||
| June 30, | (Unfavorable) | June 30, | (Unfavorable) | |||||||||||||||||||||||||||||||||||||||||||||||
| In millions | 2024 | 2023 | Amount | Percent | 2024 | 2023 | Amount | Percent | ||||||||||||||||||||||||||||||||||||||||||
| Parts | $ | 990 | $ | 1,019 | $ | (29) | (3) | % | $ | 1,991 | $ | 2,076 | $ | (85) | (4) | % | ||||||||||||||||||||||||||||||||||
| Power generation | 954 | 614 | 340 | 55 | % | 1,661 | 1,106 | 555 | 50 | % | ||||||||||||||||||||||||||||||||||||||||
| Service | 448 | 431 | 17 | 4 | % | 854 | 832 | 22 | 3 | % | ||||||||||||||||||||||||||||||||||||||||
| Engines | 437 | 531 | (94) | (18) | % | 858 | 987 | (129) | (13) | % | ||||||||||||||||||||||||||||||||||||||||
| Total sales | $ | 2,829 | $ | 2,595 | $ | 234 | 9 | % | $ | 5,364 | $ | 5,001 | $ | 363 | 7 | % | ||||||||||||||||||||||||||||||||||
Sales
Distribution segment sales for the three months ended June 30, 2024, increased $234 million versus the comparable period in 2023. The following were the primary drivers by region:
•
North American sales increased $104 million principally due to higher demand in power generation markets, especially data center and commercial markets, partially offset by lower demand for engines and aftermarket products.
•
European sales increased $72 million mainly due to favorable demand in power generation markets.
Distribution segment sales for the six months ended June 30, 2024, increased $363 million versus the comparable period in 2023. The following were the primary drivers by region:
•
North American sales increased $132 million principally due to higher demand in power generation markets, especially commercial and data center markets, partially offset by lower demand for engines and aftermarket products.
•
European sales increased $117 million mainly due to favorable demand in power generation markets.
•
Asia Pacific sales increased $89 million primarily due to higher demand in power generation markets, especially data center markets, and service.
Segment EBITDA
Distribution segment EBITDA for the three months ended June 30, 2024, increased $15 million versus the comparable period in 2023, primarily due to favorable pricing, partially offset by higher compensation expenses.
Distribution segment EBITDA for the six months ended June 30, 2024, decreased $26 million versus the comparable period in 2023, primarily due to higher compensation expenses, unfavorable mix and higher managed expenses, partially offset by favorable pricing.
43
Power Systems Segment Results
Financial data for the Power Systems segment was as follows:
| Three months ended | Favorable/ | Six months ended | Favorable/ | |||||||||||||||||||||||||||||||||||||||||||||||
| June 30, | (Unfavorable) | June 30, | (Unfavorable) | |||||||||||||||||||||||||||||||||||||||||||||||
| In millions | 2024 | 2023 | Amount | Percent | 2024 | 2023 | Amount | Percent | ||||||||||||||||||||||||||||||||||||||||||
| External sales | $ | 888 | $ | 794 | $ | 94 | 12 | % | $ | 1,596 | $ | 1,473 | $ | 123 | 8 | % | ||||||||||||||||||||||||||||||||||
| Intersegment sales | 701 | 663 | 38 | 6 | % | 1,382 | 1,327 | 55 | 4 | % | ||||||||||||||||||||||||||||||||||||||||
| Total sales | 1,589 | 1,457 | 132 | 9 | % | 2,978 | 2,800 | 178 | 6 | % | ||||||||||||||||||||||||||||||||||||||||
| Research, development and engineering expenses | 63 | 66 | 3 | 5 | % | 123 | 129 | 6 | 5 | % | ||||||||||||||||||||||||||||||||||||||||
| Equity, royalty and interest income from investees | 26 | 18 | 8 | 44 | % | 45 | 31 | 14 | 45 | % | ||||||||||||||||||||||||||||||||||||||||
| Interest income | 3 | 2 | 1 | 50 | % | 6 | 4 | 2 | 50 | % | ||||||||||||||||||||||||||||||||||||||||
| Segment EBITDA | 301 | 201 | 100 | 50 | % | 538 | 420 | 118 | 28 | % | ||||||||||||||||||||||||||||||||||||||||
| Percentage Points | Percentage Points | |||||||||||||||||||||||||||||||||||||||||||||||||
