Cummins Reports Third Quarter 2020 Results

Cummins Inc. (NYSE: CMI) today reported results for the third quarter of 2020.

Third quarter revenues of $5.1 billion decreased 11 percent from the same quarter in 2019. Sales in North America declined by 18 percent while international revenues were flat. Currency negatively impacted revenues by 1 percent primarily due to a weaker Brazilian Real.

Earnings before interest, taxes, depreciation and amortization (EBITDA) in the third quarter were $876 million (17.1 percent of sales), compared to $958 million (16.6 percent of sales) a year ago.

“Cummins successfully translated increased sales into strong profits and produced record operating cash flow during the third quarter,” said Chairman and CEO Tom Linebarger. “I want to thank our employees all over the globe once again for their dedication to our company and to our customers. Over the last six months we have faced both the most severe decline in quarterly sales in our history as well as the largest sequential increase. We continue to work safely and effectively through an incredibly challenging period, meeting our commitments to customers who provide products critical to the functioning of the global economy.”

Net income attributable to Cummins in the third quarter was $501 million ($3.36 per diluted share) compared to $622 million ($3.97 per diluted share) in 2019. The tax rate in the third quarter was 26.5 percent and was negatively impacted by $31 million ($0.21 per diluted share) of discrete tax items.

“We continue to advance existing products and invest in new technology while returning cash to shareholders,” said Chief Financial Officer Mark Smith. “In October we announced a 3% increase to our quarterly dividend, which will make 2020 the eleventh consecutive year of increases to Cummins’ dividend.”

2020 Outlook:

The company currently expects fourth quarter revenues to be similar to third quarter levels, with higher demand in North America truck markets and continued improvement in aftermarket sales, partially offset by lower demand in China.

On October 1st, the company ended temporary salary reductions that began in April. Compensation expense is projected to increase by approximately $90 million dollars in the fourth quarter due to the end of these salary reductions.

“We are encouraged by the recovery in demand across our markets in the third quarter,” said Chairman and CEO Tom Linebarger. “We will continue to manage cautiously through the remainder of the year as visibility on future orders remains low and the impact of the virus on economies around the world remains difficult to predict.”

Third Quarter 2020 Highlights:

  • The company completed an aggregate $2 billion debt offering of 5, 10, and 30-year maturities. The company’s long-term credit ratings remain unchanged at A+ from Standard & Poor’s and A2 from Moody’s with stable outlooks
  • A collaboration with the Department of Energy’s Oak Ridge National Laboratory (ORNL) has resulted in the ability to produce enough filter media to supply more than a million face masks and respirators per day to U.S. healthcare facilities
  • Cummins was awarded over $12 million of funding for five separate Department of Energy projects related to PEM and Solid Oxide fuel cell and electrolyzer technologies
  • The company announced an increase in its quarterly dividend from $1.311 to $1.35 a share

1 Generally Accepted Accounting Principles

Third quarter 2020 detail (all comparisons to same period in 2019):

Engine Segment

  • Sales - $2.1 billion, down 13 percent
  • Segment EBITDA - $382 million, or 18.1 percent of sales, compared to $341 million or 14.1 percent of sales
  • EBITDA was positively impacted by a $30 million value added tax (VAT) recovery
  • On-highway revenues decreased 13 percent and off-highway revenues declined 9 percent
  • Sales declined by 18 percent in North America but increased 8 percent in international markets primarily due to increased demand in China

Distribution Segment

  • Sales - $1.7 billion, down 14 percent
  • Segment EBITDA - $182 million, or 10.6 percent of sales, compared to $186 million or 9.3 percent of sales
  • Revenues in North America were down 18 percent and international sales declined by 5 percent
  • Demand declined in all lines of business

Components Segment

  • Sales - $1.5 billion, down 7 percent
  • Segment EBITDA - $261 million, or 16.9 percent of sales, compared to $286 million or 17.3 percent of sales
  • Revenues in North America decreased by 24 percent and international sales increased by 26 percent due to higher demand in China and India

Power Systems Segment

  • Sales - $981 million, down 13 percent
  • Segment EBITDA - $101 million, or 10.3 percent of sales, compared to $158 million, or 14.0 percent of sales
  • Power generation revenues decreased by 7 percent while industrial revenues decreased 21 percent due to lower demand in mining and oil and gas markets

New Power Segment

  • Sales - $18 million
  • Segment EBITDA loss - $40 million
  • Costs associated with the development of fuel cells and electrolyzers as well as products to support battery electric vehicles are contributing to EBITDA losses

About Cummins Inc.

Cummins Inc., a global power leader, is a corporation of complementary business segments that design, manufacture, distribute and service a broad portfolio of power solutions. The company’s products range from diesel, natural gas, electric and hybrid powertrains and powertrain-related components including filtration, aftertreatment, turbochargers, fuel systems, controls systems, air handling systems, automated transmissions, electric power generation systems, batteries, electrified power systems, hydrogen generation and fuel cell products. Headquartered in Columbus, Indiana (U.S.), since its founding in 1919, Cummins employs approximately 61,600 people committed to powering a more prosperous world through three global corporate responsibility priorities critical to healthy communities: education, environment and equality of opportunity. Cummins serves its customers online, through a network of company-owned and independent distributor locations, and through thousands of dealer locations worldwide and earned about $2.3 billion on sales of $23.6 billion in 2019. See how Cummins is powering a world that’s always on by accessing news releases and more information at https://www.cummins.com/always-on.

