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CMI Cummins

Filed: 4 May 21, 11:01am

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
cmi-20210404_g1.jpg
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended April 4, 2021
 
Commission File Number 1-4949
CUMMINS INC.
(Exact name of registrant as specified in its charter)
Indiana35-0257090
(State of Incorporation)  (IRS Employer Identification No.)
500 Jackson Street
Box 3005
Columbus, Indiana 47202-3005
(Address of principal executive offices)
 
Telephone (812) 377-5000
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common stock, $2.50 par valueCMINew York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No 
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that registrant was required to submit such files).  Yes x  No 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.  (Check one):
Large Accelerated FilerxAccelerated filerNon-accelerated filer
Smaller reporting companyEmerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No x
 
As of April 4, 2021, there were 146,202,578 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 months ended April 4, 2021 and March 29, 2020
 Condensed Consolidated Statements of Comprehensive Income for the three months ended April 4, 2021 and March 29, 2020
 Condensed Consolidated Balance Sheets at April 4, 2021 and December 31, 2020
 Condensed Consolidated Statements of Cash Flows for the three months ended April 4, 2021 and March 29, 2020
 Condensed Consolidated Statements of Changes in Equity for the three months ended April 4, 2021 and March 29, 2020
 
  
 

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
In millions, except per share amounts April 4,
2021
March 29,
2020
NET SALES (a) (Note 2)
$6,092 $5,011 
Cost of sales4,606 3,717 
GROSS MARGIN1,486 1,294 
OPERATING EXPENSES AND INCOME  
Selling, general and administrative expenses574 546 
Research, development and engineering expenses260 238 
Equity, royalty and interest income from investees (Note 4)166 129 
Other operating expense, net(8)(5)
OPERATING INCOME810 634 
Interest expense28 23 
Other income, net1 44 
INCOME BEFORE INCOME TAXES783 655 
Income tax expense172 127 
CONSOLIDATED NET INCOME611 528 
Less: Net income attributable to noncontrolling interests8 17 
NET INCOME ATTRIBUTABLE TO CUMMINS INC.$603 $511 
 
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.  
Basic$4.10 $3.42 
Diluted$4.07 $3.41 
 
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING  
Basic147.0 149.3 
Dilutive effect of stock compensation awards1.3 0.4 
Diluted148.3 149.7 
(a) Includes sales to nonconsolidated equity investees of $478 million for the three months ended April 4, 2021, compared with $257 million for the comparable period in 2020.

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
In millions April 4,
2021
March 29,
2020
CONSOLIDATED NET INCOME$611 $528 
Other comprehensive income (loss), net of tax (Note 11)  
Change in pension and other postretirement defined benefit plans29 
Foreign currency translation adjustments(56)(162)
Unrealized gain (loss) on derivatives72 (79)
Total other comprehensive income (loss), net of tax45 (239)
COMPREHENSIVE INCOME656 289 
Less: Comprehensive income attributable to noncontrolling interests8 
COMPREHENSIVE INCOME ATTRIBUTABLE TO CUMMINS INC.$648 $289 
 
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 valueApril 4,
2021
December 31,
2020
ASSETS  
Current assets  
Cash and cash equivalents$2,958 $3,401 
Marketable securities (Note 5)397 461 
Total cash, cash equivalents and marketable securities3,355 3,862 
Accounts and notes receivable, net
Trade and other3,698 3,440 
Nonconsolidated equity investees511 380 
Inventories (Note 6)3,753 3,425 
Prepaid expenses and other current assets805 790 
Total current assets12,122 11,897 
Long-term assets  
Property, plant and equipment9,044 9,011 
Accumulated depreciation(4,848)(4,756)
Property, plant and equipment, net4,196 4,255 
Investments and advances related to equity method investees1,592 1,441 
Goodwill1,290 1,293 
Other intangible assets, net964 963 
Pension assets1,085 1,042 
Other assets (Note 7)1,713 1,733 
Total assets$22,962 $22,624 
LIABILITIES  
Current liabilities  
Accounts payable (principally trade)$3,279 $2,820 
Loans payable (Note 8)93 169 
Commercial paper (Note 8)317 323 
Accrued compensation, benefits and retirement costs393 484 
Current portion of accrued product warranty (Note 9)623 674 
Current portion of deferred revenue (Note 2)773 691 
Other accrued expenses (Note 7)1,121 1,112 
Current maturities of long-term debt (Note 8)61 62 
Total current liabilities6,660 6,335 
Long-term liabilities  
Long-term debt (Note 8)3,620 3,610 
Pensions and other postretirement benefits621 630 
Accrued product warranty (Note 9)692 672 
Deferred revenue (Note 2)828 840 
Other liabilities (Note 7)1,510 1,548 
Total liabilities$13,931 $13,635 
Commitments and contingencies (Note 10)00
 
EQUITY
Cummins Inc. shareholders’ equity  
Common stock, $2.50 par value, 500 shares authorized, 222.4 and 222.4 shares issued$2,393 $2,404 
Retained earnings15,825 15,419 
Treasury stock, at cost, 76.2 and 74.8 shares(8,172)(7,779)
Accumulated other comprehensive loss (Note 11)(1,937)(1,982)
Total Cummins Inc. shareholders’ equity8,109 8,062 
Noncontrolling interests922 927 
Total equity$9,031 $8,989 
Total liabilities and equity$22,962 $22,624 
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)
 Three months ended
In millionsApril 4,
2021
March 29,
2020
CASH FLOWS FROM OPERATING ACTIVITIES  
Consolidated net income$611 $528 
Adjustments to reconcile consolidated net income to net cash provided by operating activities  
Depreciation and amortization170 168 
Deferred income taxes8 (11)
Equity in income of investees, net of dividends(136)(78)
Pension and OPEB expense (Note 3)20 27 
Pension contributions and OPEB payments (Note 3)(51)(60)
Share-based compensation expense8 
Restructuring payments0 (48)
Loss (gain) on corporate owned life insurance32 (17)
Foreign currency remeasurement and transaction exposure1 
Changes in current assets and liabilities 
Accounts and notes receivable(374)107 
Inventories(336)(171)
Other current assets(24)79 
Accounts payable465 171 
Accrued expenses(24)(321)
Changes in other liabilities0 28 
Other, net(31)(30)
Net cash provided by operating activities339 379 
CASH FLOWS FROM INVESTING ACTIVITIES  
Capital expenditures(87)(75)
Investments in internal use software(11)(8)
Investments in and advances to equity investees(24)(7)
Investments in marketable securities—acquisitions(143)(116)
Investments in marketable securities—liquidations (Note 5)207 95 
Cash flows from derivatives not designated as hedges14 
Other, net19 
Net cash used in investing activities(25)(99)
CASH FLOWS FROM FINANCING ACTIVITIES  
Net (payments) borrowings of commercial paper(6)957 
Payments on borrowings and finance lease obligations(16)(10)
Net (payments) borrowings under short-term credit agreements(102)25 
Distributions to noncontrolling interests(13)(13)
Dividend payments on common stock(197)(195)
Repurchases of common stock(418)(550)
Proceeds from issuing common stock18 13 
Other, net(11)
Net cash (used in) provided by financing activities(745)234 
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS(12)48 
Net (decrease) increase in cash and cash equivalents(443)562 
Cash and cash equivalents at beginning of year3,401 1,129 
CASH AND CASH EQUIVALENTS AT END OF PERIOD$2,958 $1,691 

 The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
6

CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
 
Three months ended
In millions, except per share amountsCommon StockAdditional Paid-in CapitalRetained EarningsTreasury StockCommon Stock Held in TrustAccumulated Other Comprehensive LossTotal Cummins Inc. Shareholders’ EquityNoncontrolling InterestsTotal Equity
BALANCE AT DECEMBER 31, 2020$556 $1,848 $15,419 $(7,779)$0 $(1,982)$8,062 $927 $8,989 
Net income603 603 8 611 
Other comprehensive income, net of tax (Note 11)045 45  45 
Repurchases of common stock0(418)0(418) (418)
Cash dividends on common stock, $1.35 per share(197)(197) (197)
Distributions to noncontrolling interests (13)(13)
Share-based awards(6)24 018  18 
Other shareholder transactions(5)1 (4)0 (4)
BALANCE AT APRIL 4, 2021$556 $1,837 $15,825 $(8,172)$0 $(1,937)$8,109 $922 $9,031 
BALANCE AT DECEMBER 31, 2019$556 $1,790 $14,416 $(7,225)$(2)$(2,028)$7,507 $958 $8,465 
Adoption of new accounting standards(4)(4)— (4)
Net income511 511 17 528 
Other comprehensive loss, net of tax (Note 11)0(222)(222)(17)(239)
Issuance of common stock— 
Employee benefits trust activity17 018 — 18 
Repurchases of common stock0(550)0(550)— (550)
Cash dividends on common stock, $1.311 per share(195)(195)— (195)
Distributions to noncontrolling interests— (13)(13)
Share-based awards(18)31 013 — 13 
Other shareholder transactions(19)(19)(14)
BALANCE AT MARCH 29, 2020$556 $1,779 $14,728 $(7,744)$(1)$(2,250)$7,068 $950 $8,018 
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.