| Segment EBITDA as a percentage of total sales | 18.9 | % | 13.8 | % | 5.1 | 18.1 | % | 15.0 | % | 3.1 | ||||||||||||||||||||||||||||||||||||||||
Sales for our Power Systems segment by product line were as follows:
| Three months ended | Favorable/ | Six months ended | Favorable/ | |||||||||||||||||||||||||||||||||||||||||||||||
| June 30, | (Unfavorable) | June 30, | (Unfavorable) | |||||||||||||||||||||||||||||||||||||||||||||||
| In millions | 2024 | 2023 | Amount | Percent | 2024 | 2023 | Amount | Percent | ||||||||||||||||||||||||||||||||||||||||||
| Power generation | $ | 987 | $ | 854 | $ | 133 | 16 | % | $ | 1,840 | $ | 1,624 | $ | 216 | 13 | % | ||||||||||||||||||||||||||||||||||
| Industrial | 478 | 468 | 10 | 2 | % | 898 | 923 | (25) | (3) | % | ||||||||||||||||||||||||||||||||||||||||
| Generator technologies | 124 | 135 | (11) | (8) | % | 240 | 253 | (13) | (5) | % | ||||||||||||||||||||||||||||||||||||||||
| Total sales | $ | 1,589 | $ | 1,457 | $ | 132 | 9 | % | $ | 2,978 | $ | 2,800 | $ | 178 | 6 | % | ||||||||||||||||||||||||||||||||||
Sales
Power Systems segment sales for the three months ended June 30, 2024, increased $132 million versus the comparable period in 2023. The primary driver was an
increase in power generation sales of
$133 million principally due to higher demand in data center markets in North America and China, partially offset by weaker demand in India.
Power Systems segment sales for the six months ended June 30, 2024, increased $178 million versus the comparable period in 2023. The primary driver was an increase in power generation sales of $216 million principally due to higher demand in data center markets in North America, partially offset by weaker demand for industrial products in the North American oil and gas markets.
Segment EBITDA
Power Systems segment EBITDA for the three months ended June 30, 2024, increased $100 million versus the comparable period in 2023, mainly due to favorable pricing, improved mix and higher volumes, partially offset by increased product coverage costs.
Power Systems segment EBITDA for the six months ended June 30, 2024, increased $118 million versus the comparable period in 2023, primarily due to favorable pricing and higher volumes, partially offset by increased product coverage costs.
44
Accelera Segment Results
Financial data for the Accelera segment was as follows:
| Three months ended | Favorable/ | Six months ended | Favorable/ | |||||||||||||||||||||||||||||||||||||||||||||||
| June 30, | (Unfavorable) | June 30, | (Unfavorable) | |||||||||||||||||||||||||||||||||||||||||||||||
| In millions | 2024 | 2023 | Amount | Percent | 2024 | 2023 | Amount | Percent | ||||||||||||||||||||||||||||||||||||||||||
| External sales | $ | 101 | $ | 81 | $ | 20 | 25 | % | $ | 185 | $ | 161 | $ | 24 | 15 | % | ||||||||||||||||||||||||||||||||||
| Intersegment sales | 10 | 4 | 6 | NM | 19 | 9 | 10 | NM | ||||||||||||||||||||||||||||||||||||||||||
| Total sales | 111 | 85 | 26 | 31 | % | 204 | 170 | 34 | 20 | % | ||||||||||||||||||||||||||||||||||||||||
| Research, development and engineering expenses | 54 | 52 | (2) | (4) | % | 109 | 100 | (9) | (9) | % | ||||||||||||||||||||||||||||||||||||||||
| Equity, royalty and interest loss from investees | (8) | (4) | (4) | (100) | % | (11) | (8) | (3) | (38) | % | ||||||||||||||||||||||||||||||||||||||||
| Interest income | — | 1 | (1) | (100) | % | — | 1 | (1) | (100) | % | ||||||||||||||||||||||||||||||||||||||||
| Segment EBITDA | (117) | (114) | (3) | (3) | % | (218) | (208) | (10) | (5) | % | ||||||||||||||||||||||||||||||||||||||||
|
"NM" - not meaningful information
|
||||||||||||||||||||||||||||||||||||||||||||||||||
Accelera segment sales for the three and six months ended June 30, 2024, increased $26 million and $34 million versus the comparable periods in 2023 primarily due to improved sales of electrolyzers.
