CUMMINS INC

Previous wording

On March 18, 2024, we completed the divestiture of our remaining 80.5 percent ownership of Atmus Filtration Technologies Inc. (Atmus) common stock through a tax-free split-off. The exchange resulted in a reduction of shares of our common stock outstanding by 5.6 million shares. See NOTE 14, "ATMUS DIVESTITURE," to the Condensed Consolidated Financial Statements for additional information.

Current wording

On March 18, 2024, we completed the divestiture of our remaining 80.5 percent ownership of Atmus Filtration Technologies Inc. (Atmus) common stock through a tax-free split-off. The exchange resulted in a reduction of shares of our common stock outstanding by 5.6 million shares. See NOTE 14, "ATMUS INITIAL PUBLIC OFFERING (IPO) AND DIVESTITURE," to the Condensed Consolidated Financial Statements for additional information.

Previous wording

In December 2023, we announced that we reached an agreement in principle with the U.S. Environmental Protection Agency (EPA), the California Air Resources Board (CARB), the Environmental and Natural Resources Division of the U.S. Department of Justice and the California Attorney General’s Office to resolve certain regulatory civil claims regarding our emissions certification and compliance process for certain engines primarily used in pick-up truck applications in the U.S., which became final and effective in April 2024 (collectively, the Settlement Agreements). See NOTE 11, “COMMITMENTS AND CONTINGENCIES,” to our Condensed Consolidated Financial Statementsfor additional information.

Current wording

In December 2023, we announced that we reached an agreement in principle with the U.S. Environmental Protection Agency (EPA), the California Air Resources Board (CARB), the Environmental and Natural Resources Division of the U.S. Department of Justice and the California Attorney General’s Office to resolve certain regulatory civil claims regarding our emissions certification and compliance process for certain engines primarily used in pick-up truck applications in the U.S., which became final and effective in April 2024 (collectively, the Settlement Agreements). In the second quarter of 2024, we made $1.9 billion of payments required by the Settlement Agreements. See NOTE 11, “COMMITMENTS AND CONTINGENCIES,” to our Condensed Consolidated Financial Statementsfor additional information.

Previous wording

Worldwide revenues decreased by 1 percent in the three months ended March 31, 2024, compared to the same period in 2023, due to lower demand in heavy-duty truck markets, which negatively impacted Components product demand, as well as weaker demand for construction engines and decreased sales due to the divestiture of Atmus, mostly offset by increased power generation demand. Net sales in the U.S. and Canada remained flat as lower demand in North American heavy-duty truck markets, which negatively impacted Components product demand, and lower demand in oil and gas markets in North America were offset by higher demand in power generation and medium-duty truck markets. International demand (excludes the U.S. and Canada) declined 1 percent, with lower sales in China, Europe, Africa and the Middle East, partially offset by higher sales in Latin America and India. The decrease in international sales was primarily due to lower demand in construction markets (especially in China and Western Europe) and weaker demand for emission solutions products (primarily in China and India), partially offset by higher demand across most Distribution product lines.

Current wording

Worldwide revenues increased by 1 percent in the six months ended June 30, 2024, compared to the same period in 2023, due to increased power generation demand and higher demand in North American on-highway truck markets, partially offset by decreased sales due to the divestiture of Atmus as well as weaker demand in global construction markets. Net sales in the U.S. and Canada improved 2 percent primarily due to higher demand in on-highway truck markets and power generation markets, partially offset by lower sales due to the divestiture of Atmus. International demand (excludes the U.S. and Canada) declined 2 percent primarily due to lower sales in Europe and China, partially offset with higher sales Latin America. The decrease in international sales was primarily due to decreased sales due to the divestiture of Atmus and lower demand in construction markets (especially in China and Western

Previous wording

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 March 31, 2024 and 2023. See NOTE 15, "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.