7

CUMMINS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Overview
Cummins Inc. (“Cummins,” “we,” “our” or “us”) was founded in 1919 as Cummins Engine Company, a corporation in Columbus, Indiana, and one of the first diesel engine manufacturers. In 2001, we changed our name to Cummins Inc. We are a global power leader that designs, manufactures, distributes and services diesel, natural gas, electric and hybrid powertrains and powertrain-related components including filtration, aftertreatment, turbochargers, fuel systems, controls systems, air handling systems, automated transmissions, electric power generation systems, batteries, electrified power systems, hydrogen production and fuel cell products. We sell our products to original equipment manufacturers (OEMs), distributors, dealers and other customers worldwide. We serve our customers through a network of over 500 wholly-owned, joint venture and independent distributor locations and over 9,000 Cummins certified dealer locations with service to approximately 190 countries and territories.
Interim Condensed Financial Statements
The unaudited Condensed Consolidated Financial Statements reflect all adjustments which, in the opinion of management, are necessary for a fair statement of the results of operations, financial position and cash flows. All such adjustments are of a normal recurring nature. The Condensed Consolidated Financial Statements were prepared in accordance with accounting principles in the United States of America (GAAP) pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for interim financial information. Certain information and footnote disclosures normally included in annual financial statements were condensed or omitted as permitted by such rules and regulations.
These interim condensed financial statements should be read in conjunction with the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2020. Our interim period financial results for the three 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.
Reporting Period
Our reporting period usually ends on the Sunday closest to the last day of the quarterly calendar period. The first quarters of 2021 and 2020 ended on April 4 and March 29, respectively. Our fiscal year ends on December 31, regardless of the day of the week on which December 31 falls.
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
 April 4,
2021
March 29,
2020
Options excluded2,780 1,234,188 

8

NOTE 2. REVENUE FROM CONTRACTS WITH CUSTOMERS
Long-term Contracts
The majority of our contracts are for a period of less than one year. We have certain long-term maintenance agreements, construction contracts and extended warranty coverage arrangements that span a period in excess of one year. The aggregate amount of the transaction price for long-term maintenance agreements and construction contracts allocated to performance obligations that were not satisfied as of April 4, 2021, was $847 million. We expect to recognize the related revenue of $152 million over the next 12 months and $695 million over periods up to 10 years. See Note 9, "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 millionsApril 4,
2021
December 31,
2020
Unbilled revenue$153 $114 
Deferred revenue, primarily extended warranty1,601 1,531 
We recognized revenue of $154 million for the three months ended April 4, 2021, compared with $112 million for the comparable period in 2020, 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 months ended April 4, 2021 or March 29, 2020.
Disaggregation of Revenue
Consolidated Revenue
The table below presents our consolidated sales by geographic area. Net sales attributed to geographic areas were based on the location of the customer.
 Three months ended
In millionsApril 4,
2021
March 29,
2020
United States$3,060 $2,852 
China957 522 
India330 170 
Other international1,745 1,467 
Total net sales$6,092 $5,011 
Segment Revenue
Engine segment external sales by market were as follows:
Three months ended
In millionsApril 4,
2021
March 29,
2020
Heavy-duty truck$613 $519 
Medium-duty truck and bus483 490 
Light-duty automotive474 327 
Total on-highway1,570 1,336 
Off-highway325 243 
Total sales$1,895 $1,579 
9

Distribution segment external sales by region were as follows:
Three months ended
In millionsApril 4,
2021
March 29,
2020
North America$1,166 $1,245 
Asia Pacific213 192 
Europe163 135 
China85 68 
Russia57 41 
Africa and Middle East54 51 
India49 36 
Latin America40 39 
Total sales$1,827 $1,807 
Distribution segment external sales by product line were as follows:
Three months ended
In millionsApril 4,
2021
March 29,
2020
Parts$754 $783 
Power generation416 375 
Engines333 322 
Service324 327 
Total sales$1,827 $1,807 
Components segment external sales by business were as follows:
Three months ended
In millionsApril 4,
2021
March 29,
2020
Emission solutions$966 $570 
Filtration301 249 
Turbo technologies225 158 
Electronics and fuel systems117 56 
Automated transmissions115 82 
Total sales$1,724 $1,115 
Power Systems segment external sales by product line were as follows:
Three months ended
In millionsApril 4,
2021
March 29,
2020
Power generation$351 $269 
Industrial179 165 
Generator technologies82 66 
Total sales$612 $500 

10

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
In millionsApril 4,
2021
March 29,
2020
Defined benefit pension contributions$42 $56 
OPEB payments, net9 
Defined contribution pension plans35 34 
During the remainder of 2021, we anticipate making $17 million in additional defined benefit pension contributions in the U.K. and $12 million in contributions to our U.S. non-qualified benefit 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 2021 annual net periodic pension cost to approximate $79 million.
The components of net periodic pension and OPEB costs under our plans were as follows:
 Pension  
 U.S. PlansU.K. PlansOPEB
 Three months ended
In millionsApril 4,
2021
March 29,
2020
April 4,
2021
March 29,
2020
April 4,
2021
March 29,
2020
Service cost$35 $34 $8 $$0 $
Interest cost19 24 8 1 
Expected return on plan assets(50)(49)(21)(19)0 
Amortization of prior service cost0 0 0 
Recognized net actuarial loss12 10 8 0 
Net periodic benefit cost$16 $19 $3 $$1 $

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 period was as follows:
 Three months ended
In millionsApril 4,
2021
March 29,
2020
Manufacturing entities
Beijing Foton Cummins Engine Co., Ltd.$39 $17 
Dongfeng Cummins Engine Company, Ltd.31 
Chongqing Cummins Engine Company, Ltd.10 
All other manufacturers61 

55 (1)
Distribution entities
Komatsu Cummins Chile, Ltda.6 10 
All other distributors3 
Cummins share of net income150 99 
Royalty and interest income16 30 
Equity, royalty and interest income from investees$166 $129 
(1) Includes $37 million in favorable adjustments related to tax changes within India's 2020-2021 Union Budget of India (India Tax Law Change) passed in March 2020.

11


NOTE 5. MARKETABLE SECURITIES
A summary of marketable securities, all of which were classified as current, was as follows:
 April 4, 2021December 31, 2020
In millionsCost
Gross unrealized gains/(losses)(1)
Estimated
fair value
Cost
Gross unrealized gains/(losses)(1)
Estimated
fair value
Equity securities      
Debt mutual funds$188 $3 $191 $267 $$272 
Certificates of deposit179 0 179 164 164 
Equity mutual funds20 6 26 19 24 
Debt securities1 0 1 
Total marketable securities$388 $9 $397 $451 $10 $461 
(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 "Other income, net" in our Condensed Consolidated Statements of Net Income.
All debt securities are classified as available-for-sale. All marketable securities presented use a Level 2 fair value measure. 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 Level 2 or 3 during the three months ended April 4, 2021 or the year ended December 31, 2020.

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:
Three months ended
In millionsApril 4,
2021
March 29,
2020
Proceeds from sales of marketable securities$163 $53 
Proceeds from maturities of marketable securities44 42 
Investments in marketable securities - liquidations$207 $95 

12

NOTE 6. INVENTORIES
Inventories are stated at the lower of cost or net realizable value. Inventories included the following: 
In millionsApril 4,
2021
December 31,
2020
Finished products$2,320 $2,216 
Work-in-process and raw materials1,585 1,346 
Inventories at FIFO cost3,905 3,562 
Excess of FIFO over LIFO(152)(137)
Total inventories$3,753 $3,425 

NOTE 7. SUPPLEMENTAL BALANCE SHEET DATA
Other assets included the following:
In millionsApril 4,
2021
December 31, 2020
Operating lease assets$466 $438 
Corporate owned life insurance462 508 
Deferred income taxes439 479 
Mark-to-market valuation on interest rate locks38 
Other308 308 
Other assets$1,713 $1,733 
Other accrued expenses included the following:
In millionsApril 4,
2021
December 31, 2020
Marketing accruals$279 $242 
Other taxes payable242 256 
Current portion of operating lease liabilities125 128 
Income taxes payable94 82 
Other381 404 
Other accrued expenses$1,121 $1,112 
Other liabilities included the following:
In millionsApril 4,
2021
December 31, 2020
Operating lease liabilities$343 $325 
Deferred income taxes322 325 
One-time transition tax289 289 
Accrued compensation192 203 
Mark-to-market valuation on interest rate locks0 41 
Other long-term liabilities364 365 
Other liabilities$1,510 $1,548 