45
OUTLOOK
Our outlook reflects the following positive trends and challenges to our business that could impact our revenue and earnings potential for the remainder of 2024.
Positive Trends
•
We expect demand for medium-duty trucks in North America to remain strong.
•
We believe market demand for trucks in India will continue to be strong.
•
We expect demand within our Power Systems business to remain strong, including the power generation and mining markets.
•
We anticipate demand in our aftermarket business will continue to be robust, driven primarily by strong demand in our Engine and Power Systems businesses.
•
We expect demand for trucks in China to remain stable or improve in 2024.
Challenges
•
We expect demand for heavy-duty trucks in North America to weaken modestly in the second half of 2024.
•
Continued increases in labor costs, as well as other inflationary pressures, could negatively impact earnings.
•
The financial implications resulting from our Settlement Agreements will result in incremental interest expense for debt utilized in funding the civil penalty.
LIQUIDITY AND CAPITAL RESOURCES
Key Working Capital and Balance Sheet Data
We fund our working capital with cash from operations and short-term borrowings, including commercial paper, when necessary. Various assets and liabilities, including short-term debt, can fluctuate significantly from month to month depending on short-term liquidity needs. As a result, working capital is a prime focus of management's attention. Working capital and balance sheet measures are provided in the following table:
| Dollars in millions |
June 30,
2024 |
December 31,
2023 |
||||||||||||
|
Working capital
(1)
|
$ | 3,818 | $ | 2,295 | ||||||||||
| Current ratio | 1.34 | 1.18 | ||||||||||||
| Accounts and notes receivable, net | $ | 5,606 | $ | 5,583 | ||||||||||
| Days' sales in receivables | 59 | 58 | ||||||||||||
| Inventories | $ | 5,857 | $ | 5,677 | ||||||||||
| Inventory turnover | 4.4 | 4.5 | ||||||||||||
| Accounts payable (principally trade) | $ | 4,405 | $ | 4,260 | ||||||||||
| Days' payable outstanding | 62 | 62 | ||||||||||||
| Total debt | $ | 7,503 | $ | 6,696 | ||||||||||
| Total debt as a percent of total capital | 41.5 | % | 40.3 | % | ||||||||||
|
(1)
Working capital included cash and cash equivalents
|
||||||||||||||
46
Cash Flows
Cash and cash equivalents were impacted as follows:
| Six months ended | ||||||||||||||||||||
| June 30, | ||||||||||||||||||||
| In millions | 2024 | 2023 | Change | |||||||||||||||||
| Net cash (used in) provided by operating activities | $ | (575) | $ | 978 | $ | (1,553) | ||||||||||||||
| Net cash used in investing activities | (806) | (606) | (200) | |||||||||||||||||
| Net cash provided by (used in) financing activities | 807 | (603) | 1,410 | |||||||||||||||||
| Effect of exchange rate changes on cash and cash equivalents | (15) | (68) | 53 | |||||||||||||||||
| Net decrease in cash and cash equivalents | $ | (589) | $ | (299) | $ | (290) | ||||||||||||||
Net cash used in operating activities increased $1.6 billion for the six months ended June 30, 2024, versus the comparable period in 2023, primarily due to higher working capital requirements of $1.6 billion. The higher working capital requirements resulted in a cash outflow of $2.5 billion compared to a cash outflow of $849 million in the comparable period of 2023, mainly due to $1.9 billion of payments required by the Settlement Agreements, partially offset by favorable changes in accounts and notes receivable.
Net cash used in investing activities increased $200 million for the six months ended June 30, 2024, versus the comparable period in 2023, primarily due to cash associated with the Atmus divestiture.
Net cash provided by financing activities increased $1.4 billion for the six months ended June 30, 2024, versus the comparable period in 2023, primarily due to higher proceeds from borrowings of $1.7 billion (principally related to our 2024 note issuance) and increased net borrowings of commercial paper of $743 million, partially offset by higher payments on borrowings and finance lease obligations of $995 million (largely related to increased early payments of $900 million on our term loan, due 2025).
