•Second quarter revenues of $6.6 billion; GAAP1 Net Income of $702 million (10.7 percent of sales)
•EBITDA in the second quarter was 16.0 percent of sales; Diluted EPS of $4.94
•Second quarter results include $29 million ($0.16 per diluted share) of costs related to the separation of the Filtration business, and benefit of $47 million ($0.33 per diluted share) from adjusting the reserves related to the suspension of our operations in Russia.
•The company is maintaining its full year 2022 guidance, expecting revenue to be up 8 percent and EBITDA of approximately 15.5 percent.
COLUMBUS, IND. - Cummins Inc. (NYSE: CMI) today reported results for the second quarter of 2022.
Second quarter revenues of $6.6 billion increased 8 percent from the same quarter in 2021. Sales in North America increased 15 percent while international revenues decreased 2 percent, driven primarily by a slowdown in China and the indefinite suspension of our operations in Russia.
“The company achieved record revenues and solid profitability in the second quarter of 2022, with demand for our products remaining strong across most of our key markets and regions, apart from China,” said President and CEO Jennifer Rumsey. “Employees across our organization have worked tirelessly in the face of supply chain challenges and rising costs that continue to impact our industry. While navigating these challenges, we will continue to focus on enabling our customers’ success, driving cycle over cycle improvement in financial performance, investing in sustainable solutions that will protect our planet for future generations and returning excess cash to shareholders.”
Net income attributable to Cummins in the second quarter was $702 million ($4.94 per diluted share) compared to $600 million ($4.10 per diluted share) in 2021.
Earnings before interest, taxes, depreciation and amortization (EBITDA) in the second quarter were $1.1 billion (16.0 percent of sales), compared to $974 million (15.9 percent of sales) a year ago. Second quarter results include costs of $29 million ($0.16 per diluted share) related to the separation of the Filtration business, and a $47 million benefit ($0.33 per diluted share) from adjusting the reserves related to the indefinite suspension of our operations in Russia. We also experienced $48 million ($0.34 per diluted share) of mark to market losses on investments that underpin our unqualified benefit plans in the second quarter, which compares to gains of $20 million a year ago. The tax rate in the second quarter was 17.3 percent including $36 million, or $0.25 per diluted share, of favorable discrete items.
1
2022 Outlook:
Based on the current forecast, Cummins is maintaining its full year 2022 guidance, expecting revenue to be up 8 percent and EBITDA of approximately 15.5 percent. The company plans to return approximately 50 percent of Operating Cash Flow to shareholders in the form of dividends and share repurchases.
Any expenses outside of the normal course of business associated with the separation of the Filtration business, the pending acquisition of Meritor, or indefinite suspension of our operations in Russia have been excluded from the outlook provided.
“High inflation and rising global interest rates have increased uncertainty about the pace of growth in the global economy. Demand for Cummins’ products and services remains strong, and as a result we have maintained our projection for full year revenues and profitability from three months ago,” said Rumsey. “We continue to monitor economic conditions closely and will adjust our operating plans should the outlook for our core markets weaken.”
Second Quarter 2022 Highlights:
•The company achieved significant milestones related to two previously announced acquisitions, Jacobs Vehicle Systems (JVS) and Meritor. In April 2022, Cummins completed the acquisition of JVS, adding engine braking and cylinder deactivation technologies which are key components to meeting current and future emissions regulations. On May 26th, Meritor’s shareholders voted in favor of the Cummins acquisition bid, further validating the potential of what Cummins and Meritor can achieve together. The companies are working together to complete the acquisition this week as we have received all regulatory approvals to close the transaction.
•The company announced several collaborations that further enable our customers to achieve their decarbonization goals. During the second quarter, Cummins announced collaborations with Daimler Truck North America and Scania to deliver fuel cell electric powertrains for heavy-duty truck applications, and with Komatsu on the development of zero-emissions haulage equipment, including hydrogen fuel cell solutions for large mining haul truck applications. Cummins, Chevron, and Walmart are also working together to integrate Cummins X15N natural gas engine, powered by renewable natural gas, into Walmart’s heavy-duty truck fleet.
•We continue to make progress on the planned separation of the Filtration business.
•Cummins was ranked No. 4 on Forbes 2022 list of the Best Employers for Diversity, its highest ranking ever on that particular list, and named to 3BL Media’s list of the 100 Best Corporate Citizens. In addition, the company posted its first Human Capital Management report detailing the ways the company strives to create a dynamic work environment, and published its 19th consecutive Sustainability Progress Report.
•In July, the company announced Jennifer Rumsey, Cummins President & Chief Operating Officer, would assume the role of Chief Executive Officer, effective August 1, 2022. She is the seventh CEO, and first female, in the company’s history. Tom Linebarger, Cummins long-standing CEO, assumed the role of Executive Chairman, which includes continuing to serve as Chairman on the Board of Directors and taking on select executive responsibilities, such as the pending acquisition of Meritor.