13

NOTE 8. DEBT
Loans Payable and Commercial Paper
Loans payable, commercial paper and the related weighted-average interest rates were as follows:
In millionsApril 4,
2021
December 31,
2020
Loans payable (1)
$93 $169 
Commercial paper317 (2)323 (3)
(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 negative 0.03 percent at April 4, 2021 and included $117 million of borrowings under the EUR program that were negative 0.35 percent and $200 million of borrowings under the U.S. program at 0.16 percent.
(3) The weighted-average interest rate, inclusive of all brokerage fees, was negative 0.01 percent at December 31, 2020 and included $123 million of borrowings under the EUR program that were negative 0.34 percent and $200 million of borrowings under the U.S. program at 0.19 percent.
We can issue up to $3.5 billion of unsecured, short-term promissory notes (commercial paper) pursuant to the Board of Directors (the Board) authorized commercial paper programs. The 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
We have access to committed credit facilities that total $3.5 billion, including the $1.5 billion 364-day facility that expires August 18, 2021 and our $2.0 billion five-year facility that expires on August 22, 2023. We 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 for general corporate purposes. There were no outstanding borrowings under these facilities at April 4, 2021 and December 31, 2020.
At April 4, 2021, the $317 million of outstanding commercial paper effectively reduced the $3.5 billion of revolving credit capacity to $3.2 billion.
At April 4, 2021, we also had an additional $249 million available for borrowings under our international and other domestic credit facilities.
14

Long-term Debt
A summary of long-term debt was as follows:
In millionsInterest RateApril 4,
2021
December 31,
2020
Long-term debt  
Senior notes, due 20233.65%$500 $500 
Senior notes, due 20250.75%500 500 
Debentures, due 20276.75%58 58 
Debentures, due 20287.125%250 250 
Senior notes, due 20301.50%850 850 
Senior notes, due 20434.875%500 500 
Senior notes, due 20502.60%650 650 
Debentures, due 2098(1)
5.65%165 165 
Other debt146 132 
Unamortized discount and deferred issuance costs(71)(72)
Fair value adjustments due to hedge on indebtedness44 48 
Finance leases89 91 
Total long-term debt3,681 3,672 
Less: Current maturities of long-term debt61 62 
Long-term debt$3,620 $3,610 
(1) The effective interest rate is 7.48%.
Principal payments required on long-term debt during the next five years are as follows:
In millions20212022202320242025
Principal payments$51 $57 $534 $30 $506 
Interest Rate Risk
We have interest rate lock agreements to reduce the variability of the cash flows of the interest payments on a total of $500 million of fixed rate debt forecast to be issued in 2023 to replace our senior notes at maturity. We recorded a net gain of $61 million and net loss of $79 million in "Other comprehensive income" for the three months ended April 4, 2021 and March 29, 2020, respectively.
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 millionsApril 4,
2021
December 31,
2020
Fair value of total debt (1)
$4,338 $4,665 
Carrying value of total debt4,091 4,164 
(1) The fair value of debt is derived from Level 2 inputs.

15

NOTE 9. 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:
Three months ended
In millionsApril 4,
2021
March 29,
2020
Balance, beginning of year$2,307 $2,389 
Provision for base warranties issued157 97 
Deferred revenue on extended warranty contracts sold65 66 
Provision for product campaigns issued3 
Payments made during period(146)(138)
Amortization of deferred revenue on extended warranty contracts(61)(57)
Changes in estimates for pre-existing product warranties(44)(15)
Foreign currency translation and other(6)(12)
Balance, end of period$2,275 $2,332 
We recognized supplier recoveries of $4 million and $9 million for the three months ended April 4, 2021 and March 29, 2020, respectively.
Warranty related deferred revenues and warranty liabilities on our Condensed Consolidated Balance Sheets were as follows:
In millionsApril 4,
2021
December 31,
2020
Balance Sheet Location
Deferred revenue related to extended coverage programs  
Current portion$270 $261 Current portion of deferred revenue
Long-term portion690 700 Deferred revenue
Total$960 $961  
Product warranty  
Current portion$623 $674 Current portion of accrued product warranty
Long-term portion692 672 Accrued product warranty
Total$1,315 $1,346  
Total warranty accrual$2,275 $2,307 
Engine System Campaign Accrual
During 2017, the California Air Resources Board (CARB) and the U.S. Environmental Protection Agency (EPA) selected certain of our pre-2013 model year engine systems for additional emissions testing. Some of these engine systems failed CARB and EPA tests as a result of degradation of an aftertreatment component. In the second quarter of 2018, we reached agreement with the CARB and EPA regarding our plans to address the affected populations. From the fourth quarter of 2017 through the second quarter of 2018, we recorded charges for the expected costs of field campaigns to repair these engine systems.

The campaigns launched in the third quarter of 2018 are being completed in phases across the affected population. The total engine system campaign charge, excluding supplier recoveries, was $410 million. In the fourth quarter of 2020, we recorded an additional $20 million charge related to this campaign, as a change in estimate, to bring the total campaign, excluding supplier recoveries, to $430 million. At April 4, 2021, the remaining accrual balance was $129 million.
16

NOTE 10. 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; and environmental matters. 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.
On April 29, 2019, we announced that we were conducting a formal internal review of our emissions certification process and compliance with emission standards for our pick-up truck applications, following conversations with the EPA and CARB regarding certification of our engines in model year 2019 RAM 2500 and 3500 trucks. This review is being conducted with external advisors to ensure the certification and compliance processes for all of our pick-up truck applications are consistent with our internal policies, engineering standards and applicable laws. In addition, we voluntarily disclosed our formal internal review to the regulators and to other government agencies, the Department of Justice (DOJ) and the SEC, and worked cooperatively with them to ensure a complete and thorough review. We fully cooperated with the DOJ's and the SEC's information requests and inquiries and, based on recent communications with these agencies, we do not expect further inquiries. During conversations with the EPA and CARB about the effectiveness of our pick-up truck applications, the regulators raised concerns that certain aspects of our emissions systems may reduce the effectiveness of our emissions control systems and thereby act as defeat devices. As a result, our internal review focuses, in part, on the regulators’ concerns. We are working closely with the regulators to enhance our emissions systems to improve the effectiveness of all of our pick-up truck applications and to fully address the regulators’ requirements. Based on discussions with the regulators, we have developed a new calibration for the engines in model year 2019 RAM 2500 and 3500 trucks that has been included in all engines shipped since September 2019. During our discussions, the regulators have asked us to look at other model years and other engines. Due to the continuing nature of our formal review, our ongoing cooperation with our regulators and the presence of many unknown facts and circumstances, we cannot predict the final outcome of this review and these regulatory processes, and we cannot provide assurance that the matter will not have a materially adverse impact on our results of operations 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 April 4, 2021, the maximum potential loss related to these guarantees was $31 million.
We have arrangements with certain suppliers that require us to purchase minimum volumes or be subject to monetary penalties. At April 4, 2021, if we were to stop purchasing from each of these suppliers, the aggregate amount of the penalty would be approximately $74 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 and palladium to purchase certain volumes of the commodities at contractually stated prices for various periods, which generally fall within two years. At April 4, 2021, the total commitments under these contracts were $39 million. These arrangements enable us to guarantee the prices of these commodities, which otherwise are subject to market volatility.
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 $100 million at April 4, 2021.
17

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.
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NOTE 11. ACCUMULATED OTHER COMPREHENSIVE LOSS
Following are the changes in accumulated other comprehensive income (loss) by component for the three months ended:
In millionsChange in
pensions and
other
postretirement
defined benefit
plans
Foreign
currency
translation
adjustment
Unrealized gain
(loss) on
derivatives
Total
attributable to
Cummins Inc.
Noncontrolling
interests
Total
Balance at December 31, 2020$(735)$(1,204)$(43)$(1,982)  
Other comprehensive income before reclassifications      
Before-tax amount15 (60)93 48 $0 $48 
Tax (expense) benefit(3)4 (22)(21)0 (21)
After-tax amount12 (56)71 27 0 27 
Amounts reclassified from accumulated other comprehensive income(1)
17 0 1 18 0 18 
Net current period other comprehensive income (loss)29 (56)72 (2)45 $0 $45 
Balance at April 4, 2021$(706)$(1,260)$29 $(1,937)  
Balance at December 31, 2019$(734)$(1,285)$(9)$(2,028)  
Other comprehensive income before reclassifications      
Before-tax amount(19)(148)(95)(262)$(17)$(279)
Tax benefit18 26 26 
After-tax amount(14)(145)(77)(236)(17)(253)
Amounts reclassified from accumulated other comprehensive income (loss)(1)
16 (2)14 14 
Net current period other comprehensive income (loss)(145)(79)(2)(222)$(17)$(239)
Balance at March 29, 2020$(732)$(1,430)$(88)$(2,250)  
(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 interest rate lock activity. See the Interest Rate Risk section in NOTE 8 "DEBT" for additional information.

