Current wording

The following tables contain sales and EBITDA (defined as earnings or losses before interest expense, income taxes, depreciation and amortization and noncontrolling interests) by operating segment for the three and six months ended June 30, 2024 and 2023. See NOTE 16, "OPERATING SEGMENTS," to the Condensed Consolidated Financial Statements for additional information and a reconciliation of our segment information to the corresponding amounts in our Condensed Consolidated Statements of Net Income.

Previous wording

Net income attributable to Cummins Inc. was $2.0 billion, or $14.03 per diluted share, on sales of $8.4 billion for the three months ended March 31, 2024, versus the comparable prior year period net income attributable to Cummins Inc. of $790 million, or $5.55 per diluted share, on sales of $8.5 billion. The increases in net income attributable to Cummins Inc. and earnings per diluted share were driven by the gain recognized on the divestiture of Atmus, partially offset by higher compensation and consulting expenses. The increase in gross margin was primarily due to favorable pricing, partially offset by higher compensation expenses and lower volumes. Diluted earnings per common share for the three months ended March 31, 2024, benefited $0.09 from fewer weighted-average shares outstanding due to treasury shares reacquired in the Atmus divestiture. See NOTE 14, "ATMUS DIVESTITURE," to the Condensed Consolidated Financial Statements for additional information.

Current wording

Net income attributable to Cummins Inc. was $2.7 billion, or $19.42 per diluted share, on sales of $17.2 billion for the six months ended June 30, 2024, versus the comparable prior year period net income attributable to Cummins Inc. of $1.5 billion, or $10.60 per diluted share, on sales of $17.1 billion. The increases in net income attributable to Cummins Inc. and earnings per diluted share were driven by the gain recognized on the divestiture of Atmus, partially offset by higher compensation and consulting expenses. The increase in gross margin was primarily due to favorable pricing and lower material costs, partially offset by higher compensation expenses, the divestiture of Atmus and increased product coverage. Diluted earnings per common share for the six months ended June 30, 2024, benefited $0.45 from fewer weighted-average shares outstanding due to treasury shares reacquired in the Atmus divestiture.

Previous wording

We generated $276 million of cash from operations for the three months ended March 31, 2024, compared to $495 million for the comparable period in 2023. See the section titled "Cash Flows" in the "LIQUIDITY AND CAPITAL RESOURCES" section for a discussion of items impacting cash flows.

Current wording

We used $575 million in cash from operations for the six months ended June 30, 2024, compared to generating $978 million for the comparable period in 2023. See the section titled "Cash Flows" in the "LIQUIDITY AND CAPITAL RESOURCES" section for a discussion of items impacting cash flows.

Previous wording

Our debt to capital ratio (total capital defined as debt plus equity) at March 31, 2024, was 40.4 percent, compared to 40.3 percent at December 31, 2023. The increase was primarily due to higher debt balances at March 31, 2024. At March 31, 2024, we had $3.1 billion in cash and marketable securities on hand and access to our $4.0 billion credit facilities (net of commercial paper outstanding), if necessary, to meet acquisition, working capital, investment and funding needs.

Current wording

Our debt to capital ratio (total capital defined as debt plus equity) at June 30, 2024, was 41.5 percent, compared to 40.3 percent at December 31, 2023. The increase was primarily due to higher debt balances at June 30, 2024. At June 30, 2024, we had $2.2 billion in cash and marketable securities on hand and access to our $4.0 billion credit facilities (net of $1.6 billion of commercial paper outstanding), if necessary, to meet working capital, investment, acquisition and funding needs.

Previous wording

In the first three months of 2024, the investment gain on our U.S. pension trusts was 1.2 percent, while our U.K. pension trusts' loss was 2.3 percent. We anticipate making additional defined benefit pension contributions during the remainder of 2024 of $29 million for our U.S. and U.K. qualified and non-qualified pension plans. We expect our 2024 annual net periodic pension cost to approximate $34 million.