Second quarter 2022 detail (all comparisons to same period in 2021):
The Engine, Distribution, Components and Power Systems results were all impacted by adjustments to the reserves related to the indefinite suspension of our operations in Russia.
2
Engine Segment
•Sales - $2.8 billion, up 11 percent
•Segment EBITDA - $422 million, or 15.2 percent of sales, compared to $402 million or 16.1 percent of sales. EBITDA includes $1 million of additional costs related to the indefinite suspension of our operations in Russia.
•On-highway revenues increased 16 percent driven by pricing actions and strong demand in the North American truck markets, strong aftermarket demand and recovery in the bus market which was severely impacted by Covid-19 in the previous year. Off-highway revenues decreased 8 percent driven by a slowdown in China construction.
•Sales increased 15 percent in North America and 1 percent in international markets, with higher demand in Western Europe offset by a decline in China.
Distribution Segment
•Sales - $2.3 billion, up 17 percent
•Segment EBITDA - $297 million, or 13.2 percent of sales, compared to $201 million or 10.5 percent of sales. EBITDA includes $45 million of benefits from adjusting the reserves related to the indefinite suspension of our operations in Russia.
•Revenues in North America increased 21 percent and international sales increased by 10 percent
•Higher revenues were primarily driven by increased demand for parts and service.
Components Segment
•Sales - $2.0 billion, down 2 percent
•Segment EBITDA - $352 million, or 18.1 percent of sales, compared to $301 million or 15.1 percent of sales. EBITDA includes $2 million of benefits from adjusting the reserves related to the indefinite suspension of our operations in Russia.
•Revenues in North America increased by 13 percent and international sales decreased by 19 percent due to lower demand in China from a high base in 2021.
Power Systems Segment
•Sales - $1.2 billion, up 5 percent
•Segment EBITDA - $128 million, or 10.6 percent of sales, compared to $139 million, or 12.2 percent of sales. EBITDA includes $1 million of benefits from adjusting the reserves related to the indefinite suspension of our operations in Russia.
•Power generation revenues were flat. Industrial revenues increased 7 percent due to stronger demand in mining and oil and gas markets for both engine systems and aftermarket products. Demand for alternators increased 33 percent due to supply chain constraints on external customers.
New Power Segment
•Sales - $42 million, up 75 percent
•Segment EBITDA loss - $80 million
•Revenues increased due to higher battery demand in the North American school bus market.
•Costs associated with the development of fuel cells and electrolyzers as well as products to support battery electric vehicles are contributing to EBITDA losses.
1 Generally Accepted Accounting Principles
3
About Cummins Inc.
Cummins Inc., a global power leader, is a corporation of complementary business segments that design, manufacture, distribute and service a broad portfolio of power solutions. The company’s products range from diesel, natural gas, electric and hybrid powertrains and powertrain-related components including filtration, aftertreatment, turbochargers, fuel systems, controls systems, air handling systems, automated transmissions, electric power generation systems, batteries, electrified power systems, hydrogen generation and fuel cell products. Headquartered in Columbus, Indiana (U.S.), since its founding in 1919, Cummins employs approximately 59,900 people committed to powering a more prosperous world through three global corporate responsibility priorities critical to healthy communities: education, environment and equality of opportunity. Cummins serves its customers online, through a network of company-owned and independent distributor locations, and through thousands of dealer locations worldwide and earned about $2.1 billion on sales of $24.0 billion in 2021. See how Cummins is powering a world that's always on by accessing news releases and more information at https://www.cummins.com/always-on.