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NOTE 12. 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 President and Chief Operating Officer.
Our reportable operating segments consist of Engine, Distribution, Components, Power Systems and New Power. This reporting structure is organized according to the products and markets each segment serves. 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 Components segment sells filtration products, aftertreatment systems, turbochargers, electronics, fuel systems and automated transmissions. 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 New Power segment designs, manufactures, sells and supports hydrogen production solutions as well as electrified power systems ranging from fully electric to hybrid along with innovative components and subsystems, including battery and fuel cell technologies. 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 primary 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 to individual segments. EBITDA may not be consistent with measures used by other companies.
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Summarized financial information regarding our reportable operating segments for the three months ended is shown in the table below:
In millionsEngineDistributionComponentsPower SystemsNew PowerTotal Segments
Intersegment Eliminations (1)
Total
Three months ended April 4, 2021    
Segment sales$2,459 $1,835 $2,152 $1,022 $35 $7,503 $(1,411)$6,092 
Less: Intersegment sales564 8 428 410 1 1,411 (1,411) 
External sales1,895 1,827 1,724 612 34 6,092  6,092 
Research, development and engineering expenses92 13 75 57 23 260  260 
Equity, royalty and interest income from investees113 17 19 12 5 166  166 
Interest income3 1 1 1 0 6  6 
EBITDA354 160 421 126 (51)1,010 (30)980 
Depreciation and amortization (2)
51 30 48 35 5 169  169 
Three months ended March 29, 2020     
Segment sales$2,158 $1,814 $1,502 $884 $10 $6,368 $(1,357)$5,011 
Less: Intersegment sales579 387 384 1,357 (1,357)— 
External sales1,579 1,807 1,115 500 10 5,011 — 5,011 
Research, development and engineering expenses80 68 54 29 238 — 238 
Equity, royalty and interest income from investees78 21 21 129 — 129 
Interest income— 
EBITDA365 158 279 77 (43)836 10 846 
Depreciation and amortization (2)
53 31 48 32 168 — 168 
(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 April 4, 2021 and March 29, 2020.
(2) 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 $1 million and less than $1 million for the three months ended April 4, 2021 and March 29, 2020, respectively. A portion of depreciation expense is included in "Research, development and engineering expenses."




















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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
In millionsApril 4,
2021
March 29,
2020
TOTAL SEGMENT EBITDA$1,010 $836 
Add:
Intersegment elimination(30)10 
TOTAL EBITDA980 846 
Less:
Interest expense28 23 
Depreciation and amortization169 168 
INCOME BEFORE INCOME TAXES783 655 
Less: Income tax expense172 127 
CONSOLIDATED NET INCOME611 528 
Less: Net income attributable to noncontrolling interests8 17 
NET INCOME ATTRIBUTABLE TO CUMMINS INC.$603 $511 

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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 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;
policy changes in international trade;
the U.K.'s exit from the European Union;
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;
BUSINESS CONDITIONS / DISRUPTIONS
supply shortages and supplier financial risk, particularly from any of our single-sourced suppliers, including suppliers that may be impacted by the COVID-19 pandemic;
market slowdown due to the impacts from the COVID-19 pandemic, other public health crises, epidemics or pandemics;
impacts to manufacturing and supply chain abilities from an extended shutdown or disruption of our operations due to the COVID-19 pandemic;
aligning our capacity and production with our demand, including impacts of COVID-19;
large truck manufacturers and original equipment manufacturers customers discontinuing outsourcing their engine supply needs or experiencing financial distress, particularly related to the COVID-19 pandemic, bankruptcy or change in control;
a slowdown in infrastructure development and/or depressed commodity prices;
failure to realize expected results from our investment in Eaton Cummins Automated Transmission Technologies joint venture;
the actions of, and income from, joint ventures and other investees that we do not directly control;
PRODUCTS AND TECHNOLOGY
product recalls;
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;
23

variability in material and commodity costs;
product liability claims;
our sales mix of products;
protection and validity of our patent and other intellectual property rights;
GENERAL
disruptions in global credit and financial markets as the result of the COVID-19 pandemic;
labor relations or work stoppages;
reliance on our executive leadership team and other key personnel;
climate change and global warming;
our plan to reposition our portfolio of product offerings through exploration of strategic acquisitions and divestitures and related uncertainties of entering such transactions;
exposure to potential security breaches or other disruptions to our information technology systems and data security;
political, economic and other risks from operations in numerous countries;
competitor activity;
increasing competition, including increased global competition among our customers in emerging markets;
foreign currency exchange rate changes;
the performance of our pension plan assets and volatility of discount rates, particularly those related to the sustained slowdown of the global economy due to the COVID-19 pandemic;
the price and availability of energy;
the outcome of pending and future litigation and governmental proceedings;
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 our 2020 Form 10-K, Part I, Item 1A. 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.
24

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 2020 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
EXECUTIVE SUMMARY AND FINANCIAL HIGHLIGHTS
Overview
We are a global power leader that designs, manufactures, distributes and services diesel, natural gas, electric and hybrid powertrains and powertrain-related components including filtration, aftertreatment, turbochargers, fuel systems, controls systems, air handling systems, automated transmissions, electric power generation systems, batteries, electrified power systems, hydrogen production and fuel cell products. We sell our products to original equipment manufacturers (OEMs), distributors, dealers and other customers worldwide. We have long-standing relationships with many of the leading manufacturers in the markets we serve, including PACCAR Inc, Navistar International Corporation, Daimler Trucks North America and Stellantis N.V. We serve our customers through a network of over 500 wholly-owned, joint venture and independent distributor locations and over 9,000 Cummins certified dealer locations with service to approximately 190 countries and territories.
Our reportable operating segments consist of Engine, Distribution, Components, Power Systems and New Power. This reporting structure is organized according to the products and markets each segment serves. 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 Components segment sells filtration products, aftertreatment systems, turbochargers, electronics, fuel systems and automated transmissions. 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 New Power segment designs, manufactures, sells and supports hydrogen production solutions as well as electrified power systems ranging from fully electric to hybrid along with innovative components and subsystems, including battery and fuel cell technologies. 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, construction 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 and stoppages. 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 currency, political, economic, 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 high levels of these risks such as China, Brazil, India, Mexico, Russia and countries in the Middle East and Africa. At the same time, our geographic diversity and broad product and service offerings have helped limit the impact from a drop in demand in any one industry or customer or the economy of any single country on our consolidated results.

25

First Quarter 2021 Results
A summary of our results is as follows:
Three months ended
In millions, except per share amountsApril 4,
2021
March 29,
2020
Net sales$6,092 $5,011 
Net income attributable to Cummins Inc.603 511 
Earnings per common share attributable to Cummins Inc.
Basic$4.10 $3.42 
Diluted4.07 3.41 
Worldwide revenues increased 22 percent in the three months ended April 4, 2021, compared to the same period in 2020, due to higher demand in all operating segments and most geographic regions of the world. International demand (excludes the U.S. and Canada) improved 45 percent primarily due to higher sales in most geographic regions. The increase in international sales was principally due to higher demand in all components businesses (primarily in China and India), stronger demand in China due to an improved COVID-19 environment over the comparable period in 2020, higher off-highway demand (mainly construction markets in China), higher demand for power generation equipment and favorable foreign currency impacts of 3 percent of international sales (primarily the Chinese renminbi and Euro, partially offset by the Brazilian real). Net sales in the U.S. and Canada improved 7 percent, primarily due to increased demand in North American on-highway markets, which also positively impacted all of our components businesses, partially offset by reduced sales in our distribution product lines resulting from supply chain constraints.
The following table contains 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 months ended April 4, 2021 and March 29, 2020. See Note 12, "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
Operating SegmentsApril 4, 2021March 29, 2020Percent change
 Percent  Percent 2021 vs. 2020
In millionsSalesof TotalEBITDASalesof TotalEBITDASalesEBITDA
Engine$2,459 40 %$354 $2,158 43 %$365 14 %(3)%
Distribution1,835 30 %160 1,814 36 %158 %%
Components2,152 35 %421 1,502 30 %279 43 %51 %
Power Systems1,022 17 %126 884 18 %77 16 %64 %
New Power35 1 %(51)10 — %(43)NM(19)%
Intersegment eliminations(1,411)(23)%(30)(1,357)(27)%10 %NM
Total$6,092 100 %$980 $5,011 100 %$846 22 %16 %
"NM" - not meaningful information
Net income attributable to Cummins was $603 million, or $4.07 per diluted share, on sales of $6.1 billion for the three months ended April 4, 2021, versus the comparable prior year period net income attributable to Cummins of $511 million, or $3.41 per diluted share, on sales of $5.0 billion. The increases in net income and earnings per diluted share were driven by higher net sales, increased gross margin and higher equity, royalty and interest income from investees primarily in China (due to stronger demand for trucks and construction equipment resulting from an improved COVID-19 environment over the comparable period in 2020), partially offset by higher variable compensation expenses, incremental costs associated with supply chain constraints, mark-to-market losses on corporate owned life insurance and a higher effective tax rate due to the absence of favorable adjustments related to India Tax Law Changes in March 2020. The increase in gross margin was primarily due to higher volumes and improved pricing, partially offset by increased compensation expenses (especially variable compensation) and higher premium freight costs. The decrease in gross margin as a percentage of sales was primarily due to higher compensation expenses, increased premium freight costs and manufacturing inefficiencies. Diluted earnings per common share for the three months ended April 4, 2021, benefited $0.03 from fewer weighted-average shares outstanding due to the stock repurchase program.
26