Current wording

In the first six months of 2024, the investment gain on our U.S. pension trusts was 2.0 percent, while our U.K. pension trusts' loss was 4.3 percent. We anticipate making additional defined benefit pension contributions during the remainder of 2024 of $22 million for our U.S. and U.K. qualified and non-qualified pension plans. We expect our 2024 annual net periodic pension cost to approximate $34 million.

Previous wording

Net sales for the three months ended March 31, 2024, decreased by $50 million versus the comparable period in 2023. The primary drivers were as follows:

Current wording

Net sales for the three months ended June 30, 2024, increased by $158 million versus the comparable period in 2023. The primary drivers were as follows:

Previous wording

•Distribution segment sales increased 5 percent principally due to higher demand in power generation markets.

Current wording

•Engine segment sales increased 5 percent largely due to stronger demand in North American on-highway truck markets.

Previous wording

•Engine segment sales decreased 2 percent primarily due to lower demand in global construction markets and North American heavy-duty truck markets, partially offset by higher demand in North American medium-duty truck markets.

Current wording

•Engine segment sales increased 2 percent largely due to stronger demand in North American medium-duty truck markets, partially offset by lower demand in global construction markets.

Previous wording

Sales to international markets (excluding the U.S. and Canada), based on location of customers, for the three months ended March 31, 2024, were 39 percent of total net sales compared with 39 percent of total net sales for the comparable period in 2023. A more detailed discussion of sales by segment is presented in the “OPERATING SEGMENT RESULTS” section.

Current wording

Sales to international markets (excluding the U.S. and Canada), based on location of customers, for the three and six months ended June 30, 2024, were 37 percent and 38 percent of total net sales compared with 39 percent and 39 percent of total net sales for the comparable periods in 2023. A more detailed discussion of sales by segment is presented in the “OPERATING SEGMENT RESULTS” section.

Previous wording

Gross margin increased $12 million for the three months ended March 31, 2024, and increased 0.3 points as a percentage of net sales versus the comparable period in 2023. The increase in gross margin and gross margin as a percentage of sales was primarily due to favorable pricing, partially offset by higher compensation expenses and lower volumes. Compensation and related expenses included salaries, fringe benefits and variable compensation.

Current wording

Gross margin increased $45 million for the three months ended June 30, 2024, and remained flat as a percentage of net sales versus the comparable period in 2023. The increase in gross margin was primarily due to favorable pricing and higher volumes, partially offset by the divestiture of Atmus, higher compensation expenses and increased product coverage. Compensation and related expenses included salaries, fringe benefits and variable compensation.

Previous wording

The provision for base warranties issued as a percent of sales for the three months ended March 31, 2024, was 1.9 percent compared to 1.7 percent for the comparable period in 2023.

Current wording

The provision for base warranties issued as a percent of sales for the three and six months ended June 30, 2024, was 1.9 percent and 1.9 percent, respectively, compared to 1.8 percent and 1.8 percent for the comparable periods in 2023.

Previous wording

Selling, general and administrative expenses increased $86 million for the three months ended March 31, 2024, versus the comparable period in 2023, primarily due to higher compensation and consulting expenses. Compensation and related expenses included salaries, fringe benefits and variable compensation. Overall, selling, general and administrative expenses as a percentage of net sales increased to 10.0 percent in the three months ended March 31, 2024, from 8.9 percent in the comparable period in 2023.

Current wording

Selling, general and administrative expenses increased $41 million for the six months ended June 30, 2024, versus the comparable period in 2023, primarily due to higher consulting and compensation expenses. Compensation and related expenses included salaries, fringe benefits and variable compensation. Overall, selling, general and administrative expenses as a percentage of sales increased to 9.7 percent in the six months ended June 30, 2024, from 9.5 percent in the comparable period in 2023.