Forward-looking disclosure statement
Information provided in this release that is not purely historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our forecasts, guidance, preliminary results, expectations, hopes, beliefs and intentions on strategies regarding the future. These forward-looking statements include, without limitation, statements relating to our plans and expectations for our revenues and EBITDA. Our actual future results could differ materially from those projected in such forward-looking statements because of a number of factors, including, but not limited to: any adverse results of our internal review into our emissions certification process and compliance with emission standards; increased scrutiny from regulatory agencies, as well as unpredictability in the adoption, implementation and enforcement of emission standards around the world; changes in international, national and regional trade laws, regulations and policies; any adverse effects of the U.S. government's COVID-19 vaccine mandates; changes in taxation; global legal and ethical compliance costs and risks; increasingly stringent environmental laws and regulations; future bans or limitations on the use of diesel-powered products; any adverse effects of the conflict between Russia and Ukraine and the global response (including government bans or restrictions on doing business in Russia); failure to successfully execute or integrate the acquisition of Meritor, Inc.; failure to realize all of the anticipated benefits from our announced acquisition of Meritor, Inc.; raw material, transportation and labor price fluctuations and supply shortages; aligning our capacity and production with our demand; the actions of, and income from, joint ventures and other investees that we do not directly control; large truck manufacturers' and original equipment manufacturers' customers discontinuing outsourcing their engine supply needs or experiencing financial distress, bankruptcy or change in control; product recalls; variability in material and commodity costs; the development of new technologies that reduce demand for our current products and services; lower than expected acceptance of new or existing products or services; product liability claims; our sales mix of products; failure to complete, adverse results from or failure to realize the expected benefits of the separation of our filtration business; our plan to reposition our portfolio of product offerings through exploration of strategic acquisitions and divestitures and related uncertainties of entering such transactions; challenging markets for talent and ability to attract, develop and retain key personnel; climate change and global warming; exposure to potential security breaches or other disruptions to our information technology environment and data security; political, economic and other risks from operations in numerous countries including political, economic and social uncertainty and the evolving globalization of our business; competitor activity; increasing competition, including increased global competition among our customers in emerging markets; labor relations or work stoppages; foreign currency exchange rate changes; the performance of our pension plan assets and volatility of discount rates; the price and availability of energy; continued availability of financing, financial instruments and financial resources in the amounts, at the times and on the terms required to support our future business; and other risks detailed from time to time in our SEC filings, including particularly in the Risk Factors section of our 2021 Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are made only as of the date of this press release and we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. More detailed information about factors that may affect our performance may be found in our filings with the SEC, which are available at http://www.sec.gov or at http://www.cummins.com in the Investor Relations section of our website.
4
Presentation of Non-GAAP Financial Information
EBITDA is a non-GAAP measure used in this release and is defined and reconciled to what management believes to be the most comparable GAAP measure in a schedule attached to this release, except for forward-looking measures of EBITDA where a reconciliation to the corresponding GAAP measures is not available due to the variability, complexity and limited visibility of the non-cash items that are excluded from the non-GAAP outlook measure. Cummins presents this information as it believes it is useful to understanding the Company's operating performance, and because EBITDA is a measure used internally to assess the performance of the operating units.
Webcast information
Cummins management will host a teleconference to discuss these results today at 10 a.m. EST. This teleconference will be webcast and available on the Investor Relations section of the Cummins website at www.cummins.com. Participants wishing to view the visuals available with the audio are encouraged to sign-in a few minutes prior to the start of the teleconference.
5
CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF NET INCOME
(Unaudited) (a)
Three months ended
In millions, except per share amounts
June 30, 2022
July 4, 2021
NET SALES
$
6,586
$
6,111
Cost of sales
4,860
4,633
GROSS MARGIN
1,726
1,478
OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses
622
600
Research, development and engineering expenses
299
276
Equity, royalty and interest income from investees
95
137
Other operating expense, net
3
4
OPERATING INCOME
897
735
Interest expense
34
29
Other (expense) income, net
(8)
73
INCOME BEFORE INCOME TAXES
855
779
Income tax expense
148
167
CONSOLIDATED NET INCOME
707
612
Less: Net income attributable to noncontrolling interests
5
12
NET INCOME ATTRIBUTABLE TO CUMMINS INC.
$
702
$
600
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
Basic
$
4.97
$
4.14
Diluted
$
4.94
$
4.10
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
Basic
141.2
145.1
Diluted
142.0
146.5
(a) Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America.
6
CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF NET INCOME
(Unaudited) (a)
Six months ended
In millions, except per share amounts
June 30, 2022
July 4, 2021
NET SALES
$
12,971
$
12,203
Cost of sales
9,713
9,239
GROSS MARGIN
3,258
2,964
OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses
1,237
1,174
Research, development and engineering expenses
597
536
Equity, royalty and interest income from investees
191
303
Other operating expense, net
114
12
OPERATING INCOME
1,501
1,545
Interest expense
51
57
Other (expense) income, net
(17)
74
INCOME BEFORE INCOME TAXES
1,433
1,562
Income tax expense
303
339
CONSOLIDATED NET INCOME
1,130
1,223
Less: Net income attributable to noncontrolling interests
10
20
NET INCOME ATTRIBUTABLE TO CUMMINS INC.
$
1,120
$
1,203
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
Basic
$
7.90
$
8.24
Diluted
$
7.86
$
8.16
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
Basic
141.7
146.0
Diluted
142.5
147.4
(a) Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America.