Forward-looking disclosure statement

Information provided in this release that is not purely historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our forecasts, guidance, preliminary results, expectations, hopes, beliefs and intentions on strategies regarding the future. These forward-looking statements include, without limitation, statements relating to our plans and expectations for our revenues and EBITDA. Our actual future results could differ materially from those projected in such forward-looking statements because of a number of factors, including, but not limited to: market slowdown due to the impacts from 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; 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; aligning our capacity and production with our demand, including impacts of COVID-19; a major customer experiencing financial distress, particularly related to the COVID-19 pandemic; 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; disruptions in global credit and financial markets as the result of the COVID-19 pandemic; adverse impacts from government actions to stabilize credit markets and financial institutions and other industries; product recalls; the development of new technologies that reduce demand for our current products and services; policy changes in international trade; a slowdown in infrastructure development and/or depressed commodity prices; the U.K.'s exit from the European Union (EU); labor relations or work stoppages; reliance on our executive leadership team and other key personnel; lower than expected acceptance of new or existing products or services; changes in the engine outsourcing practices of significant customers; 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; challenges or unexpected costs in completing cost reduction actions and restructuring initiatives; failure to realize expected results from our investment in Eaton Cummins Automated Transmission Technologies joint venture; 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; variability in material and commodity costs; the actions of, and income from, joint ventures and other investees that we do not directly control; changes in taxation; global legal and ethical compliance costs and risks; product liability claims; increasingly stringent environmental laws and regulations; 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; future bans or limitations on the use of diesel-powered products; the price and availability of energy; our sales mix of products; protection and validity of our patent and other intellectual property rights; 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 risks detailed from time to time in our SEC filings, including particularly in the Risk Factors section of our 2019 Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are made only as of the date of this press release and we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. More detailed information about factors that may affect our performance may be found in our filings with the SEC, which are available at http://www.sec.gov or at http://www.cummins.com in the Investor Relations section of our website.

Presentation of Non-GAAP Financial Information

EBITDA is a non-GAAP measure used in this release and is defined and reconciled to what management believes to be the most comparable GAAP measure in a schedule attached to this release. Cummins presents this information as it believes it is useful to understanding the Company's operating performance, and because EBITDA is a measure used internally to assess the performance of the operating units.

Webcast information

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

 

CUMMINS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF NET INCOME

(Unaudited) (a)

 

 

 

Three months ended

In millions, except per share amounts

 

September 27,

2020

 

June 28,

2020

 

September 29,

2019

NET SALES

 

$

5,118

 

 

$

3,852

 

 

$

5,768

 

Cost of sales

 

3,769

 

 

2,962

 

 

4,274

 

GROSS MARGIN

 

1,349

 

 

890

 

 

1,494

 

OPERATING EXPENSES AND INCOME

 

 

 

 

 

 

Selling, general and administrative expenses

 

533

 

 

470

 

 

600

 

Research, development and engineering expenses

 

224

 

 

189

 

 

242

 

Equity, royalty and interest income from investees

 

98

 

 

115

 

 

68

 

Other operating expense, net

 

(20

)

 

(10

)

 

(21

)

OPERATING INCOME

 

670

 

 

336

 

 

699

 

Interest income

 

4

 

 

4

 

 

14

 

Interest expense

 

25

 

 

23

 

 

26

 

Other income, net

 

37

 

 

45

 

 

68

 

INCOME BEFORE INCOME TAXES

 

686

 

 

362

 

 

755

 

Income tax expense

 

182

 

 

93

 

 

139

 

CONSOLIDATED NET INCOME

 

504

 

 

269

 

 

616

 

Less: Net income (loss) attributable to noncontrolling interests

 

3

 

 

(7

)

 

(6

)

NET INCOME ATTRIBUTABLE TO CUMMINS INC.

 

$

501

 

 

$

276

 

 

$

622

 

 

 

 

 

 

 

 

EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.

 

 

 

 

 

 

Basic

 

$

3.39

 

 

$

1.87

 

 

$

3.99

 

Diluted

 

$

3.36

 

 

$

1.86

 

 

$

3.97

 

 

 

 

 

 

 

 

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING

 

 

 

 

 

 

Basic

 

147.9

 

 

147.6

 

 

155.9

 

Diluted

 

148.9

 

 

148.0

 

 

156.6

 

 

 

 

 

 

 

 

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

 

CUMMINS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF NET INCOME

(Unaudited) (a)

 

Nine months ended

In millions, except per share amounts

 

September 27,

2020

 

September 29,

2019

NET SALES

 

$

13,981

 

 

$

17,993

 

Cost of sales

 

10,448

 

 

13,326

 

GROSS MARGIN

 

3,533

 

 

4,667

 

OPERATING EXPENSES AND INCOME

 

 

 

 

Selling, general and administrative expenses

 

1,549

 

 

1,822

 

Research, development and engineering expenses

 

651

 

 

730

 

Equity, royalty and interest income from investees

 

342

 

 

256

 

Other operating expense, net

 

(35

)

 

(25

)

OPERATING INCOME

 

1,640

 

 

2,346

 

Interest income

 

15

 

 

38

 

Interest expense

 

71

 

 

87

 

Other income, net

 

119

 

 

174

 

INCOME BEFORE INCOME TAXES

 

1,703

 

 

2,471

 

Income tax expense

 

402

 

 

501

 

CONSOLIDATED NET INCOME

 

1,301

 

 

1,970

 

Less: Net income attributable to noncontrolling interests

 

13

 

 

10

 

NET INCOME ATTRIBUTABLE TO CUMMINS INC.