Previous wording

Research, development and engineering expenses increased $19 million for the three months ended March 31, 2024, versus the comparable period in 2023, primarily due to higher compensation expenses. Compensation and related expenses included salaries, fringe benefits and variable compensation. Overall, research, development and engineering expenses as a percentage of net sales increased to 4.4 percent in the three months ended March 31, 2024, from 4.1 percent in the comparable period in 2023.

Current wording

Research, development and engineering expenses decreased $5 million for the three months ended June 30, 2024, versus the comparable period in 2023, primarily due to lower consulting expenses. Overall, research, development and engineering expenses as a percentage of net sales decreased to 4.3 percent in the three months ended June 30, 2024, from 4.4 percent in the comparable period in 2023.

Previous wording

Equity, royalty and interest income from investees increased $4 million for the three months ended March 31, 2024, versus the comparable period in 2023, primarily due to higher earnings at Chongqing Cummins Engine Co., Ltd., Dongfeng Cummins Engine Co., Ltd. and Sisamex, partially offset by lower royalty and interest income from investees.

Current wording

Equity, royalty and interest income from investees decreased $30 million and $26 million for the three and six months ended June 30, 2024, versus the comparable periods in 2023, primarily due to lower royalty and interest income from investees, losses at NPROXX and lower earnings from Komatsu Cummins Chile, Ltda., partially offset by higher earnings at Chongqing Cummins Engine Co., Ltd.

Previous wording

Interest expense was $89 million for the three months ended March 31, 2024, versus $87 million for the comparable period in 2023. Interest expense increased $2 million primarily due to the higher outstanding long-term borrowings related to the 2024 note issuance and higher weighted-average interest rates, partially offset by lower commercial paper and decreased average term loan borrowings outstanding.

Current wording

Interest expense was $109 million and $198 million for the three and six months ended June 30, 2024, versus $99 million and $186 million for the comparable periods in 2023. Interest expense increased $10 million and $12 million, respectively, primarily due to higher weighted-average interest rates, partially offset by lower weighted-average debt balances.

Previous wording

The three months ended March 31, 2023, contained favorable discrete tax items of $3 million, primarily due to share-based compensation tax benefits.

Current wording

The three months ended June 30, 2024, contained favorable discrete tax items of $9 million primarily due to share-based compensation tax benefits.

Previous wording

The three months ended March 31, 2024, contained favorable discrete tax items primarily due to the $1.3 billion non-taxable gain on the Atmus split-off. Other discrete tax items were $21 million favorable primarily due to adjustments related to audit settlements.

Current wording

The six months ended June 30, 2024, contained favorable discrete tax items primarily due to the $1.3 billion non-taxable gain on the Atmus split-off. Other discrete tax items were $30 million favorable primarily due to adjustments related to audit settlements and share-based compensation benefits.

Previous wording

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 March 31, 2024, increased $19 million versus the comparable period in 2023 primarily due to higher earnings at Cummins India Limited and the absence of losses at Hydrogenics Corporation resulting from the June 2023 acquisition, partially offset by lower earnings at Eaton Cummins Joint Venture. The three months ended March 31, 2024, included the noncontrolling interest associated with Atmus through March 18, 2024, the date of divestiture.

Current wording

Noncontrolling interests eliminate the income or loss attributable to non-Cummins ownership interests in our consolidated entities. Noncontrolling interests in income of consolidated subsidiaries for the three and six months ended June 30, 2024, increased $9 million and $28 million versus the comparable periods in 2023. The increase for the three months ended June 30, 2024, was primarily due to the absence of losses at Hydrogenics Corporation resulting from the June 2023 acquisition, partially offset by lower earnings at Eaton Cummins Joint Venture. The increase for the six months ended June 30, 2024, was primarily due to the absence of losses at Hydrogenics Corporation and higher earnings at Cummins India Limited, partially offset by lower earnings at Eaton Cummins Joint Venture.