7
CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (a)
In millions, except par value
June 30, 2022
December 31, 2021
ASSETS
Current assets
Cash and cash equivalents
$
2,462
$
2,592
Marketable securities
536
595
Total cash, cash equivalents and marketable securities
2,998
3,187
Accounts and notes receivable, net
4,156
3,990
Inventories
4,765
4,355
Prepaid expenses and other current assets
843
777
Total current assets
12,762
12,309
Long-term assets
Property, plant and equipment, net
4,389
4,422
Investments and advances related to equity method investees
1,544
1,538
Goodwill
1,391
1,287
Other intangible assets, net
1,054
900
Pension assets
1,461
1,488
Other assets
1,876
1,766
Total assets
$
24,477
$
23,710
LIABILITIES
Current liabilities
Accounts payable (principally trade)
$
3,405
$
3,021
Loans payable
165
208
Commercial paper
705
313
Accrued compensation, benefits and retirement costs
443
683
Current portion of accrued product warranty
796
755
Current portion of deferred revenue
871
855
Other accrued expenses
1,221
1,190
Current maturities of long-term debt
65
59
Total current liabilities
7,671
7,084
Long-term liabilities
Long-term debt
3,490
3,579
Pensions and other postretirement benefits
589
604
Accrued product warranty
714
684
Deferred revenue
852
850
Other liabilities
1,506
1,508
Total liabilities
$
14,822
$
14,309
EQUITY
Cummins Inc. shareholders’ equity
Common stock, $2.50 par value, 500 shares authorized, 222.5 and 222.5 shares issued
$
2,423
$
2,427
Retained earnings
17,450
16,741
Treasury stock, at cost, 81.5 and 80.0 shares
(9,439)
(9,123)
Accumulated other comprehensive loss
(1,696)
(1,571)
Total Cummins Inc. shareholders’ equity
8,738
8,474
Noncontrolling interests
917
927
Total equity
$
9,655
$
9,401
Total liabilities and equity
$
24,477
$
23,710
(a) Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America.
8
CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (a)
Three months ended
In millions
June 30, 2022
July 4, 2021
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net income
$
707
$
612
Adjustments to reconcile consolidated net income to net cash provided by operating activities
Depreciation and amortization
167
167
Deferred income taxes
(46)
9
Equity in income of investees, net of dividends
14
22
Pension and OPEB expense
8
21
Pension contributions and OPEB payments
(12)
(17)
Share-based compensation expense
9
10
Russian suspension recoveries
(47)
—
Loss (gain) on corporate owned life insurance
48
(20)
Foreign currency remeasurement and transaction exposure
(3)
9
Changes in current assets and liabilities, net of acquisitions
Accounts and notes receivable
165
43
Inventories
(209)
(292)
Other current assets
(8)
6
Accounts payable
(58)
(88)
Accrued expenses
(30)
193
Changes in other liabilities
(81)
(34)
Other, net
(25)
(25)
Net cash provided by operating activities
599
616
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures
(147)
(125)
Investments in internal use software
(13)
(11)
Proceeds from sale of land
—
20
Investments in and net advances (to) from equity investees
(21)
34
Acquisitions of businesses, net of cash acquired
(328)
—
Investments in marketable securities—acquisitions
(236)
(219)
Investments in marketable securities—liquidations
207
174
Cash flows from derivatives not designated as hedges
(30)
(2)
Other, net
2
8
Net cash used in investing activities
(566)
(121)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings
42
20
Net borrowings (payments) of commercial paper
394
(117)
Payments on borrowings and finance lease obligations
(47)
(17)
Net borrowings under short-term credit agreements
(53)
—
Dividend payments on common stock
(204)
(197)
Repurchases of common stock
(36)
(672)
Proceeds from issuing common stock
10
8
Other, net
—
(2)
Net cash provided by (used in) financing activities
106
(977)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
47
5
Net increase (decrease) in cash and cash equivalents
186
(477)
Cash and cash equivalents at beginning of period
2,276
2,958
CASH AND CASH EQUIVALENTS AT END OF PERIOD
$
2,462
$
2,481
(a) Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America.