The effect of exchange rate changes on cash and cash equivalents for the six months ended June 30, 2024, versus the comparable period in 2023, increased $53 million primarily due to favorable fluctuations in the British pound.
Sources of Liquidity
We generate significant ongoing cash flow. Cash provided by operations is generally our principal source of liquidity. In February, we issued $2.25 billion in long-term debt to pay down higher cost debt, finance Settlement Agreement payments and improve our overall liquidity. Our sources of liquidity include the following:
| June 30, 2024 | ||||||||||||||||||||||||||
| In millions | Total | U.S. | International | Primary location of international balances | ||||||||||||||||||||||
| Cash and cash equivalents | $ | 1,590 | $ | 716 | $ | 874 | Singapore, Australia, China, Mexico, Belgium, Canada | |||||||||||||||||||
|
Marketable securities
(1)
|
593 | 85 | 508 | India | ||||||||||||||||||||||
| Total | $ | 2,183 | $ | 801 | $ | 1,382 | ||||||||||||||||||||
| Available credit capacity | ||||||||||||||||||||||||||
|
Revolving credit facilities
(2)
|
$ | 2,419 | ||||||||||||||||||||||||
| International and other uncommitted domestic credit facilities | $ | 385 | ||||||||||||||||||||||||
|
(1)
The majority of marketable securities could be liquidated into cash within a few days.
|
||||||||||||||||||||||||||
|
(2)
The five-year credit facility for $2.0 billion and the 364-day credit facility for $2.0 billion, maturing June 2029 and June 2025, respectively, are maintained primarily to provide backup liquidity for our commercial paper borrowings and general corporate purposes. At June 30, 2024, we had $1.6 billion of commercial paper outstanding, which effectively reduced our available capacity under our revolving credit facilities to $2.4 billion.
|
||||||||||||||||||||||||||
Cash, Cash Equivalents and Marketable Securities
A significant portion of our cash flow is generated outside the U.S. We manage our worldwide cash requirements considering available funds among the many subsidiaries through which we conduct our business and the cost effectiveness with which those funds can be accessed. As a result, we do not anticipate any local liquidity restrictions to preclude us from funding our operating needs with local resources.
47
If we distribute our foreign cash balances to the U.S. or to other foreign subsidiaries, we could be required to accrue and pay withholding taxes, for example, if we repatriated cash from certain foreign subsidiaries whose earnings we asserted are completely or partially permanently reinvested. Foreign earnings for which we assert permanent reinvestment outside the U.S. consist primarily of earnings of our China, India, Canada (including underlying subsidiaries) and Netherlands domiciled subsidiaries. At present, we do not foresee a need to repatriate any earnings for which we assert permanent reinvestment. However, to help fund cash needs of the U.S. or other international subsidiaries as they arise, we repatriate available cash from certain foreign subsidiaries whose earnings are not completely permanently reinvested when cost effective to do so.
Debt Facilities and Other Sources of Liquidity
On June 3, 2024, we entered into an amended and restated five-year credit agreement that allows us to borrow up to $2.0 billion of unsecured funds at any time prior to June 3, 2029. The credit agreement amended and restated the prior $2.0 billion five-year credit agreement that would have matured on August 18, 2026.
On June 3, 2024, we entered into an amended and restated 364-day credit agreement that allows us to borrow up to $2.0 billion of unsecured funds at any time prior to June 2, 2025. This credit agreement amended and restated the prior $2.0 billion 364-day credit facility that matured on June 3, 2024.
On February 20, 2024, we issued $2.25 billion aggregate principal amount of senior unsecured notes consisting of $500 million aggregate principal amount of 4.90 percent senior unsecured notes due in 2029, $750 million aggregate principal amount of 5.15 percent senior unsecured notes due in 2034 and $1.0 billion aggregate principal amount of 5.45 percent senior unsecured notes due in 2054. We received net proceeds of $2.2 billion. See NOTE 9, "DEBT," to the
Condensed Consolidated Financial Statements
for additional information.
Our committed credit facilities provide access up to $4.0 billion, including our $2.0 billion 364-day facility that expires June 2, 2025, and our $2.0 billion five-year facility that expires on June 3, 2029. These revolving credit facilities are maintained primarily to provide backup liquidity for our commercial paper borrowings and general corporate purposes. We intend to maintain credit facilities at the current or higher aggregate amounts by renewing or replacing these facilities at or before expiration. There were no outstanding borrowings under these facilities at June 30, 2024.