Previous wording

The foreign currency translation adjustment was a net loss of $60 million for the three months ended March 31, 2024, compared to a net gain of $82 million for the three months ended March 31, 2023, driven by the following:

Current wording

The foreign currency translation adjustment was a net loss of $83 million and $143 million, for the three and six months ended June 30, 2024, respectively, compared to a net loss of $110 million and $28 million, for the three and six months ended June 30, 2023, respectively, driven by the following:

Previous wording

On March 18, 2024, we completed the divestiture of our remaining 80.5 percent ownership of Atmus common stock through a tax-free split-off. See NOTE 14, "ATMUS DIVESTITURE," to the Condensed Consolidated Financial Statements for additional information.

Current wording

On March 18, 2024, we completed the divestiture of our remaining 80.5 percent ownership of Atmus common stock through a tax-free split-off. See NOTE 14, "ATMUS IPO AND DIVESTITURE," to the Condensed Consolidated Financial Statements for additional information.

Previous wording

•Atmus sales decreased $64 million due to the divestiture on March 18, 2024.

Current wording

•Sales decreased $417 million due to the Atmus divestiture on March 18, 2024.

Previous wording

•Emission solutions sales decreased $85 million primarily due to weaker demand in China and India.

Current wording

•Emission solutions sales decreased $23 million primarily due to weaker demand in China and North America, partially offset by higher demand in Mexico.

Previous wording

Components segment EBITDA for the three months ended March 31, 2024, decreased $34 million versus the comparable period in 2023, mainly due to lower volumes (including the divestiture of Atmus) and higher compensation expenses, partially offset by lower material costs and favorable mix.

Current wording

Components segment EBITDA for the three and six months ended June 30, 2024, decreased $80 million and $114 million, respectively, versus the comparable periods in 2023, mainly due to the divestiture of Atmus.

Previous wording

Engine segment EBITDA for the three months ended March 31, 2024, decreased $43 million versus the comparable period in 2023, primarily due to lower volumes, higher compensation expenses and unfavorable product coverage costs, partially offset by favorable pricing.

Current wording

Engine segment EBITDA for the six months ended June 30, 2024, decreased $23 million versus the comparable period in 2023, primarily due to higher compensation expenses, increased product coverage, lower equity, royalty and interest income from investees, lower parts volumes and unfavorable mix, partially offset by favorable pricing.

Previous wording

•North American sales increased $28 million principally due to higher demand in power generation, especially commercial and data center markets, partially offset by lower demand for engines and aftermarket products.

Current wording

•North American sales increased $104 million principally due to higher demand in power generation markets, especially data center and commercial markets, partially offset by lower demand for engines and aftermarket products.

Previous wording

•European sales increased $45 million mainly due to favorable demand in power generation and parts.

Current wording

•European sales increased $72 million mainly due to favorable demand in power generation markets.

Previous wording

•Asia Pacific sales increased $45 million primarily due to higher demand in power generation, especially data center markets, and service.

Current wording

•Asia Pacific sales increased $89 million primarily due to higher demand in power generation markets, especially data center markets, and service.

Previous wording

Distribution segment EBITDA for the three months ended March 31, 2024, decreased $41 million versus the comparable period in 2023, primarily due to higher compensation expenses, unfavorable inventory adjustments and unfavorable mix, partially offset by favorable pricing.

Current wording

Distribution segment EBITDA for the six months ended June 30, 2024, decreased $26 million versus the comparable period in 2023, primarily due to higher compensation expenses, unfavorable mix and higher managed expenses, partially offset by favorable pricing.

Previous wording

Power Systems segment sales for the three months ended March 31, 2024, increased $46 million versus the comparable period in 2023. The primary driver was anincrease in power generation sales of$83 million mainly due to higher demand in North America and India, partially offset by weaker demand in Western Europe and Latin America. The increase was partially offset by a decrease in industrial sales of $35 million mainly due to weaker demand in the oil and gas market in North America, partially offset by stronger demand in global mining markets.