9
CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (a)
Six months ended
In millions
June 30, 2022
July 4, 2021
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net income
$
1,130
$
1,223
Adjustments to reconcile consolidated net income to net cash provided by operating activities
Depreciation and amortization
328
337
Deferred income taxes
(112)
17
Equity in income of investees, net of dividends
(62)
(114)
Pension and OPEB expense
17
41
Pension contributions and OPEB payments
(55)
(68)
Share-based compensation expense
14
18
Russian suspension costs, net of recoveries
111
—
Asset impairments and other charges
36
—
Loss on corporate owned life insurance
85
12
Foreign currency remeasurement and transaction exposure
(10)
10
Changes in current assets and liabilities, net of acquisitions
Accounts and notes receivable
(252)
(331)
Inventories
(498)
(628)
Other current assets
(65)
(18)
Accounts payable
426
377
Accrued expenses
(281)
169
Changes in other liabilities
(11)
(34)
Other, net
(38)
(56)
Net cash provided by operating activities
763
955
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures
(251)
(212)
Investments in internal use software
(24)
(22)
Proceeds from sale of land
—
20
Investments in and net advances (to) from equity investees
(53)
10
Acquisitions of businesses, net of cash acquired
(245)
—
Investments in marketable securities—acquisitions
(433)
(362)
Investments in marketable securities—liquidations
461
381
Cash flows from derivatives not designated as hedges
(32)
12
Other, net
1
27
Net cash used in investing activities
(576)
(146)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings
56
20
Net borrowings (payments) of commercial paper
392
(123)
Payments on borrowings and finance lease obligations
(71)
(33)
Net payments under short-term credit agreements
(24)
(102)
Distributions to noncontrolling interests
(14)
(13)
Dividend payments on common stock
(411)
(394)
Repurchases of common stock
(347)
(1,090)
Proceeds from issuing common stock
19
26
Other, net
9
(13)
Net cash used in financing activities
(391)
(1,722)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
74
(7)
Net decrease in cash and cash equivalents
(130)
(920)
Cash and cash equivalents at beginning of year
2,592
3,401
CASH AND CASH EQUIVALENTS AT END OF PERIOD
$
2,462
$
2,481
(a) Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America.
10
CUMMINS INC. AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)
In millions
Engine
Distribution
Components
Power Systems
New Power
Total Segments
Intersegment Eliminations (1)
Total
Three months ended June 30, 2022
External sales
$
2,092
$
2,247
$
1,477
$
734
$
36
$
6,586
$
—
$
6,586
Intersegment sales
683
6
473
469
6
1,637
(1,637)
—
Total sales
2,775
2,253
1,950
1,203
42
8,223
(1,637)
6,586
Research, development and engineering expenses
116
13
73
58
39
299
—
299
Equity, royalty and interest income (loss) from investees
59
21
9
10
(4)
95
—
95
Interest income
1
3
2
1
—
7
—
7
Russian suspension costs (recoveries) (2)
1
(45)
(2)
(1)
—
(47)
—
(47)
EBITDA (3)
422
297
352
128
(80)
1,119
(64)
1,055
Depreciation and amortization (4)
49
29
49
31
8
166
—
166
EBITDA as a percentage of segment sales
15.2
%
13.2
%
18.1
%
10.6
%
NM
13.6
%
16.0
%
Three months ended July 4, 2021
External sales
$
1,920
$
1,913
$
1,556
$
699
$
23
$
6,111
$
—
$
6,111
Intersegment sales
571
7
438
444
1
1,461
(1,461)
—
Total sales
2,491
1,920
1,994
1,143
24
7,572
(1,461)
6,111
Research, development and engineering expenses
99
12
79
60
26
276
—
276
Equity, royalty and interest income (loss) from investees
104
15
12
9
(3)
137
—
137
Interest income
1
2
1
1
—
5
—
5
EBITDA (3)
402
201
301
139
(60)
983
(9)
974
Depreciation and amortization (4)
50
30
46
33
7
166
—
166
EBITDA as a percentage of segment sales
16.1
%
10.5
%
15.1
%
12.2
%
NM
13.0
%
15.9
%
"NM" - not meaningful information
(1) Includes intersegment sales, intersegment profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the three months ended June 30, 2022 and July 4, 2021, except for $24 million of filtration separation costs in 2022.
(2) See "RUSSIAN OPERATIONS" note for additional information.
(3) EBITDA is defined as earnings or losses before interest expense, income taxes, depreciation and amortization and noncontrolling interests.
(4) Depreciation and amortization, as shown on a segment basis, excludes the amortization of debt discount and deferred costs included in the Condensed Consolidated Statements of Net Income as Interest expense. A portion of depreciation expense is included in Research, development and engineering expenses.
11
CUMMINS INC. AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)
In millions
Engine
Distribution
Components
Power Systems
New Power
Total Segments
Intersegment Eliminations (1)
Total
Six months ended June 30, 2022
External sales
$
4,141
$
4,358
$
2,994
$
1,417
$
61
$
12,971
$
—
$
12,971
Intersegment sales
1,387
12
944
946
12
3,301
(3,301)
—
Total sales
5,528
4,370
3,938
2,363
73
16,272
(3,301)
12,971
Research, development and engineering expenses
225
26
149
122
75
597
—
597
Equity, royalty and interest income (loss) from investees
103
(2)
37
37
21
(7)
191
—
191
Interest income
5
5
3
2
—
15
—
15
Russian suspension costs (3)
33
(4)
55
4
19
—
111
—
111
EBITDA (5)
814
407
672
218
(147)
1,964
(154)
1,810
Depreciation and amortization (6)
100
57
92
62
15
326
—
326
EBITDA as a percentage of total sales
14.7%
9.3
%
17.1
%
9.2
%
NM
12.1
%
14.0
%
Six months ended July 4, 2021
External sales
$
3,815
$
3,740
$
3,280
$
1,311
$
57
$
12,203
$
—
$
12,203
Intersegment sales
1,135
15
866
854
2
2,872
(2,872)
—
Total sales
4,950
3,755
4,146
2,165
59
15,075
(2,872)
12,203
Research, development and engineering expenses
191
25
154
117
49
536
—
536
Equity, royalty and interest income from investees
217
32
31
21
2
303
—
303
Interest income
4
3
2
2
—
11
—
11
EBITDA (5)
756
361
722
265
(111)
1,993
(39)
1,954
Depreciation and amortization (6)
101
60
94
68
12
335
—
335
EBITDA as a percentage of total sales
15.3
%
9.6
%
17.4
%
12.2
%
NM
13.2
%
16.0
%
"NM" - not meaningful information
(1) Includes intersegment sales, intersegment profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the six months ended June 30, 2022 and July 4, 2021, except for $41 million of filtration separation costs in 2022.