 

$

1,288

 

 

$

1,960

 

 

 

 

 

 

EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.

 

 

 

 

Basic

 

$

8.69

 

 

$

12.50

 

Diluted

 

$

8.65

 

 

$

12.45

 

 

 

 

 

 

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING

 

 

 

 

Basic

 

148.3

 

 

156.8

 

Diluted

 

148.9

 

 

157.4

 

 

 

 

 

 

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

 

CUMMINS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited) (a)

 
In millions, except par value

 

September 27,

2020

 

December 31,

2019

ASSETS

 

 

 

 

Current assets

 

 

 

 

Cash and cash equivalents

 

$

2,967

 

 

$

1,129

 

Marketable securities

 

345

 

 

341

 

Total cash, cash equivalents and marketable securities

 

3,312

 

 

1,470

 

Accounts and notes receivable, net

 

3,628

 

 

3,670

 

Inventories

 

3,470

 

 

3,486

 

Prepaid expenses and other current assets

 

652

 

 

761

 

Total current assets

 

11,062

 

 

9,387

 

Long-term assets

 

 

 

 

Property, plant and equipment, net

 

4,087

 

 

4,245

 

Investments and advances related to equity method investees

 

1,418

 

 

1,237

 

Goodwill

 

1,288

 

 

1,286

 

Other intangible assets, net

 

990

 

 

1,003

 

Pension assets

 

1,010

 

 

1,001

 

Other assets

 

1,713

 

 

1,578

 

Total assets

 

$

21,568

 

 

$

19,737

 

 

 

 

 

 

LIABILITIES

 

 

 

 

Current liabilities

 

 

 

 

Accounts payable (principally trade)

 

$

2,597

 

 

$

2,534

 

Loans payable

 

129

 

 

100

 

Commercial paper

 

316

 

 

660

 

Accrued compensation, benefits and retirement costs

 

433

 

 

560

 

Current portion of accrued product warranty

 

646

 

 

803

 

Current portion of deferred revenue

 

540

 

 

533

 

Other accrued expenses

 

990

 

 

1,039

 

Current maturities of long-term debt

 

58

 

 

31

 

Total current liabilities

 

5,709

 

 

6,260

 

Long-term liabilities

 

 

 

 

Long-term debt

 

3,609

 

 

1,576

 

Pensions and other postretirement benefits

 

571

 

 

591

 

Accrued product warranty

 

635

 

 

645

 

Deferred revenue

 

837

 

 

821

 

Other liabilities

 

1,566

 

 

1,379

 

Total liabilities

 

$

12,927

 

 

$

11,272

 

 

 

 

 

 

EQUITY

 

 

 

 

Cummins Inc. shareholders’ equity

 

 

 

 

Common stock, $2.50 par value, 500 shares authorized, 222.5 and 222.4 shares issued

 

$

2,385

 

 

$

2,346

 

Retained earnings

 

15,118

 

 

14,416

 

Treasury stock, at cost, 74.4 and 71.7 shares

 

(7,696

)

 

(7,225

)

Common stock held by employee benefits trust, at cost, 0.0 and 0.2 shares

 

 

 

(2

)

Accumulated other comprehensive loss

 

(2,107

)

 

(2,028

)

Total Cummins Inc. shareholders’ equity

 

7,700

 

 

7,507

 

Noncontrolling interests

 

941

 

 

958

 

Total equity

 

$

8,641

 

 

$

8,465

 

Total liabilities and equity

 

$

21,568

 

 

$

19,737

 

 

 

 

 

 

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

 

CUMMINS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) (a)

 

 

Three months ended

In millions

 

September 27,

2020

 

June 28,

2020

 

September 29,

2019

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Consolidated net income

 

$

504

 

 

$

269

 

 

$

616

 

Adjustments to reconcile consolidated net income to net cash provided by (used in) operating activities

 

 

 

 

Depreciation and amortization

 

166

 

 

165

 

 

178

 

Deferred income taxes

 

4

 

 

 

 

(31

)

Equity in income of investees, net of dividends

 

(12

)

 

(46

)

 

(1

)

Pension and OPEB expense

 

27

 

 

27

 

 

19

 

Pension contributions and OPEB payments

 

(20

)

 

(22

)

 

(38

)

Stock-based compensation expense

 

10

 

 

8

 

 

9

 

Restructuring payments

 

(19

)

 

(33

)

 

 

Gain on corporate owned life insurance

 

(12

)

 

(21

)

 

(9

)

Foreign currency remeasurement and transaction exposure

 

(5

)

 

(5

)

 

(100

)

Changes in current assets and liabilities, net of acquisitions

 

 

 

 

 

 

Accounts and notes receivable

 

(123

)

 

63

 

 

211

 

Inventories

 

174

 

 

(53

)

 

63

 

Other current assets

 

(22

)

 

16

 

 

33

 

Accounts payable

 

329

 

 

(391

)

 

(151

)

Accrued expenses

 

186

 

 

(101

)

 

120

 

Changes in other liabilities

 

9

 

 

171

 

 

48

 

Other, net

 

27

 

 

(69

)

 

156

 

Net cash provided by (used in) operating activities

 

1,223

 

 

(22

)

 

1,123

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

Capital expenditures

 

(116

)

 

(77

)