Current wording

Power Systems segment sales for the six months ended June 30, 2024, increased $178 million versus the comparable period in 2023. The primary driver was an increase in power generation sales of $216 million principally due to higher demand in data center markets in North America, partially offset by weaker demand for industrial products in the North American oil and gas markets.

Previous wording

Power Systems segment EBITDA for the three months ended March 31, 2024, increased $18 million versus the comparable period in 2023, mainly due to favorable pricing, partially offset by unfavorable mix and higher compensation expenses.

Current wording

Power Systems segment EBITDA for the three months ended June 30, 2024, increased $100 million versus the comparable period in 2023, mainly due to favorable pricing, improved mix and higher volumes, partially offset by increased product coverage costs.

Previous wording

Accelera segment sales for the three months ended March 31, 2024, increased $8 million versus the comparable period in 2023 principally due to improved sales of electrolyzers.

Current wording

Accelera segment sales for the three and six months ended June 30, 2024, increased $26 million and $34 million versus the comparable periods in 2023 primarily due to improved sales of electrolyzers.

Previous wording

•We expect demand for heavy-duty trucks in North America to weaken modestly, particularly in the second half of 2024.

Current wording

•We expect demand for heavy-duty trucks in North America to weaken modestly in the second half of 2024.

Previous wording

•Continued increases in material and labor costs, as well as other inflationary pressures, could negatively impact earnings.

Current wording

•Continued increases in labor costs, as well as other inflationary pressures, could negatively impact earnings.

Previous wording

•The financial implications resulting from our Settlement Agreements will negatively impact our liquidity in 2024 and will result in incremental interest expense for debt utilized in funding the civil penalty.

Current wording

•The financial implications resulting from our Settlement Agreements will result in incremental interest expense for debt utilized in funding the civil penalty.

Previous wording

Net cash provided by operating activities decreased $219 million for the three months ended March 31, 2024, versus the comparable period in 2023, primarily due to higher working capital requirements of $112 million and lower operating income of $103 million. The higher working capital requirements resulted in a cash outflow of $606 million compared to a cash outflow of $494 million in the comparable period of 2023, mainly due to higher variable compensation payouts in accrued expenses, increased inventories and unfavorable changes in accounts payable, partially offset by favorable changes in accounts and notes receivable.

Current wording

Net cash used in operating activities increased $1.6 billion for the six months ended June 30, 2024, versus the comparable period in 2023, primarily due to higher working capital requirements of $1.6 billion. The higher working capital requirements resulted in a cash outflow of $2.5 billion compared to a cash outflow of $849 million in the comparable period of 2023, mainly due to $1.9 billion of payments required by the Settlement Agreements, partially offset by favorable changes in accounts and notes receivable.

Previous wording

Net cash used in investing activities increased $178 million for the three months ended March 31, 2024, versus the comparable period in 2023, primarily due to cash associated with the Atmus divestiture of $174 million and higher acquisition activity of $59 million, partially offset by higher net liquidations of marketable securities of $33 million and lower capital expenditures of $24 million.

Current wording

Net cash used in investing activities increased $200 million for the six months ended June 30, 2024, versus the comparable period in 2023, primarily due to cash associated with the Atmus divestiture.

Previous wording

Net cash provided by financing activities increased $862 million for the three months ended March 31, 2024, versus the comparable period in 2023, primarily due to proceeds from borrowings of $2.4 billion (principally related to our 2024 note issuance), partially offset by higher net payments of commercial paper of $858 million and payments on borrowings and finance lease obligations of $606 million.

Current wording

Net cash provided by financing activities increased $1.4 billion for the six months ended June 30, 2024, versus the comparable period in 2023, primarily due to higher proceeds from borrowings of $1.7 billion (principally related to our 2024 note issuance) and increased net borrowings of commercial paper of $743 million, partially offset by higher payments on borrowings and finance lease obligations of $995 million (largely related to increased early payments of $900 million on our term loan, due 2025).