Our committed credit facilities provide access up to $4.0 billion of unsecured, short-term promissory notes (commercial paper) pursuant to the Board of Directors (the Board) authorized commercial paper programs. These programs facilitate the private placement of unsecured short-term debt through third-party brokers. We intend to use the net proceeds from the commercial paper borrowings for general corporate purposes. The total combined borrowing capacity under the revolving credit facilities and commercial paper programs should not exceed $4.0 billion. At June 30, 2024, we had $1.6 billion of commercial paper outstanding, which effectively reduced our available capacity under our revolving credit facilities to $2.4 billion. See NOTE 9, "DEBT," to the
Condensed Consolidated Financial Statements
for additional information.
As a well-known seasoned issuer, we filed an automatic shelf registration of an undetermined amount of debt and equity with the Securities and Exchange Commission (SEC) on February 8, 2022. Under this shelf registration we may offer, from time to time, debt securities, common stock, preferred and preference stock, depositary shares, warrants, stock purchase contracts and stock purchase units.
Supply Chain Financing
We currently have supply chain financing programs with financial intermediaries, which provide certain vendors the option to be paid by financial intermediaries earlier than the due date on the applicable invoice. When a vendor utilizes the program and receives an early payment from a financial intermediary, they take a discount on the invoice. We then pay the financial intermediary the face amount of the invoice on the original due date, which generally have 60 to 90 day payment terms. The maximum amount that we could have outstanding under these programs was $538 million. We do not reimburse vendors for any costs they incur for participation in the program, their participation is completely voluntary and there are no assets pledged as security or other forms of guarantees provided for the committed payment to the finance provider or intermediary. As a result, all amounts owed to the financial intermediaries are presented as accounts payable in our
Condensed Consolidated Balance Sheets
. Amounts due to the financial intermediaries reflected in accounts payable at June 30, 2024, were $212 million.
Accounts Receivable Sales Program
In May 2024, we entered into an accounts receivable sales agreement with Wells Fargo Bank, N.A., to sell certain accounts receivable up to a Board approved limit of $500 million. See NOTE 1, "NATURE OF OPERATIONS AND BASIS OF PRESENTATION," to the
Condensed Consolidated Financial Statements
for additional information.
48
Uses of Cash
Settlement Agreements
In December 2023, we announced that we reached an agreement in principle with the EPA, CARB, the Environmental and Natural Resources Division of the U.S. Department of Justice and the California Attorney General’s Office to resolve certain regulatory civil claims regarding our emissions certification and compliance process for certain engines primarily used in pick-up truck applications in the U.S., which became final and effective in April 2024 (collectively, the Settlement Agreements). As part of the Settlement Agreements, among other things, we agreed to pay civil penalties, complete recall requirements, undertake mitigation projects, provide extended warranties, undertake certain testing, take certain corporate compliance measures and make certain payments. Failure to comply with the terms and conditions of the Settlement Agreements will subject us to stipulated penalties. We recorded a charge of $2.0 billion in the fourth quarter of 2023 to resolve the matters addressed by the Settlement Agreements involving approximately one million of our pick-up truck applications in the U.S. This charge was in addition to the previously announced charges of $59 million for the recalls of model years 2013 through 2018 RAM 2500 and 3500 trucks and model years 2016 through 2019 Titan trucks. We made $1.9 billion of payments required by the Settlement Agreements in the second quarter of 2024. See NOTE 11, "COMMITMENTS AND CONTINGENCIES," to the
Condensed Consolidated Financial Statements
for additional information.
Dividends
We paid dividends of $469 million during the six months ended June 30, 2024. In July 2024, the Board authorized an increase to our quarterly dividend of approximately 8 percent from $1.68 per share to $1.82 per share.
Capital Expenditures
Capital expenditures for the six months ended June 30, 2024, were $409 million versus $414 million in the comparable period in 2023. We continue to invest in new product lines and targeted capacity expansions. We plan to spend an estimated $1.2 billion to $1.3 billion in 2024 on capital expenditures with over 65 percent of these expenditures expected to be invested in North America.