 

(153

)

Investments in internal use software

 

(12

)

 

(13

)

 

(16

)

Investments in and advances to equity investees

 

(13

)

 

(10

)

 

2

 

Acquisitions of businesses, net of cash acquired

 

 

 

 

 

(222

)

Investments in marketable securities—acquisitions

 

(137

)

 

(169

)

 

(108

)

Investments in marketable securities—liquidations

 

154

 

 

159

 

 

143

 

Cash flows from derivatives not designated as hedges

 

7

 

 

(28

)

 

(60

)

Other, net

 

14

 

 

3

 

 

(4

)

Net cash used in investing activities

 

(103

)

 

(135

)

 

(418

)

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

Proceeds from borrowings

 

1,977

 

 

22

 

 

 

Net (payments) borrowings of commercial paper

 

(1,711

)

 

410

 

 

468

 

Payments on borrowings and finance lease obligations

 

(16

)

 

(15

)

 

(30

)

Net borrowings (payments) under short-term credit agreements

 

2

 

 

(21

)

 

(4

)

Distributions to noncontrolling interests

 

(13

)

 

 

 

(20

)

Dividend payments on common stock

 

(194

)

 

(193

)

 

(204

)

Repurchases of common stock

 

 

 

 

 

(706

)

Other, net

 

59

 

 

23

 

 

9

 

Net cash provided by (used in) financing activities

 

104

 

 

226

 

 

(487

)

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS

 

(8

)

 

(9

)

 

(55

)

Net increase in cash and cash equivalents

 

1,216

 

 

60

 

 

163

 

Cash and cash equivalents at beginning of period

 

1,751

 

 

1,691

 

 

1,397

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

 

$

2,967

 

 

$

1,751

 

 

$

1,560

 

 

 

 

 

 

 

 

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

 

 

 

CUMMINS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) (a)

 

 

Nine months ended

In millions

 

September 27,

2020

 

September 29,

2019

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

Consolidated net income

 

$

1,301

 

 

$

1,970

 

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

 

 

 

 

Depreciation and amortization

 

499

 

 

493

 

Deferred income taxes

 

(7

)

 

(14

)

Equity in income of investees, net of dividends

 

(136

)

 

(44

)

Pension and OPEB expense

 

81

 

 

56

 

Pension contributions and OPEB payments

 

(102

)

 

(130

)

Stock-based compensation expense

 

22

 

 

37

 

Restructuring payments

 

(100

)

 

 

Gain on corporate owned life insurance

 

(50

)

 

(64

)

Foreign currency remeasurement and transaction exposure

 

(7

)

 

(54

)

Changes in current assets and liabilities, net of acquisitions

 

 

 

 

Accounts and notes receivable

 

47

 

 

(101

)

Inventories

 

(50

)

 

(62

)

Other current assets

 

73

 

 

48

 

Accounts payable

 

109

 

 

(3

)

Accrued expenses

 

(236

)

 

(74

)

Changes in other liabilities

 

208

 

 

168

 

Other, net

 

(72

)

 

117

 

Net cash provided by operating activities

 

1,580

 

 

2,343

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

Capital expenditures

 

(268

)

 

(395

)

Investments in internal use software

 

(33

)

 

(50

)

Investments in and advances to equity investees

 

(30

)

 

(16

)

Acquisitions of businesses, net of cash acquired

 

 

 

(237

)

Investments in marketable securities—acquisitions

 

(422

)

 

(367

)

Investments in marketable securities—liquidations

 

408

 

 

296

 

Cash flows from derivatives not designated as hedges

 

(15

)

 

(86

)

Other, net

 

23

 

 

26

 

Net cash used in investing activities

 

(337

)

 

(829

)

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

Proceeds from borrowings

 

1,999

 

 

10

 

Net (payments) borrowings of commercial paper

 

(344

)

 

122

 

Payments on borrowings and finance lease obligations

 

(41

)

 

(47

)

Net borrowings under short-term credit agreements

 

6

 

 

53

 

Distributions to noncontrolling interests

 

(26

)

 

(33

)

Dividend payments on common stock

 

(582

)

 

(562

)

Repurchases of common stock

 

(550

)

 

(806

)

Other, net

 

102

 

 

65

 

Net cash provided by (used in) financing activities

 

564

 

 

(1,198

)

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS

 

31

 

 

(59

)

Net increase in cash and cash equivalents

 

1,838

 

 

257

 

Cash and cash equivalents at beginning of year

 

1,129

 

 

1,303

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

 

$

2,967

 

 

$

1,560

 

 

 

 

 

 

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

 

CUMMINS INC. AND SUBSIDIARIES

SEGMENT INFORMATION

(Unaudited)

 
In millions

 

Engine

 

Distribution

 

Components

 

Power

Systems

 

New

Power

 

Total

Segments

 

Intersegment

Eliminations (1)

 

Total

Three months ended September 27, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

External sales

 

$

1,617

 

 

$

1,715

 

 

$

1,201

 

 

$

567

 

 

$

18

 

 

$

5,118

 

 

$

 

 

$

5,118

 

Intersegment sales

 

495

 

 

6

 

 

340

 

 

414

 

 

 

 

1,255

 

 

(1,255

)

 

 

Total sales

 

2,112

 

 

1,721

 

 

1,541

 

 

981

 

 

18

 

 

6,373

 

 

(1,255

)

 

5,118

 

Research, development and engineering expenses

 

72

 

 

9

 