We generated $339 million of cash from operations for the three months ended April 4, 2021, compared to $379 million for the comparable period in 2020. Refer to 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 April 4, 2021, was 31.2 percent, compared to 31.7 percent at December 31, 2020. The decrease was primarily due to $73 million of lower debt balances since December 31, 2020. At April 4, 2021, we had $3.4 billion in cash and marketable securities on hand and access to our $3.5 billion credit facilities, if necessary, to meet currently anticipated working capital, investment and funding needs.
In the first three months of 2021, we purchased $418 million, or 1.7 million shares of common stock.
In the first three months of 2021, the investment gain on our U.S. pension trust was 1.1 percent while our U.K. pension trust loss was 6.1 percent. During the remainder of 2021, we anticipate making $17 million in additional defined benefit pension contributions in the U.K. and $12 million in contributions to our U.S. non-qualified benefit plans. We expect our 2021 annual net periodic pension cost to approximate $79 million.
As of the date of this filing, our credit ratings and outlooks from the credit rating agencies remain unchanged.

27

RESULTS OF OPERATIONS
 Three months endedFavorable/
April 4,
2021
March 29,
2020
(Unfavorable)
In millions, except per share amountsAmountPercent
NET SALES$6,092 $5,011 $1,081 22 %
Cost of sales4,606 3,717 (889)(24)%
GROSS MARGIN1,486 1,294 192 15 %
OPERATING EXPENSES AND INCOME   
Selling, general and administrative expenses574 546 (28)(5)%
Research, development and engineering expenses260 238 (22)(9)%
Equity, royalty and interest income from investees166 129 37 29 %
Other operating expense, net(8)(5)(3)(60)%
OPERATING INCOME810 634 176 28 %
Interest expense28 23 (5)(22)%
Other income, net1 44 (43)(98)%
INCOME BEFORE INCOME TAXES783 655 128 20 %
Income tax expense172 127 (45)(35)%
CONSOLIDATED NET INCOME611 528 83 16 %
Less: Net income attributable to noncontrolling interests8 17 53 %
NET INCOME ATTRIBUTABLE TO CUMMINS INC.$603 $511 $92 18 %
Diluted Earnings Per Common Share Attributable to Cummins Inc.$4.07 $3.41 $0.66 19 %

 Three months endedFavorable/
(Unfavorable)
 April 4,
2021
March 29,
2020
Percent of salesPercentage Points
Gross margin24.4 %25.8 %(1.4)
Selling, general and administrative expenses9.4 %10.9 %1.5 
Research, development and engineering expenses4.3 %4.7 %0.4 
Net Sales
Net sales for the three months ended April 4, 2021, increased by $1,081 million versus the comparable period in 2020. The primary drivers were as follows:
Components segment sales increased 43 percent largely due to higher emission solutions demand in China, India and North America.
Engine segment sales increased 14 percent due to increased volumes in the North American pick-up truck and heavy-duty truck markets.
Power Systems segment sales increased 16 percent primarily due to higher demand in power generation markets in North America, China, Middle East and Asia Pacific.
Favorable foreign currency fluctuations of 1 percent of total sales, primarily in the Chinese renminbi and Euro, partially offset by the Brazilian real.
Sales to international markets (excluding the U.S. and Canada), based on location of customers, for the three months ended April 4, 2021, were 46 percent of total net sales compared with 38 percent of total net sales for the comparable period in 2020. A more detailed discussion of sales by segment is presented in the “OPERATING SEGMENT RESULTS” section.
28

Cost of Sales
The types of expenses included in cost of sales are the following: parts and material consumption, including direct and indirect materials; salaries, wages and 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; rent for production facilities and other production overhead.
Gross Margin
Gross margin increased $192 million for the three months ended April 4, 2021 and decreased 1.4 points as a percentage of sales, versus the comparable period in 2020. The increase in gross margin was primarily due to higher volumes and improved pricing, partially offset by increased compensation expenses (especially variable compensation) and higher premium freight costs. The decrease in gross margin as a percentage of sales was primarily due to higher compensation expenses, increased premium freight costs and manufacturing inefficiencies.
The provision for base warranties issued as a percent of sales for the three months ended April 4, 2021, was 2.6 percent compared to 1.9 percent for the comparable period in 2020. A detailed discussion of gross margin by segment is presented in the “OPERATING SEGMENT RESULTS” section.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $28 million for the three months ended April 4, 2021, versus the comparable period in 2020, primarily due to increased variable compensation expenses, partially offset by lower consulting expenses and reduced travel costs. Overall, selling, general and administrative expenses as a percentage of sales decreased to 9.4 percent in the three months ended April 4, 2021, from 10.9 percent in the comparable period in 2020. The decrease in selling, general and administrative expenses as a percentage of sales was mainly due to sales increasing faster than selling, general and administrative expenses, despite higher variable compensation expenses.
Research, Development and Engineering Expenses
Research, development and engineering expenses increased $22 million for the three months ended April 4, 2021, versus the comparable period in 2020 primarily due to increased compensation expenses, especially variable compensation expenses, partially offset by decreased travel costs. Overall, research, development and engineering expenses as a percentage of sales decreased to 4.3 percent in the three months ended April 4, 2021, from 4.7 percent in the comparable period in 2020. Research activities continue to focus on development of new products 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 fully electric, hybrid and hydrogen powertrain solutions.
Equity, Royalty and Interest Income from Investees
Equity, royalty and interest income from investees increased $37 million for the three months ended April 4, 2021, versus the comparable period in 2020, primarily due to increased earnings at Dongfeng Cummins Engine Co., Ltd., Beijing Foton Cummins Engine Co., Ltd., Tata Cummins Ltd. (excluding the absence of 2020 benefits noted below), Guangxi Cummins Industrial Power Co., Loop Energy Inc. and Dongfeng Cummins Emission Solutions Co., Ltd., partially offset by the absence of a $37 million favorable adjustment as the result of tax changes within India's 2020-2021 Union Budget of India (India Tax Law Changes) passed in March 2020 and $18 million of technology fee revenue both recorded in the first quarter of 2020 in Tata Cummins Ltd. The increased earnings in our China joint ventures were primarily due to an improved COVID-19 environment over the comparable period in 2020. See Note 4, "INCOME TAXES," of the Notes to the Consolidated Financial Statements of our 2020 Form 10-K for additional information on India Tax Law Changes.
29