Current Maturities of Short and Long-Term Debt
We had $1,581 million of commercial paper outstanding at June 30, 2024, that matures in less than one year. The maturity schedule of our existing long-term debt requires significant cash outflows in 2025 when our term loan and 0.75 percent senior notes are due. Required annual long-term debt principal payments range from $61 million to $755 million over the next five years (including the remainder of 2024). We intend to retain our strong investment credit ratings. See NOTE 9, "DEBT," to the
Condensed Consolidated Financial Statements
for additional information. In July 2024, we settled the remaining $100 million of interest rate swaps and repaid the outstanding $100 million of our related term loan due in 2025.
Pensions
Our global pension plans, including our unfunded and non-qualified plans, were 113 percent funded at December 31, 2023. Our U.S. defined benefit plans (qualified and non-qualified), which represented approximately 69 percent of the worldwide pension obligation, were 113 percent funded, and our U.K. defined benefit plans were 113 percent funded at December 31, 2023. The funded status of our pension plans is dependent upon a variety of variables and assumptions including return on invested assets, market interest rates and levels of voluntary contributions to the plans. In the first six months of 2024, the investment gain on our U.S. pension trusts was 2.0 percent, while our U.K. pension trusts' loss was 4.3 percent. We anticipate making additional defined benefit pension contributions during the remainder of 2024 of $22 million for our U.S. and U.K. qualified and non-qualified pension plans. These contributions may be made from trusts or company funds either to increase pension assets or to make direct benefit payments to plan participants. We expect our 2024 annual net periodic pension cost to approximate $34 million.
Stock Repurchases
In December 2021, the Board authorized the acquisition of up to $2.0 billion of additional common stock upon completion of the $2.0 billion repurchase plan authorized in 2019. We did not make any repurchases of common stock in the first six months of 2024. The dollar value remaining available for future purchases under the 2019 program at June 30, 2024, was $218 million.
49
Amplify Cell Technologies LLC Joint Venture
In September 2023, our Accelera business signed an agreement to form a joint venture, Amplify Cell Technologies LLC, with Daimler Trucks and Buses US Holding LLC (Daimler Truck), PACCAR Inc. (PACCAR) and EVE Energy to accelerate and localize battery cell production and the battery supply chain in the U.S., including building a 21-gigawatt hour battery production facility in Marshall County, Mississippi. The joint venture will manufacture battery cells for electric commercial vehicles and industrial applications. At June 30, 2024, our maximum remaining required contribution to the joint venture was $780 million, which could be reduced by future government incentives received by the joint venture. The majority of the contribution is expected to be made by the end of 2028. See NOTE 4, "EQUITY, ROYALTY AND INTEREST INCOME FROM INVESTEES," to the
Condensed Consolidated Financial Statements
for additional information.
Credit Ratings
Our rating and outlook from each of the credit rating agencies as of the date of filing are shown in the table below:
| Long-Term | Short-Term | |||||||||||||||||||
|
Credit Rating Agency
(1)
|
Senior Debt Rating | Debt Rating | Outlook | |||||||||||||||||
| Standard and Poor’s Rating Services | A | A1 | Stable | |||||||||||||||||
| Moody’s Investors Service, Inc. | A2 | P1 | Stable | |||||||||||||||||
|
(1)
Credit ratings are not recommendations to buy, are subject to change, and each rating should be evaluated independently of any other rating. In addition, we undertake no obligation to update disclosures concerning our credit ratings, whether as a result of new information, future events or otherwise.
|
||||||||||||||||||||
Management's Assessment of Liquidity
Our financial condition and liquidity remain strong. Our solid balance sheet and credit ratings enable us to have ready access to credit and the capital markets. We assess our liquidity in terms of our ability to generate adequate cash to fund our operating, investing and financing activities. We believe our access to capital markets, our existing cash and marketable securities, operating cash flow and revolving credit facilities provide us with the financial flexibility needed to fund targeted capital expenditures, dividend payments, debt service obligations, projected pension obligations, common stock repurchases and fund joint venture contributions and acquisitions through 2024 and beyond. We continue to generate significant cash from operations and maintain access to our revolving credit facilities and commercial paper programs as noted above.
APPLICATION OF CRITICAL ACCOUNTING ESTIMATES
A summary of our significant accounting policies is included in
NOTE 1, “SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,” of the Notes to the Consolidated Financial Statements of our 2023 Form 10-K
, which discusses accounting policies that we have selected from acceptable alternatives.