 

64

 

 

53

 

 

26

 

 

224

 

 

 

 

224

 

Equity, royalty and interest income (loss) from investees

 

74

 

 

13

 

 

13

 

 

 

 

(2

)

 

98

 

 

 

 

98

 

Interest income

 

1

 

 

1

 

 

1

 

 

1

 

 

 

 

4

 

 

 

 

4

 

EBITDA (2)

 

382

 

 

182

 

 

261

 

 

101

 

 

(40

)

 

886

 

 

(10

)

 

876

 

Depreciation and amortization (3)

 

51

 

 

30

 

 

47

 

 

32

 

 

5

 

 

165

 

 

 

 

165

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA as a percentage of total sales

 

18.1

%

 

10.6

%

 

16.9

%

 

10.3

%

 

 

NM

 

 

13.9

%

 

 

 

17.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 29, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

External sales

 

$

1,822

 

 

$

2,001

 

 

$

1,253

 

 

$

683

 

 

$

9

 

 

$

5,768

 

 

$

 

 

$

5,768

 

Intersegment sales

 

594

 

 

3

 

 

397

 

 

443

 

 

 

 

1,437

 

 

(1,437

)

 

 

Total sales

 

2,416

 

 

2,004

 

 

1,650

 

 

1,126

 

 

9

 

 

7,205

 

 

(1,437

)

 

5,768

 

Research, development and engineering expenses

 

79

 

 

7

 

 

73

 

 

58

 

 

25

 

 

242

 

 

 

 

242

 

Equity, royalty and interest income from investees

 

34

 

 

12

 

 

9

 

 

13

 

 

 

 

68

 

 

 

 

68

 

Interest income

 

5

 

 

4

 

 

2

 

 

3

 

 

 

 

14

 

 

 

 

14

 

EBITDA (2)

 

341

 

 

186

 

 

286

 

 

158

 

 

(36

)

 

935

 

 

23

 

 

958

 

Depreciation and amortization (3)

 

50

 

 

29

 

 

67

 

 

29

 

 

2

 

 

177

 

 

 

 

177

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA as a percentage of total sales

 

14.1

%

 

9.3

%

 

17.3

%

 

14.0

%

 

 

NM

 

 

13.0

%

 

 

 

16.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

"NM" - not meaningful information

(1) Includes intersegment sales, intersegment profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the three months ended September 27, 2020 and September 29, 2019.

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

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

 

CUMMINS INC. AND SUBSIDIARIES

SEGMENT INFORMATION

(Unaudited)

 
In millions

 

Engine

 

Distribution

 

Components

 

Power

Systems

 

New

Power

 

Total

Segments

 

Intersegment

Eliminations (1)

 

Total

Nine months ended September 27, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

External sales

 

$

4,133

 

 

$

5,123

 

 

$

3,192

 

 

$

1,495

 

 

$

38

 

 

$

13,981

 

 

$

 

 

$

13,981

 

Intersegment sales

 

1,560

 

 

17

 

 

1,001

 

 

1,147

 

 

 

 

3,725

 

 

(3,725

)

 

 

Total sales

 

5,693

 

 

5,140

 

 

4,193

 

 

2,642

 

 

38

 

 

17,706

 

 

(3,725

)

 

13,981

 

Research, development and engineering expenses

 

217

 

 

20

 

 

187

 

 

148

 

 

79

 

 

651

 

 

 

 

651

 

Equity, royalty and interest income (loss) from investees

 

236

 

 

45

 

 

46

 

 

18

 

 

(3

)

 

342

 

 

 

 

342

 

Interest income

 

6

 

 

3

 

 

3

 

 

3

 

 

 

 

15

 

 

 

 

15

 

EBITDA (2)

 

897

 

 

500

 

 

681

 

 

269

 

 

(121

)

 

2,226

 

 

45

 

 

2,271

 

Depreciation and amortization (3)

 

155

 

 

91

 

 

142

 

 

96

 

 

13

 

 

497

 

 

 

 

497

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA as a percentage of total sales

 

15.8

%

 

9.7

%

 

16.2

%

 

10.2

%

 

NM

 

 

12.6

%

 

 

 

16.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 29, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

External sales

 

$

5,879

 

 

$

6,009

 

 

$

4,055

 

 

$

2,030

 

 

$

20

 

 

$

17,993

 

 

$

 

 

$

17,993

 

Intersegment sales

 

1,893

 

 

24

 

 

1,302

 

 

1,376

 

 

 

 

4,595

 

 

(4,595

)

 

 

Total sales

 

7,772

 

 

6,033

 

 

5,357

 

 

3,406

 

 

20

 

 

22,588

 

 

(4,595

)

 

17,993

 

Research, development and engineering expenses

 

245

 

 

21

 

 

223

 

 

171

 

 

70

 

 

730

 

 

 

 

730

 

Equity, royalty and interest income from investees

 

152

 

 

35

 

 

30

 

 

39

 

 

 

 

256

 

 

 

 

256

 

Interest income

 

13

 

 

12

 

 

6

 

 

7

 

 

 

 

38

 

 

 

 

38

 

EBITDA (2)

 

1,195

 

 

529

 

 

908

 

 

469

 

 

(98

)

 

3,003

 

 

46

 

 

3,049

 

Depreciation and amortization (3)

 

151

 

 

86

 

 

160

 

 

88

 

 

6

 

 

491

 

 

 

 

491

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA as a percentage of total sales

 

15.4

%

 

8.8

%

 

16.9

%

 

13.8

%

 

NM

 

 

13.3

%

 

 

 

16.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

"NM" - not meaningful information

(1) Includes intersegment sales, intersegment profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the nine months ended September 27, 2020 and September 29, 2019.