Other Operating Expense, Net
Other operating expense, net was as follows:
 Three months ended
In millionsApril 4,
2021
March 29,
2020
Amortization of intangible assets$(6)$(5)
Loss on write-off of assets(4)(2)
Gain (loss) on sale of assets, net1 (1)
Royalty income, net2 
Other, net(1)
Total other operating expense, net$(8)$(5)
Interest Expense
Interest expense increased $5 million for the three months ended April 4, 2021, versus the comparable period in 2020, primarily due to higher borrowings related to our $2 billion senior unsecured notes issued in August of 2020.
Other Income, Net
Other income, net was as follows:
 Three months ended
In millionsApril 4,
2021
March 29,
2020
Non-service pension and OPEB credit$24 $16 
Interest income6 
Rental income2 
Loss on marketable securities, net (3)
Bank charges(3)(3)
Foreign currency loss, net(5)(1)
(Loss) gain on corporate owned life insurance(32)17 
Other, net9 
Total other income, net$1 $44 
Income Tax Expense
Our effective tax rate for 2021 is expected to approximate 22.5 percent, excluding any discrete items that may arise.
Our effective tax rate for the three months ended April 4, 2021, was 22.0 percent and contained favorable discrete items of $4 million or $0.03 per share.
Our effective tax rate for the three months ended March 29, 2020, was 19.4 percent and contained $18 million of favorable net discrete tax items, primarily due to the India Tax Law Change passed in March of 2020. The India Tax Law Change eliminated the dividend distribution tax and replaced it with a lower rate withholding tax as the burden shifted from the dividend payor to the dividend recipient for a net favorable income statement impact of $35 million, or $0.23 per share in the first quarter of 2020. See Note 4, "INCOME TAXES," of the Notes to the Consolidated Financial Statements of our 2020 Form 10-K for additional information on India Tax Law Changes.
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 months ended April 4, 2021, decreased $9 million versus the comparable period in 2020. The decrease for the three months ended April 4, 2021, is primarily due to the absence of a $19 million unfavorable adjustment as the results of India Tax Law Changes passed in March 2020, partially offset by higher earnings at Eaton Cummins Joint Venture. See Note 4, "INCOME TAXES," of the Notes to the Consolidated Financial Statements of our 2020 Form 10-K for additional information on India Tax Law Changes.
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Net Income Attributable to Cummins Inc. and Diluted Earnings Per Common Share Attributable to Cummins Inc.
Net income and diluted earnings per common share attributable to Cummins Inc. for the three months ended April 4, 2021, increased $92 million and $0.66 per diluted share versus the comparable period in 2020, primarily due to higher net sales, increased gross margin and higher equity, royalty and interest income from investees primarily in China (due to stronger demand for trucks and construction equipment resulting from an improved COVID-19 environment over the comparable period in 2020), partially offset by higher variable compensation expenses, incremental costs associated with supply chain constraints, mark-to-market losses on corporate owned life insurance and a higher effective tax rate due to the absence of favorable adjustments related to India Tax Law Changes in March 2020. Diluted earnings per common share for the three months ended April 4, 2021, benefited $0.03 from fewer weighted-average shares outstanding due to the stock repurchase program.
Comprehensive Income - Foreign Currency Translation Adjustment
The foreign currency translation adjustment was a net loss of $56 million for the three months ended April 4, 2021, compared to a net loss of $162 million for the three months ended March 29, 2020 and was driven by the following:
Three months ended
April 4, 2021March 29, 2020
In millionsTranslation adjustmentPrimary currency driver vs. U.S. dollarTranslation adjustmentPrimary currency driver vs. U.S. dollar
Wholly-owned subsidiaries$(48)Brazilian real, British pound, Chinese renminbi$(124)Brazilian real, Indian rupee, Chinese renminbi, British pound
Equity method investments(8)Chinese renminbi(21)Chinese renminbi, Indian rupee
Consolidated subsidiaries with a noncontrolling interest (17)Indian rupee
Total$(56)$(162)

31

OPERATING SEGMENT RESULTS
Our reportable operating segments consist of the Engine, Distribution, Components, Power Systems and New Power segments. This reporting structure is organized according to the products and markets each segment serves. We use segment EBITDA as a primary 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 12, "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.
Engine Segment Results
Financial data for the Engine segment was as follows:
 Three months endedFavorable/
 April 4,March 29,(Unfavorable)
In millions20212020AmountPercent
External sales$1,895 $1,579 $316 20 %
Intersegment sales564 579 (15)(3)%
Total sales2,459 2,158 301 14 %
Research, development and engineering expenses92 80 (12)(15)%
Equity, royalty and interest income from investees113 78 35 45 %
Interest income3 (1)(25)%
Segment EBITDA354 365 (11)(3)%
   Percentage Points
Segment EBITDA as a percentage of total sales14.4 %16.9 % (2.5)
Sales for our Engine segment by market were as follows:
 Three months endedFavorable/
April 4,March 29,(Unfavorable)
In millions20212020AmountPercent
Heavy-duty truck$827 $750 $77 10 %
Medium-duty truck and bus674 618 56 %
Light-duty automotive481 353 128 36 %
Total on-highway1,982 1,721 261 15 %
Off-highway477 437 40 %
Total sales$2,459 $2,158 $301 14 %
  Percentage Points
On-highway sales as percentage of total sales81 %80 % 
32

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 endedFavorable/
 April 4,March 29,(Unfavorable)
 20212020AmountPercent
Heavy-duty30,700 25,800 4,900 19 %
Medium-duty73,100 61,200 11,900 19 %
Light-duty68,500 49,400 19,100 39 %
Total unit shipments172,300 136,400 35,900 26 %
Sales
Engine segment sales for the three months ended April 4, 2021, increased $301 million versus the comparable period in 2020. The following were the primary drivers by market:
Light-duty automotive sales increased $128 million primarily due to pick-up truck sales in North America with shipments up 49 percent.
Heavy-duty truck sales increased $77 million principally due to increased volumes in North America with shipments up 28 percent.
Medium-duty truck and bus sales increased $56 million mainly due to higher medium-duty demand, partially offset by lower bus sales, especially in North America.
Off-highway sales increased $40 million primarily due to higher demand in construction markets in China.
Segment EBITDA
Engine segment EBITDA for the three months ended April 4, 2021, decreased $11 million versus the comparable period in 2020, primarily due to lower gross margin, increased research, development and engineering expenses and higher selling, general and administrative expenses, partially offset by increased equity, royalty and interest income from investees. The decrease in gross margin and gross margin as a percentage of sales was mainly due to increased premium freight, unfavorable mix, unfavorable foreign currency fluctuations (primarily in the Brazilian real) and increased variable compensation expenses, partially offset by higher volumes. The increase in selling, general and administrative expenses was due to increased variable compensation expenses, partially offset by lower consulting expenses and reduced travel costs. The increase in research, development and engineering expenses was due to higher compensation expenses, especially variable compensation expenses. The increase in equity, royalty and interest income from investees was principally due to increased earnings at Dongfeng Cummins Engine Co., Ltd., Beijing Foton Cummins Engine Co., Ltd., Tata Cummins Ltd. (excluding the absence of 2020 benefits noted below) and Guangxi Cummins Industrial Power Co., partially offset by the absence of an $18 million favorable adjustment related to India Tax Law Changes passed in March 2020 and $18 million of technology fee revenue both recorded in the first quarter of 2020 in Tata Cummins Ltd. The increased earnings in our China joint ventures were primarily due to an improved COVID-19 environment over the comparable period in 2020. See Note 4, "INCOME TAXES," of the Notes to the Consolidated Financial Statements of our 2020 Form 10-K for additional information on India Tax Law Changes.
33

Distribution Segment Results
Financial data for the Distribution segment was as follows:
 Three months endedFavorable/
 April 4,March 29,(Unfavorable)
In millions20212020AmountPercent
External sales$1,827 $1,807 $20 %
Intersegment sales8 14 %
Total sales1,835 1,814 21 %
Research, development and engineering expenses13 (6)(86)%
Equity, royalty and interest income from investees17 21 (4)(19)%
Interest income1 — — %
Segment EBITDA160 158 %
   Percentage Points
Segment EBITDA as a percentage of total sales8.7 %8.7 % — 