(2) Includes a $28 million impairment of our joint venture with KAMAZ and $3 million of royalty charges as part of our costs associated with the suspension of our Russian operations. See "RUSSIAN OPERATIONS" note below for additional information.
(3) See "RUSSIAN OPERATIONS" note for additional information.
(4) Includes $31 million of Russian suspension costs reflected in the Equity, royalty and interest income (loss) from investees line above.
(5) EBITDA is defined as earnings or losses before interest expense, income taxes, depreciation and amortization and noncontrolling interests.
(6) Depreciation and amortization, as shown on a segment basis, excludes the amortization of debt discount and deferred costs included in the Condensed Consolidated Statements of Net Income as Interest expense. The amortization of debt discount and deferred costs was $2 million and $2 million for the six months ended June 30, 2022 and July 4, 2021, respectively. A portion of depreciation expense is included in Research, development and engineering expenses.
12
CUMMINS INC. AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)
A reconciliation of our segment information to the corresponding amounts in the Condensed Consolidated Statements of Net Income is shown in the table below:
Three months ended
Six months ended
In millions
June 30, 2022
July 4, 2021
June 30, 2022
July 4, 2021
EBITDA
$
1,055
$
974
$
1,810
$
1,954
EBITDA as a percentage of net sales
16.0
%
15.9
%
14.0
%
16.0
%
Less:
Interest expense
34
29
51
57
Depreciation and amortization
166
166
326
335
INCOME BEFORE INCOME TAXES
855
779
1,433
1,562
Less: Income tax expense
148
167
303
339
CONSOLIDATED NET INCOME
707
612
1,130
1,223
Less: Net income attributable to noncontrolling interests
5
12
10
20
NET INCOME ATTRIBUTABLE TO CUMMINS INC.
$
702
$
600
$
1,120
$
1,203
Net income attributable to Cummins Inc. as a percentage of net sales
10.7
%
9.8
%
8.6
%
9.9
%
We believe EBITDA is a useful measure of our operating performance as it assists investors and debt holders in comparing our performance on a consistent basis without regard to financing methods, capital structure, income taxes or depreciation and amortization methods, which can vary significantly depending upon many factors. This statement excludes forward looking measures of EBITDA where a reconciliation to the corresponding GAAP measures is not available due to the variability, complexity and limited visibility of non-cash items that are excluded from the non-GAAP outlook measure.
EBITDA is not in accordance with, or an alternative for, accounting principles generally accepted in the United States (GAAP) and may not be consistent with measures used by other companies. It should be considered supplemental data; however, the amounts included in the EBITDA calculation are derived from amounts included in the Condensed Consolidated Statements of Net Income. Above is a reconciliation of EBITDA to “Net income attributable to Cummins Inc.” for each of the applicable periods.
13
CUMMINS INC. AND SUBSIDIARIES
SELECT FOOTNOTE DATA
(Unaudited)
EQUITY, ROYALTY AND INTEREST INCOME FROM INVESTEES
Equity, royalty and interest income from investees included in our Condensed Consolidated Statements of Net Income for the reporting periods was as follows:
Three months ended
Six months ended
In millions
June 30, 2022
July 4, 2021
June 30, 2022
July 4, 2021
Manufacturing entities
Beijing Foton Cummins Engine Co., Ltd.
$
14
$
46
$
28
$
85
Dongfeng Cummins Engine Company, Ltd.
11
21
27
52
Chongqing Cummins Engine Company, Ltd.
7
10
16
20
Tata Cummins, Ltd.
5
1
14
7
All other manufacturers
13
28
3
(1)
83
Distribution entities
Komatsu Cummins Chile, Ltda.