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

(3) Depreciation and amortization, as shown on a segment basis, excludes the amortization of debt discount and deferred costs included in the Condensed Consolidated Statements of Net Income as "Interest expense." The amortization of debt discount and deferred costs was $2 million and $2 million for the nine months ended September 27, 2020 and September 29, 2019, respectively. A portion of depreciation expense is included in "Research, development and engineering expense."

CUMMINS INC. AND SUBSIDIARIES
RECONCILIATION OF SEGMENT INFORMATION
(Unaudited)

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

 

 

Three months ended

 

Nine months ended

In millions

 

September 27,
2020

 

September 29,
2019

 

September 27,
2020

 

September 29,
2019

Total EBITDA

 

$

876

 

 

$

958

 

 

$

2,271

 

 

$

3,049

 

Less:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

165

 

 

177

 

 

497

 

 

491

 

Interest expense

 

25

 

 

26

 

 

71

 

 

87

 

Income before income taxes

 

$

686

 

 

$

755

 

 

$

1,703

 

 

$

2,471

 

 

CUMMINS INC. AND SUBSIDIARIES
SELECT FOOTNOTE DATA
(Unaudited)

EQUITY, ROYALTY AND INTEREST INCOME FROM INVESTEES

Equity, royalty and interest income from investees included in our Condensed Consolidated Statements of Net Income for the reporting periods was as follows:

 

 

Three months ended

 

Nine months ended

In millions

 

September 27,
2020

 

September 29,
2019

 

September 27,
2020

 

September 29,
2019

Manufacturing entities

 

 

 

 

 

 

 

 

Beijing Foton Cummins Engine Co., Ltd.

 

$

30

 

 

$

15

 

 

$

81

 

 

$

56

 

Dongfeng Cummins Engine Company, Ltd.

 

20

 

 

10

 

 

54

 

 

40

 

Chongqing Cummins Engine Company, Ltd.

 

7

 

 

10

 

 

27

 

 

32

 

All other manufacturers

 

22

 

(1)

21

 

 

100

 

(1)(2)

76

 

Distribution entities

 

 

 

 

 

 

 

 

Komatsu Cummins Chile, Ltda.

 

6

 

 

6

 

 

23

 

 

19

 

All other distributors

 

1

 

 

1

 

 

1

 

 

 

Cummins share of net income

 

86

 

 

63

 

 

286

 

 

223

 

Royalty and interest income

 

12

 

 

5

 

 

56

 

 

33

 

Equity, royalty and interest income from investees

 

$

98

 

 

$

68

 

 

$

342

 

 

$

256

 

 

 

 

 

 

 

 

 

 

(1) Includes impairment charges of $10 million and $13 million for the three and nine months ended September 27, 2020, respectively, for a joint venture in the Power Systems segment.

(2) Includes $37 million in adjustments related to tax changes within India's 2020-2021 Union Budget of India (India Tax Law Changes) passed in March 2020.

INCOME TAXES

Our effective tax rates for the three and nine months ended September 27, 2020, were 26.5 percent and 23.6 percent, respectively.

The three months ended September 27, 2020, contained unfavorable discrete items of $31 million, or $0.21 per share, consisting of $17 million of changes in tax reserves, $8 million of provision to return adjustments relating to tax returns filed for 2019 and $6 million of net other discrete items.

The nine months ended September 27, 2020, contained $27 million, or $0.18 per share, of unfavorable net discrete tax items, primarily due to $34 million of unfavorable changes in tax reserves and $8 million of provision to return adjustments, partially offset by $15 million of favorable tax changes within India's 2020-2021 Union Budget of India (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.

The India Tax Law Change resulted in the following adjustments to the Condensed Consolidated Statements of Net Income in the first nine months of 2020:

In millions

 

Favorable

(Unfavorable)

Equity, royalty and interest income from investees

 

$

37

 

Income tax expense (1)

 

17

 

Less: Net income attributable to noncontrolling interests

 

(19

)

Net income statement impact

 

$

35

 

 

 

 

(1) The adjustment to "Income tax expense" includes $15 million of discrete items.

 

 

 

AVAILABLE LIQUIDITY AND CREDIT RATINGS

Available Liquidity

Cash provided by operations is typically our principal source of liquidity with $1,580 million generated in the nine months ended September 27, 2020. Our sources of liquidity include:

 

 

September 27, 2020

In millions

 

Total

 

U.S.

 

International

 

Primary location of international

balances

Cash and cash equivalents

$

2,967

$

1,793

$

1,174

China, Mexico, Singapore, Belgium, Australia, Netherlands, Canada

Marketable securities (1)

 

345

 

 

75

 

 

270

 

 

India

Total

 

$

3,312

 

 

$

1,868

 

 

$

1,444

 

 

 

Available credit capacity

 

 

 

 

 

 

 

 

Revolving credit facilities (2)

 

$

3,184

 

 

 

 

 

 

 

International and other uncommitted domestic credit facilities

 

$

191

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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 September 27, 2020, we had $316 million of commercial paper outstanding, which effectively reduced the available capacity under our revolving credit facilities to $3.2 billion.