Sales for our Distribution segment by region were as follows:
 Three months endedFavorable/
 April 4,March 29,(Unfavorable)
In millions20212020AmountPercent
North America$1,171 $1,246 $(75)(6)%
Asia Pacific214 196 18 %
Europe163 136 27 20 %
China87 68 19 28 %
Russia57 42 15 36 %
Africa and Middle East54 51 %
India49 36 13 36 %
Latin America40 39 %
Total sales$1,835 $1,814 $21 %
Sales for our Distribution segment by product line were as follows:
 Three months endedFavorable/
 April 4,March 29,(Unfavorable)
In millions20212020AmountPercent
Parts$757 $787 $(30)(4)%
Power generation418 376 42 11 %
Engines334 323 11 %
Service326 328 (2)(1)%
Total sales$1,835 $1,814 $21 %
Sales
Distribution segment sales for the three months ended April 4, 2021, increased $21 million versus the comparable period in 2020. The following were the primary drivers by region:
Improved demand in Europe, China, Asia Pacific, Russia and India.
Favorable foreign currency fluctuations, primarily in the Australian dollar and Euro.
The increases were partially offset by reduced parts sales in North America resulting from supply chain constraints.
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Segment EBITDA
Distribution segment EBITDA for the three months ended April 4, 2021, increased $2 million versus the comparable period in 2020, primarily due to increased other income and higher gross margin, partially offset by higher research, development and engineering expenses, increased selling, general and administrative expenses and lower equity, royalty and interest income from investees. The increase in gross margin and gross margin as a percentage of sales was mainly due to decreased compensation expenses, improved pricing, higher volumes and favorable foreign currency fluctuations (primarily in the Australian dollar), partially offset by higher variable compensation expenses. The increase in selling, general and administrative expenses was due to increased variable compensation expenses, partially offset by decreased consulting expenses and lower travel costs. The increase in research, development and engineering expenses was due to increased variable compensation expenses and higher consulting expenses. The decrease in equity, royalty and interest income from investees was principally due to the absence of a $5 million favorable adjustment related to India Tax Law Changes passed in March 2020. See Note 4, "INCOME TAXES," of the Notes to the Consolidated Financial Statements of our 2020 Form 10-K for additional information on India Tax Law Changes.
Components Segment Results
Financial data for the Components segment was as follows:
 Three months endedFavorable/
 April 4,March 29,(Unfavorable)
In millions20212020AmountPercent
External sales$1,724 $1,115 $609 55 %
Intersegment sales428 387 41 11 %
Total sales2,152 1,502 650 43 %
Research, development and engineering expenses75 68 (7)(10)%
Equity, royalty and interest income from investees19 21 (2)(10)%
Interest income1 — — %
Segment EBITDA421 279 142 51 %
   Percentage Points
Segment EBITDA as a percentage of total sales19.6 %18.6 % 1.0 
Sales for our Components segment by business were as follows:
 Three months endedFavorable/
 April 4,March 29,(Unfavorable)
In millions20212020AmountPercent
Emission solutions$1,035 $664 $371 56 %
Filtration372 312 60 19 %
Turbo technologies367 270 97 36 %
Electronics and fuel systems263 174 89 51 %
Automated transmissions115 82 33 40 %
Total sales$2,152 $1,502 $650 43 %
Sales
Components segment sales for the three months ended April 4, 2021, increased $650 million versus the comparable period in 2020. The following were the primary drivers by business:
Emission solutions sales increased $371 million primarily due to strong demand in China, India and North America.
Turbo technologies sales increased $97 million principally due to increased demand in China, Western Europe and North America.
Electronics and fuel systems sales increased $89 million mostly due to higher demand in China, India and North America.
Filtration sales increased $60 million mainly due to stronger demand in China, North America and Europe.
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Favorable foreign currency fluctuations, primarily in the Chinese renminbi and Euro, partially offset by the Brazilian real.
Segment EBITDA
Components segment EBITDA for the three months ended April 4, 2021, increased $142 million versus the comparable period in 2020, mainly due to higher gross margin, partially offset by higher selling, general and administrative expenses, increased research, development and engineering costs and lower equity, royalty and interest income from investees. The increase in gross margin and gross margin as a percentage of sales was mainly due to higher volumes and favorable mix, partially offset by increased compensation expenses. Selling, general and administrative expenses increased due to higher variable compensation expenses. Research, development and engineering expenses increased due to higher compensation expenses, especially variable compensation expenses. The decrease in equity, royalty and interest income from investees was principally due to the absence of a $14 million favorable adjustment related to India Tax Law Changes passed in March 2020 in Fleetguard Filters Private Ltd., partially offset by higher earnings at Fleetguard Filters Private Ltd. (excluding the absence of 2020 tax benefit noted above), Dongfeng Cummins Emission Solutions Co., Ltd. and Shanghai Fleetguard Filter Co. See Note 4, "INCOME TAXES," of the Notes to the Consolidated Financial Statements of our 2020 Form 10-K for additional information on India Tax Law Changes.
Power Systems Segment Results
Financial data for the Power Systems segment was as follows:
 Three months endedFavorable/
 April 4,March 29,(Unfavorable)
In millions20212020AmountPercent
External sales$612 $500 $112 22 %
Intersegment sales410 384 26 %
Total sales1,022 884 138 16 %
Research, development and engineering expenses57 54 (3)(6)%
Equity, royalty and interest income from investees12 33 %
Interest income1 — — %
Segment EBITDA126 77 49 64 %
   Percentage Points
Segment EBITDA as a percentage of total sales12.3 %8.7 % 3.6 
Sales for our Power Systems segment by product line were as follows:
 Three months endedFavorable/
 April 4,March 29,(Unfavorable)
In millions20212020AmountPercent
Power generation$611 $519 $92 18 %
Industrial324 296 28 %
Generator technologies87 69 18 26 %
Total sales$1,022 $884 $138 16 %
Sales
Power Systems segment sales for the three months ended April 4, 2021, increased $138 million versus the comparable period in 2020. The following were the primary drivers by product line:
Power generation sales increased $92 million due to higher demand in North America, China, Middle East and Asia Pacific.
Industrial sales increased $28 million due to increased demand in global mining markets, partially offset by decreased demand in oil and gas markets in China.
Favorable foreign currency fluctuations, primarily in the Chinese renminbi and British pound.
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Segment EBITDA
Power Systems segment EBITDA for the three months ended April 4, 2021, increased $49 million versus the comparable period in 2020, primarily due to higher gross margin and favorable foreign currency fluctuations (especially in the Chinese renminbi and British pound), partially offset by increased selling, general and administrative expenses. The increase in gross margin and gross margin as a percentage of sales was mainly due to higher volumes and improved pricing, partially offset by increased compensation expenses and unfavorable mix. Selling, general and administrative expenses increased primarily due to increased variable compensation expenses, partially offset by lower travel costs.
New Power Segment Results
The New Power segment designs, manufactures, sells and supports hydrogen production solutions as well as electrified power systems ranging from fully electric to hybrid along with innovative components and subsystems, including battery and fuel cell technologies. The New Power segment is currently in the development phase with a primary focus on research and development activities for our power systems, components and subsystems. Financial data for the New Power segment was as follows:
 Three months endedFavorable/
 April 4,March 29,(Unfavorable)
In millions20212020AmountPercent
External sales$34 $10 $24 NM
Intersegment sales1 — NM
Total sales35 10 25 NM
Research, development and engineering expenses23 29 21 %
Equity, royalty and interest income from investees5 — NM
Segment EBITDA(51)(43)(8)(19)%
"NM" - not meaningful information


37

OUTLOOK
COVID-19 Impact
The acceleration of the COVID-19 vaccine distribution in the U.S. is helping curb the spread of the virus and will hopefully allow the majority of our manufacturing facilities to remain open to meet increasing customer demand. While the vaccination effort will allow a return to more normal operations in the U.S., many international markets are still dealing with rising cases, new COVID variants and slower vaccination rollout. We continue to take necessary precautions at all our facilities both in the U.S. and abroad to mitigate the spread of the disease and prioritize the health and safety of our employees. While we are optimistic that continued vaccination distribution globally will minimize the impacts of the virus in the second half of the year, there is still a risk of increased cases or new virus variants resulting in lower customer demand, additional facility shutdowns or supply chain constraints in the future.
We anticipate lower demand in all end markets in India for the second quarter due to new lockdowns as a result of an increase in COVID-19 cases and are monitoring the events on the ground closely. Given the rapid increase in COVID cases in India, we are very concerned about the health and safety of our employees and those of our suppliers and partners. We are continuing to operate all our manufacturing facilities but with robust safety measures in place.
In March, we gained approval as a COVID-19 vaccine administrator at several U.S. sites and began offering the vaccine to our employees and their families at certain facilities in the U.S. We continue to collaborate with health officials around the world to provide employees with access to COVID-19 vaccines. That work differs geographically due to the variability in vaccine accessibility and distribution. Our global network of medical professionals is always focused on efforts to ensure the safety of all Cummins employees, their families and our communities.
Business Outlook
Our outlook reflects the following positive trends and challenges to our business for the remainder of 2021.
Positive Trends
We expect demand for pick-up trucks in North America to remain strong.
We estimate North American medium-duty and heavy-duty truck demand will continue to improve from 2020 levels.
We believe market demand for trucks in India will improve from 2020 levels.
We anticipate our aftermarket business will continue to improve, driven primarily by increased truck utilization in North America.
Our liquidity of $6.5 billion in cash, marketable securities and available credit facilities strengthens our position to deal with any uncertainties that may arise in the remainder of 2021.
Challenges
Supply constraints driven by strong demand in multiple end markets and regions may lead to increased costs, including higher premium freight.
The shortage of key components such as semiconductor chips may lead to manufacturing delays, increased costs and the loss of sales.
We expect market demand in truck and construction markets in China to decline from record levels in 2020.
We may close or restructure certain manufacturing and distribution facilities as we evaluate the appropriate size and structure of our manufacturing and distribution capacity, which could result in additional charges.
Uncertainty in the U.K. surrounding its ability to negotiate trade agreements as a sovereign country could have material negative impacts on our European operations in the long-term.
38