Our
Condensed Consolidated Financial Statements
are prepared in accordance with generally accepted accounting principles that often require management to make judgments, estimates and assumptions regarding uncertainties that affect the reported amounts presented and disclosed in the financial statements. Management reviews these estimates and assumptions based on historical experience, changes in business conditions and other relevant factors they believe to be reasonable under the circumstances. In any given reporting period, our actual results may differ from the estimates and assumptions used in preparing our
Condensed Consolidated Financial Statements.
Critical accounting estimates are defined as follows: the estimate requires management to make assumptions about matters that were highly uncertain at the time the estimate was made; different estimates reasonably could have been used; or if changes in the estimate are reasonably likely to occur from period to period and the change would have a material impact on our financial condition or results of operations. Our senior management has discussed the development and selection of our accounting policies, related accounting estimates and the disclosures set forth below with the Audit Committee of the Board. Our critical accounting estimates disclosed in the
Form 10-K
address estimating liabilities for warranty programs, fair value of intangible assets, assessing goodwill impairment, accounting for income taxes and pension benefits.
A discussion of our critical accounting estimates may be found in the
“Management’s Discussion and Analysis” section of our 2023 Form 10-K under the caption “APPLICATION OF CRITICAL ACCOUNTING ESTIMATES.
” Within the context of these critical accounting estimates, we are not currently aware of any reasonably likely events or circumstances that would result in different policies or estimates being reported in the first six months of 2024.
50
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
See NOTE 17, "RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS," in the
Notes to Condensed Consolidated Financial Statements
for additional information.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
A discussion of quantitative and qualitative disclosures about market risk may be found in
Item 7A of our 2023 Form 10-K
. There have been no material changes in this information since the filing of our
2023 Form 10-K
.
ITEM 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and 15d-15(e). Based upon that evaluation, our CEO and our CFO concluded that our disclosure controls and procedures were effective to ensure that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is (1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) accumulated and communicated to management, including our CEO and CFO, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended June 30, 2024, that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
The matters described under "Legal Proceedings" in NOTE 11, "COMMITMENTS AND CONTINGENCIES," to the
Condensed Consolidated Financial Statements
are incorporated herein by reference.
51
ITEM 1A. Risk Factors
In addition to other information set forth in this report and the risk factor noted below, you should consider other risk factors discussed in
Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023
, which could materially affect our business, financial condition or future results. Other than noted below, there have been no material changes to our risks described in our
2023 Annual Report on Form 10-K
or the "CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION" in this Quarterly report. Additional risks and uncertainties not currently known to us or that we currently judge to be immaterial also may materially adversely affect our business, financial condition or operating results.
GOVERNMENT REGULATION
While we have reached Settlement Agreements with the EPA, CARB, the Environmental and Natural Resources Division of the U.S. Department of Justice and the California Attorney General's Office to resolve certain regulatory civil claims regarding our emissions certification and compliance process for certain engines primarily used in pick-up truck applications in the U.S., we have incurred, and likely will incur, other additional claims, costs and expenses in connection with the matters covered by the Settlement Agreements and other matters related to our compliance with emission standards for our engines, including with respect to additional regulatory action and collateral litigation related to these matters. Those and related expenses and reputational damage could have a material adverse impact on our results of operations, financial condition and cash flows.
In December 2023, we announced that we reached the agreement in principle and recorded a charge of $2.0 billion in the fourth quarter of 2023 to resolve certain regulatory civil claims regarding our emissions certification and compliance process for certain engines primarily used in pick-up truck applications in the U.S., which became final and effective in April 2024. This fourth quarter of 2023 charge was in addition to the previously announced charges of $59 million for the recalls of model years 2013 through 2018 RAM 2500 and 3500 trucks and model years 2016 through 2019 Titan trucks. Failure to comply with the terms and conditions of the Settlement Agreements will also subject us to stipulated penalties.
We have also been in communication with other non-U.S. regulators regarding matters related to the emission systems in our engines and may also become subject to additional regulatory review in connection with these matters.
In connection with our announcement of our entry into the agreement in principle, we became subject to shareholder, consumer and third-party litigation regarding the matters covered by the Settlement Agreements, and we may become subject to additional litigation in connection with these matters.