Credit Ratings

In August of 2020, concurrent with our new $2 billion debt issuance, both Standard and Poor's Rating Services and Moody's Investors Service, Inc. reviewed and reaffirmed their respective credit rating and stable outlook. Our rating and outlook from each of the credit rating agencies as of the date of filing are shown in the table below.

 

 

Long-Term

 

Short-Term

 

 

Credit Rating Agency (1)

 

Senior Debt

Rating

 

Debt Rating

 

Outlook

Standard and Poor’s Rating Services

 

A+

 

A1

 

Stable

Moody’s Investors Service, Inc.

 

A2

 

P1

 

Stable

 

 

 

 

 

 

 

(1) Credit ratings are not recommendations to buy, are subject to change, and each rating should be evaluated independently of any other rating. In addition, we undertake no obligation to update disclosures concerning our credit ratings, whether as a result of new information, future events or otherwise.

CUMMINS INC. AND SUBSIDIARIES
FINANCIAL MEASURES THAT SUPPLEMENT GAAP
(Unaudited)

Reconciliation of Non GAAP measures - Earnings before interest, income taxes, depreciation and amortization and noncontrolling interests (EBITDA)

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.

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

 

 

Three months ended

 

Nine months ended

In millions

 

September 27,
2020

 

June 28,
2020

 

September 29,
2019

 

September 27,
2020

 

September 29,
2019

Net income attributable to Cummins Inc.

 

$

501

 

 

$

276

 

 

$

622

 

 

$

1,288

 

 

$

1,960

 

 

 

 

 

 

 

 

 

 

 

 

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

 

9.8

%

 

7.2

%

 

10.8

%

 

9.2

%

 

10.9

%

 

 

 

 

 

 

 

 

 

 

 

Add:

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to noncontrolling interests

 

3

 

 

(7

)

 

(6

)

 

13

 

 

10

 

Consolidated net income

 

504

 

 

269

 

 

616

 

 

1,301

 

 

1,970

 

 

 

 

 

 

 

 

 

 

 

 

Add:

 

 

 

 

 

 

 

 

 

 

Interest expense

 

25

 

 

23

 

 

26

 

 

71

 

 

87

 

Income tax expense

 

182

 

 

93

 

 

139

 

 

402

 

 

501

 

Depreciation and amortization

 

165

 

 

164

 

 

177

 

 

497

 

 

491

 

EBITDA

 

$

876

 

 

$

549

 

 

$

958

 

 

$

2,271

 

 

$

3,049

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA as a percentage of net sales

 

17.1

%

 

14.3

%

 

16.6

%

 

16.2

%

 

16.9

%

 

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

Engine Segment Sales by Market and Unit Shipments by Engine Classification

Sales for our Engine segment by market were as follows:

2020

 

 

 

 

 

 

 

 

 

 

In millions

 

Q1

 

Q2

 

Q3

 

Q4

 

YTD

Heavy-duty truck

 

$

750

 

 

$

415

 

 

$

694

 

 

$

 

 

$

1,859

 

Medium-duty truck and bus

 

618

 

 

391

 

 

492

 

 

 

 

1,501

 

Light-duty automotive

 

353

 

 

180

 

 

522

 

 

 

 

1,055

 

Off-highway

 

437

 

 

437

 

 

404

 

 

 

 

1,278

 

Total sales

 

$

2,158

 

 

$

1,423

 

 

$

2,112

 

 

$

 

 

$

5,693

 

 

 

 

 

 

 

 

 

 

 

 

2019

 

 

 

 

 

 

 

 

 

 

In millions

 

Q1

 

Q2

 

Q3

 

Q4

 

YTD

Heavy-duty truck

 

$

979

 

 

$

970

 

 

$

851

 

 

$

755

 

 

$

3,555

 

Medium-duty truck and bus

 

721

 

 

739

 

 

645

 

 

602

 

 

2,707

 

Light-duty automotive

 

382

 

 

480

 

 

478

 

 

464

 

 

1,804

 

Off-highway

 

571

 

 

514

 

 

442

 

 

463

 

 

1,990

 

Total sales

 

$

2,653

 

 

$

2,703

 

 

$

2,416

 

 

$

2,284

 

 

$

10,056

 

 

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

2020

 

 

 

 

 

 

 

 

 

 

Units

 

Q1

 

Q2

 

Q3

 

Q4

 

YTD

Heavy-duty

 

25,800

 

 

15,900

 

 

23,300

 

 

 

 

65,000

 

Medium-duty

 

61,200

 

 

44,900

 

 

50,100

 

 

 

 

156,200

 

Light-duty

 

49,400

 

 

29,800

 

 

67,200

 

 

 

 

146,400

 

Total units

 

136,400

 

 

90,600

 

 

140,600

 

 

 

 

367,600

 

 

 

 

 

 

 

 

 

 

 

 

2019

 

 

 

 

 

 

 

 

 

 

Units

 

Q1

 

Q2

 

Q3

 

Q4

 

YTD

Heavy-duty

 

33,900

 

 

35,000

 

 

28,000

 

 

25,700

 

 

122,600

 

Medium-duty

 

79,000

 

 

76,400

 

 

63,200

 

 

64,800

 

 

283,400

 

Light-duty

 

56,400

 

 

64,100

 

 

62,600

 

 

62,800

 

 

245,900

 

Total units

 

169,300

 

 

175,500

 

 

153,800

 

 

153,300

 

 

651,900

 

 

Distribution Segment Sales by Product Line

Sales for our Distribution segment by product line were as follows:

2020

 

 

 

 

 

 

 

 

 

 

In millions

 

Q1

 

Q2

 

Q3

 

Q4

 

YTD

Parts

 

$

787

 

 

$

654

 

 

$

722

 

 

$

 

 

$

2,163

 

Power generation

 

376

 

 

377

 

 

416

 

 

 

 

1,169

 

Service

 

328

 

 

297

 

 

304

 

 

 

 

929

 

Engines

 

323

 

 

277

 

 

279

 

 

 

 

879

 

Total sales

 

$

1,814

 

 

$

1,605

 

 

$

1,721

 

 

$

 

 

$

5,140

 

 

 

 

 

 

 

 

 

 

 

 

2019

 

 

 

 

 

 

 

 

 

 

In millions

 

Q1

 

Q2

 

Q3

 

Q4

 

YTD

Parts

 

$

844

 

 

$

833

 

 

$

798

 

 

$

815

 

 

$

3,290

 

Power generation

 

403

 

 

427

 

 

467

 

 

487

 

 

1,784

 

Service

 

363

 

 

373

 

 

376

 

 

367

 

 

1,479

 

Engines

 

391

 

 

395

 

 

363

 

 

369

 

 

1,518

 

Total sales

 

$

2,001

 

 

$

2,028

 

 

$

2,004

 

 

$

2,038

 

 

$

8,071

 

 

Component Segment Sales by Product Line

Sales for our Components segment by product line were as follows:

2020

 

 

 

 

 

 

 

 

 

 

In millions

 

Q1

 

Q2

 

Q3

 

Q4

 

YTD

Emission solutions

 

$

664

 

 

$

472

 

 

$

665

 

 

$

 

 

$

1,801

 

Filtration

 

312

 

 

255

 

 

314

 

 

 

 

881

 

Turbo technologies

 

270

 

 

216

 

 

281

 

 

 

 

767

 

Electronics and fuel systems

 

174

 

 

164

 

 

187

 

 

 

 

525

 

Automated transmissions

 

82

 

 

43

 

 

94

 

 

 

 

219

 

Total sales

 

$

1,502

 

 

$

1,150

 

 

$

1,541

 

 

$

 

 

$

4,193

 

 

 

 

 

 

 

 

 

 

 

 

2019

 

 

 

 

 

 

 

 

 

 

In millions

 

Q1

 

Q2

 

Q3

 

Q4

 

YTD

Emission solutions

 

$

854

 

 

$

828

 

 

$

745

 

 

$

695

 

 

$

3,122

 

Filtration

 

325

 

 

331

 

 

310

 

 

315

 

 

1,281

 

Turbo technologies

 

335

 

 

319

 

 

279

 

 

285

 

 

1,218

 

Electronics and fuel systems

 

198

 

 

212

 

 

170

 

 

179

 

 

759

 

Automated transmissions

 

149

 

 

156

 

 

146

 

 

83

 

 

534

 

Total sales

 

$

1,861

 

 

$

1,846

 

 

$

1,650

 

 

$

1,557

 

 

$

6,914

 

 

Power Systems Segment Sales by Product Line and Unit Shipments by Engine Classification

Sales for our Power Systems segment by product line were as follows:

2020

 

 

 

 

 

 

 

 

 

 

In millions

 

Q1

 

Q2

 

Q3

 

Q4

 

YTD

Power generation

 

$

519

 

 

$

424

 

 

$

601

 

 

$

 

 

$

1,544

 

Industrial

 

296

 

 

291

 

 

309

 

 

 

 

896

 

Generator technologies

 

69

 

 

62

 

 

71

 

 

 

 

202

 

Total sales

 

$

884

 

 

$

777

 

 

$

981

 

 

$

 

 

$

2,642

 

 

 

 

 

 

 

 

 

 

 

 

2019

 

 

 

 

 

 

 

 

 

 

In millions

 

Q1

 

Q2

 

Q3

 

Q4

 

YTD

Power generation

 

$

567

 

 

$

668

 

 

$

647

 

 

$

636

 

 

$

2,518

 

Industrial

 

420

 

 

432

 

 

392

 

 

332

 

 

1,576

 

Generator technologies

 

90

 

 

103

 

 

87

 

 

86

 

 

366

 

Total sales

 

$

1,077

 

 

$

1,203

 

 

$

1,126

 

 

$

1,054

 

 

$

4,460

 

 

High-horsepower unit shipments by engine classification were as follows:

2020

 

 

 

 

 

 

 

 

 

 

Units

 

Q1

 

Q2

 

Q3

 

Q4

 

YTD

Power generation

 

1,800

 

 

1,000

 

 

2,300

 

 

 

 

5,100

 

Industrial

 

1,000

 

 

1,000

 

 

1,200

 

 

 

 

3,200

 

Total units

 

2,800

 

 

2,000

 

 

3,500

 

 

 

 

8,300

 

 

 

 

 

 

 

 

 

 

 

 

2019

 

 

 

 

 

 

 

 

 

 

Units

 

Q1

 

Q2

 

Q3

 

Q4

 

YTD

Power generation

 

2,100

 

 

2,300

 

 

2,300

 

 

2,400

 

 

9,100

 

Industrial

 

1,600

 

 

1,600

 

 

1,400

 

 

1,400

 

 

6,000

 

Total units

 

3,700

 

 

3,900

 

 

3,700

 

 

3,800

 

 

15,100