12
9
19
15
All other distributors
3
1
5
4
Cummins share of net income
65
116
112
266
Royalty and interest income
30
21
79
37
Equity, royalty and interest income from investees
$
95
$
137
$
191
$
303
(1) Includes a $28 million impairment of our joint venture with KAMAZ and $3 million of royalty charges as part of our costs associated with the suspension of our Russian operations. In addition, on February 7, 2022, we purchased Westport Fuel System Inc.'s stake in Cummins Westport Joint Venture. See "RUSSIAN OPERATIONS" note below for additional information.
RUSSIAN OPERATIONS
On March 17, 2022, the Board of Directors (the Board) decided to indefinitely suspend our operations in Russia due to the ongoing conflict in Ukraine. At the time of suspension, our Russian operations included a wholly-owned distributor in Russia, an unconsolidated joint venture (the Unconsolidated JV) with KAMAZ Publicly Traded Company (KAMAZ), a Russian truck manufacturer with whom we share the Unconsolidated JV, and direct sales into Russia from our other business segments. As a result of the suspension of operations, we evaluated the recoverability of assets in Russia and assessed other potential liabilities. We experienced and expect to continue to experience, an inability to collect customer receivables and may be the subject of litigation as a consequence of our suspension of commercial operations in Russia. We recorded a charge of $158 million in the first quarter related to these actions. In the second quarter, we recovered certain inventory and other expense amounts reserved in the first quarter and incurred some small additional charges resulting in a net recovery of $47 million. As of June 30, 2022, we had approximately $17 million of inventory and $26 million of receivables in Russia, all of which are fully reserved. In addition, we have cash balances of $84 million, some of which will be used to fund ongoing employee, tax and contract settlement obligations. The following summarizes the costs (recoveries) associated with the suspension of our Russian operations in our Condensed Consolidated Statements of Net Income:
Three months ended
Six months ended
In millions
June 30, 2022
June 30, 2022
Statement of Net Income Location
Inventory write-downs
$
(40)
$
19
Cost of sales
Accounts receivable reserves
—
43
Other operating expense, net
Impairment and other joint venture costs
—
31
Equity, royalty and interest income from investees
Other
(7)
18
Other operating expense, net
Total
$
(47)
$
111
We will continue to evaluate the situation as conditions evolve and may take additional actions as deemed necessary in future periods.
14
CUMMINS INC. AND SUBSIDIARIES
SELECT FOOTNOTE DATA
(Unaudited)
ACQUISITIONS
On April 8, 2022, we completed the acquisition of Jacobs Vehicle Systems business (Jacobs) from Altra Industrial Motion Corp. Sales of this business were $194 million in 2021. The purchase price was $346 million in cash, subject to typical adjustments related to closing working capital and other amounts and does not contain any contingent consideration. Jacobs is a supplier of engine braking, cylinder deactivation and start and stop thermal management technologies. The acquisition furthers our investment in key technologies and capabilities to drive growth, while securing our supply base.
On February 21, 2022, we entered into an Agreement and Plan of Merger (the Merger Agreement) with Meritor, Inc. (Meritor) and Rose NewCo Inc. (Merger Sub) pursuant to which we agreed to acquire Meritor, a global leader of drivetrain, mobility, braking, aftermarket and electric powertrain solutions for commercial vehicle and industrial markets. At closing, Merger Sub will merge into Meritor with Meritor as the surviving entity and becoming our wholly-owned subsidiary. This acquisition will be reported in our Components and New Power segments. Pursuant to the terms of the Merger Agreement, we agreed to pay $36.50 in cash per share of Meritor common stock, for a total transaction value of approximately $3.7 billion, including assumed debt and net of acquired cash. We plan to fund this acquisition with a combination of debt, commercial paper and cash.
On May 26th, Meritor's shareholders voted in favor of our acquisition bid. The companies are working together to complete the acquisition this week as we have received all regulatory approvals to close the transaction.
INCOME TAXES
Our effective tax rate for 2022 is expected to approximate 21.5 percent, excluding any discrete items that may arise.
Our effective tax rate for the three months ended June 30, 2022, was 17.3 percent and contained favorable discrete tax items of $36 million, or $0.25 per share, primarily due to $36 million of favorable changes in tax reserves, $10 million of favorable changes associated with uncertainty in our Russian operations and $8 million of net favorable other discrete tax items, partially offset by $18 million of unfavorable tax costs associated with internal restructuring ahead of the planned separation of our filtration business.
Our effective tax rate for the six months ended June 30, 2022, was 21.1 percent and contained favorable discrete tax items of $5 million, or $0.04 per share, primarily due to $27 million of favorable changes in tax reserves and $4 million of net favorable other discrete tax items, partially offset by $18 million of unfavorable tax costs associated with internal restructuring ahead of the planned separation of our filtration business and $8 million of unfavorable changes associated with uncertainty in our Russian operations.