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 millionsApril 4,
2021
December 31,
2020
Working capital (1)
$5,462 $5,562 
Current ratio1.82 1.88 
Accounts and notes receivable, net$4,209 $3,820 
Days' sales in receivables60 69 
Inventories$3,753 $3,425 
Inventory turnover5.0 4.2 
Accounts payable (principally trade)$3,279 $2,820 
Days' payable outstanding58 68 
Total debt$4,091 $4,164 
Total debt as a percent of total capital31.2 %31.7 %
 (1) Working capital includes cash and cash equivalents.
Cash Flows
Cash and cash equivalents were impacted as follows:
 Three months ended 
In millionsApril 4,
2021
March 29,
2020
Change
Net cash provided by operating activities$339 $379 $(40)
Net cash used in investing activities(25)(99)74 
Net cash (used in) provided by financing activities(745)234 (979)
Effect of exchange rate changes on cash and cash equivalents(12)48 (60)
Net (decrease) increase in cash and cash equivalents$(443)$562 $(1,005)
Net cash provided by operating activities decreased $40 million for the three months ended April 4, 2021, versus the comparable period in 2020, primarily due to higher working capital requirements of $158 million, partially offset by higher consolidated net income of $83 million and the absence of prior year restructuring payments of $48 million. During the first three months of 2021, the higher working capital requirements resulted in a cash outflow of $293 million compared to a cash outflow of $135 million in the comparable period in 2020, mainly due to higher accounts and notes receivable, inventories and other current assets, partially offset by higher accrued expenses and accounts payable.
Net cash used in investing activities decreased $74 million for the three months ended April 4, 2021, versus the comparable period in 2020, primarily due to higher net liquidations of marketable securities of $85 million, partially offset by higher investments in and advances to equity investees of $17 million.
Net cash used in financing activities increased $979 million for the three months ended April 4, 2021, versus the comparable period in 2020, primarily due to lower net borrowings of commercial paper of $963 million and higher net payments under short-term credit agreements of $127 million, partially offset by lower repurchases of common stock of $132 million.
The effect of exchange rate changes on cash and cash equivalents for the three months ended April 4, 2021, versus the comparable period in 2020, decreased $60 million primarily due to unfavorable fluctuations in the British pound of $69 million, partially offset by favorable fluctuations in the Chinese renminbi and Indian rupee.
39

Sources of Liquidity
Cash provided by operations is typically our principal source of liquidity with $339 million generated in the three months ended April 4, 2021. Our sources of liquidity include:
April 4, 2021
In millionsTotalU.S.InternationalPrimary location of international balances
Cash and cash equivalents$2,958 $1,536 $1,422 China, Singapore, Belgium, Mexico, Australia, Canada
Marketable securities (1)
397 91 306 India
Total$3,355 $1,627 $1,728 
Available credit capacity
Revolving credit facilities (2)
$3,183 
International and other uncommitted domestic credit facilities$249 
(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 $1.5 billion, maturing August 2023 and August 2021, respectively, are maintained primarily to provide backup liquidity for our commercial paper borrowings and general corporate purposes. At April 4, 2021, we had $317 million of commercial paper outstanding, which effectively reduced the available capacity under our revolving credit facilities to $3.2 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.
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 have asserted are permanently reinvested outside of the U.S. Foreign earnings for which we assert permanent reinvestment outside the U.S. consist primarily of earnings of our China, India and Netherlands domiciled subsidiaries. At present, we do not foresee a need to repatriate any earnings from these subsidiaries for which we have asserted 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 permanently reinvested when it is cost effective to do so.
Debt Facilities and Other Sources of Liquidity
We have access to committed credit facilities that total $3.5 billion, including the $1.5 billion 364-day facility that expires August 18, 2021 and our $2.0 billion five-year facility that expires on August 22, 2023. We 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 for general corporate purposes. There were no outstanding borrowings under these facilities at April 4, 2021.
We can issue up to $3.5 billion of unsecured, short-term promissory notes (commercial paper) pursuant to the Board of Directors (the Board) authorized commercial paper programs. The 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 programs should not exceed $3.5 billion. See Note 8, "DEBT," to our Condensed Consolidated Financial Statements for additional information.
At April 4, 2021, we had $317 million of commercial paper outstanding, which effectively reduced the available capacity under our revolving credit facilities to $3.2 billion.
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 regularly scheduled due date. We do not reimburse vendors for any costs they incur for participation in
40

the program and their participation is completely voluntary. As a result, all amounts owed to the financial intermediaries are presented as "Accounts payable" in our Condensed Consolidated Balance Sheets.
Uses of Cash
Stock Repurchases
In December 2019, the Board authorized the acquisition of up to $2.0 billion of additional common stock upon completion of the 2018 repurchase plan. In the first three months of 2021, we made the following purchases under the 2019 stock repurchase program:
In millions, except per share amountsShares
Purchased
Average Cost
Per Share
Total Cost of
Repurchases
Remaining
Authorized
Capacity (1)
April 41.7 $247.35 $418 $1,576 
(1) The remaining authorized capacity under these plans was calculated based on the cost to purchase the shares but excludes commission expenses in accordance with the authorized plan.

We intend to repurchase outstanding shares from time to time during 2021 to enhance shareholder value.
Dividends
We paid dividends of $197 million during the three months ended April 4, 2021.
Capital Expenditures
Capital expenditures, including spending on internal use software, for the three months ended April 4, 2021, were $98 million versus $83 million in the comparable period in 2020. We plan to spend an estimated $725 million to $775 million in 2021 on capital expenditures, excluding internal use software, with over 50 percent of these expenditures expected to be invested in North America. In addition, we plan to spend an estimated $60 million to $70 million on internal use software in 2021.
Current Maturities of Short and Long-Term Debt
We had $317 million of commercial paper outstanding at April 4, 2021, that matures in less than one year. The maturity schedule of our existing long-term debt does not require significant cash outflows until 2023 when our 3.65% senior notes are due. Required annual long-term debt principal payments range from $30 million to $534 million over the next five years (including the remainder of 2021). See Note 8, "DEBT," to the Condensed Consolidated Financial Statements for additional information.
Pensions
Our global pension plans, including our unfunded and non-qualified plans, were 112 percent funded at December 31, 2020. Our U.S. defined benefit plan, which represented approximately 52 percent of the worldwide pension obligation, was 128 percent funded, and our U.K. defined benefit plan was 114 percent funded at December 31, 2020. 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 three months of 2021, the investment gain on our U.S. pension trust was 1.1 percent while our U.K. pension trust loss was 6.1 percent. Approximately 71 percent of our pension plan assets are held in highly liquid investments such as fixed income and equity securities. The remaining 29 percent of our plan assets are held in less liquid, but market valued investments, including real estate, private equity, venture capital, opportunistic credit and insurance contracts. During the remainder of 2021, we anticipate making $17 million in additional defined benefit pension contributions in the U.K. and $12 million in contributions to our U.S. non-qualified benefit 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 2021 annual net periodic pension cost to approximate $79 million.
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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-TermShort-Term
Credit Rating Agency (1)
 Senior Debt RatingDebt RatingOutlook
Standard and Poor’s Rating Services A+A1Stable
Moody’s Investors Service, Inc. A2P1Stable
(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 existing cash and marketable securities, operating cash flow and revolving credit facilities provide us with the financial flexibility needed to fund common stock repurchases, dividend payments, targeted capital expenditures, projected pension obligations, acquisitions, working capital and debt service obligations through 2021 and beyond. We continue to generate significant cash from operations and maintain access to our expanded 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 2020 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 including the impacts of COVID-19 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, 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 2020 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 three months of 2021.
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 2020 Form 10-K. There have been no material changes in this information since the filing of our 2020 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
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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 has been no change in our internal control over financial reporting during the quarter ended April 4, 2021, that has 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 10, "COMMITMENTS AND CONTINGENCIES," to the Condensed Consolidated Financial Statements are incorporated herein by reference.
ITEM 1A.  Risk Factors
In addition to other information set forth in this report, 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, 2020, which could materially affect our business, financial condition or future results. The risks described in our 2020 Annual Report on Form 10-K or the "CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION" in this Quarterly report are not the only risks we face. 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.
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 (1)
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) (2)
January 1 - February 7647,390 $237.88 647,390 $1,840 
February 8 - March 7654,074 246.15 654,074 1,679 
March 8 - April 4388,437 265.17 388,437 1,576 
Total1,689,901 247.35 1,689,901  
(1) Shares purchased represent shares under the Board authorized share repurchase program.
(2) 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 2019, the Board authorized the acquisition of up to $2.0 billion of additional common stock upon completion of the 2018 repurchase plan. During the three months ended April 4, 2021, we repurchased $418 million of common stock under the 2019 authorization. The dollar value remaining available for future purchases under the 2019 program at April 4, 2021, was $1,576 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.  
ITEM 3.  Defaults Upon Senior Securities
Not applicable. 
ITEM 4.  Mine Safety Disclosures
Not applicable. 
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ITEM 5.  Other Information
Not applicable. 
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.
104Cover 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 months ended April 4, 2021 and March 29, 2020, (ii) the Condensed Consolidated Statements of Comprehensive Income for the three months ended April 4, 2021 and March 29, 2020, (iii) the Condensed Consolidated Balance Sheets at April 4, 2021 and December 31, 2020, (iv) the Condensed Consolidated Statements of Cash Flows for the three months ended April 4, 2021 and March 29, 2020, (v) the Condensed Consolidated Statements of Changes in Equity for the three months ended April 4, 2021 and March 29, 2020 and (vi) Notes to Condensed Consolidated Financial Statements.

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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:May 4, 2021 
  
By:/s/ MARK A. SMITH By:/s/ CHRISTOPHER C. CLULOW
 Mark A. Smith  Christopher C. Clulow
 Vice President and Chief Financial Officer  Vice President-Corporate Controller
 (Principal Financial Officer)  (Principal Accounting Officer)

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