The consequences resulting from the resolution of the foregoing matters are uncertain and the related expenses and reputational damage could have a material adverse impact on our results of operations, financial condition and cash flows. See NOTE 11, “COMMITMENTS AND CONTINGENCIES,”
to the Condensed Consolidated Financial Statements
for additional information.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following information is provided pursuant to Item 703 of Regulation S-K:
| Issuer Purchases of Equity Securities | ||||||||||||||||||||||||||
| Period |
Total
Number of Shares Purchased |
Average
Price Paid per Share |
Total Number of
Shares Purchased as Part of Publicly Announced Plans or Programs |
Approximate
Dollar Value of Shares
that May Yet Be
Purchased Under the
Plans or Programs
(in millions)
(1)
|
||||||||||||||||||||||
| April 1 - April 30 | — | $ | — | — | $ | 2,218 | ||||||||||||||||||||
| May 1 - May 31 | — | — | — | 2,218 | ||||||||||||||||||||||
| June 1 - June 30 | — | — | — | 2,218 | ||||||||||||||||||||||
| Total | — | — | — | |||||||||||||||||||||||
|
(1)
Shares repurchased under our Key Employee Stock Investment Plan only occur in the event of a participant default, which cannot be predicted, and were excluded from this column.
|
||||||||||||||||||||||||||
In December 2021, the Board authorized the acquisition of up to $2.0 billion of additional common stock upon completion of the $2.0 billion repurchase plan authorized in 2019. During the three months ended June 30, 2024, we did not make any repurchases of common stock. The dollar value remaining available for future purchases under the 2019 program at June 30, 2024, was $218 million.
Our Key Employee Stock Investment Plan allows certain employees, other than officers, to purchase shares of common stock on an installment basis up to an established credit limit. We hold participants’ shares as security for the loans and would, in effect, repurchase shares only if the participant defaulted in repayment of the loan. Shares associated with participants' sales are sold as open-market transactions via a third-party broker.
52
ITEM 3. Defaults Upon Senior Securities
Not applicable.
ITEM 4. Mine Safety Disclosures
Not applicable.
ITEM 5. Other Information
(c) During the second quarter of 2024, none of our directors or executive officers
adopted
or
terminated
any “
Rule 10b5-1 trading arrangement
” or “
non-Rule 10b5-1 trading arrangement
” (as each term is defined in Item 408(a) of Regulation S-K).
ITEM 6. Exhibits
The exhibits listed in the following Exhibit Index are filed as part of this Quarterly Report on Form 10-Q.
CUMMINS INC.
EXHIBIT INDEX
| Exhibit No. | Description of Exhibit | |||||||
| 101.INS* | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |||||||
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document. | |||||||
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |||||||
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |||||||
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document. | |||||||
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | |||||||
* Filed with this quarterly report on Form 10-Q are the following documents formatted in iXBRL (Inline Extensible Business Reporting Language): (i) the
Condensed Consolidated Statements of Net Income for the three and six months ended June 30, 2024 and 2023
, (ii) the
Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2024 and 2023
, (iii) the
Condensed Consolidated Balance Sheets at June 30, 2024 and December 31, 2023
, (iv) the
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2024 and 2023
, (v) the
Condensed Consolidated Statements of Changes in Redeemable Noncontrolling Interests and Equity for the three and six months ended June 30, 2024 and 2023,
(vi)
Notes to Condensed Consolidated Financial Statements and (vii) the information included in Part II. Item 5(c).
53
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Cummins Inc. | |||||||||||||||||
| Date: | August 1, 2024 | ||||||||||||||||
| By: | /s/ MARK A. SMITH | By: | /s/ LUTHER E. PETERS | ||||||||||||||
| Mark A. Smith | Luther E. Peters | ||||||||||||||||
| Vice President and Chief Financial Officer | Vice President-Controller | ||||||||||||||||
| (Principal Financial Officer) | (Principal Accounting Officer) | ||||||||||||||||
54
TABLE OF CONTENTS
Part I, Item 1A. Risk Factors in Our Annual Report on Form 10-k For The Year Ended December 31, 2023printItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsprintItem 3. Defaults Upon Senior SecuritiesprintItem 4. Mine Safety DisclosuresprintItem 5. Other InformationprintItem 6. Exhibitsprint