Our effective tax rate for the three months ended July 4, 2021, was 21.4 percent and contained unfavorable discrete items of $7 million, or $0.05 per share, primarily due to a $10 million unfavorable statutory change in tax rates (mostly in the UK), partially offset by $3 million of other favorable discrete items.
Our effective tax rate for the six months ended July 4, 2021, was 21.7 percent and contained unfavorable discrete items of $3 million, or $0.02 per share, primarily due to a $10 million unfavorable statutory change in tax rates (mostly in the UK), partially offset by $7 million of other favorable discrete items.
15
CUMMINS INC. AND SUBSIDIARIES
BUSINESS UNIT SALES DATA
(Unaudited)
Engine Segment Sales by Market and Unit Shipments by Engine Classification
Sales for our Engine segment by market were as follows:
2022
In millions
Q1
Q2
Q3
Q4
YTD
Heavy-duty truck
$
908
$
1,001
$
—
$
—
$
1,909
Medium-duty truck and bus
848
875
—
—
1,723
Light-duty automotive
498
456
—
—
954
Off-highway
499
443
—
—
942
Total sales
$
2,753
$
2,775
$
—
$
—
$
5,528
2021
In millions
Q1
Q2
Q3
Q4
YTD
Heavy-duty truck
$
827
$
839
$
861
$
801
$
3,328
Medium-duty truck and bus
674
688
713
702
2,777
Light-duty automotive
481
484
515
432
1,912
Off-highway
477
480
489
491
1,937
Total sales
$
2,459
$
2,491
$
2,578
$
2,426
$
9,954
Unit shipments by engine classification (including unit shipments to Power Systems and off-highway engine units included in their respective classification) were as follows:
2022
Units
Q1
Q2
Q3
Q4
YTD
Heavy-duty
28,600
30,900
59,500
Medium-duty
72,600
68,800
141,400
Light-duty
66,500
60,400
126,900
Total units
167,700
160,100
—
—
327,800
2021
Units
Q1
Q2
Q3
Q4
YTD
Heavy-duty
30,700
29,400
29,200
28,300
117,600
Medium-duty
73,100
67,500
65,200
68,000
273,800
Light-duty
68,500
68,100
73,900
62,800
273,300
Total units
172,300
165,000
168,300
159,100
664,700
16
Distribution Segment Sales by Product Line
Sales for our Distribution segment by product line were as follows:
2022
In millions
Q1
Q2
Q3
Q4
YTD
Parts
$
924
$
990
$
—
$
—
$
1,914
Engines
441
429
—
—
870
Power generation
401
441
—
—
842
Service
351
393
—
—
744
Total sales
$
2,117
$
2,253
$
—
$
—
$
4,370
2021
In millions
Q1
Q2
Q3
Q4
YTD
Parts
$
757
$
765
$
800
$
823
$
3,145
Engines
334
351
377
437
1,499
Power generation
418
454
438
452
1,762
Service
326
350
344
346
1,366
Total sales
$
1,835
$
1,920
$
1,959
$
2,058
$
7,772
Component Segment Sales by Business
Sales for our Components segment by business were as follows:
2022
In millions
Q1
Q2
Q3
Q4
YTD
Emission solutions
$
910
$
863
$
—
$
—
$
1,773
Filtration
382
391
—
—
773
Turbo technologies
346
355
—
—
701
Electronics and fuel systems
216
198
—
—
414
Automated transmissions
134
143
—
—
277
Total sales
$
1,988
$
1,950
$
—
$
—
$
3,938
2021
In millions
Q1
Q2
Q3
Q4
YTD
Emission solutions
$
1,035
$
882
$
793
$
789
$
3,499
Filtration
372
374
354
338
1,438
Turbo technologies
367
351
325
308
1,351
Electronics and fuel systems
263
241
210
185
899
Automated transmissions
115
146
111
106
478
Total sales
$
2,152
$
1,994
$
1,793
$
1,726
$
7,665
17
Power Systems Segment Sales by Product Line and Unit Shipments by Engine Classification
Sales for our Power Systems segment by product line were as follows:
2022
In millions
Q1
Q2
Q3
Q4
YTD
Power generation
$
664
$
657
$
—
$
—
$
1,321
Industrial
393
428
—
—
821
Generator technologies
103
118
—
—
221
Total sales
$
1,160
$
1,203
$
—
$
—
$
2,363
2021
In millions
Q1
Q2
Q3
Q4
YTD
Power generation
$
611
$
655
$
664
$
585
$
2,515
Industrial
324
399
412
399
1,534
Generator technologies
87
89
88
102
366
Total sales
$
1,022
$
1,143
$
1,164
$
1,086
$
4,415
High-horsepower unit shipments by engine classification were as follows: