Cummins Reports Second Quarter 2020 Results

  • Second quarter revenues of $3.9 billion; GAAP1 Net Income of $276 million
  • Second quarter EBITDA of 14.3 percent; Diluted EPS of $1.86
  • The company ended the quarter with cash, cash equivalents and marketable securities of $2.1 billion and committed borrowing capacity of $3.5 billion
  • The company’s long-term credit ratings remain unchanged at A+ from Standard & Poor’s and A2 from Moody’s with stable outlooks

COLUMBUS, Ind.--(BUSINESS WIRE)-- Cummins Inc. (NYSE: CMI) today reported results for the second quarter of 2020.

Second quarter revenues of $3.9 billion decreased 38 percent from the same quarter in 2019. COVID-19 related customer shutdowns and weak economic activity led to lower demand in most end markets and regions except China. Sales in North America declined by 48 percent while international revenues decreased 22 percent. Currency negatively impacted revenues by 2 percent primarily due to a stronger US dollar.

Earnings before interest, taxes, depreciation and amortization (EBITDA) in the second quarter were $549 million (14.3 percent of sales), compared to $1.1 billion (17.0 percent of sales) a year ago.

Net income attributable to Cummins in the first quarter was $276 million ($1.86 per diluted share) compared to $675 million ($4.27 per diluted share) in 2019. The tax rate in the second quarter was 25.7 percent and was negatively impacted by $14 million ($0.09 per diluted share) of discrete tax items.

2020 Outlook:

The company currently expects third quarter revenues to improve from second quarter levels, however, there remains significant uncertainty around how COVID-19 will impact end market demand as well as customer and supplier operations. Due to this uncertainty the company is not providing full year revenue or profitability guidance for 2020.

Chairman and CEO Tom Linebarger

“I want to thank our employees all over the globe for their dedication to our company and to our customers. They continue to work safely and effectively through an incredibly challenging period, with unprecedented disruptions to global demand and supply, to their work processes, and to their daily lives. In the face of the most severe decline in quarterly sales in our history, we delivered solid profitability while meeting commitments to our customers who provide products critical to the functioning of the global economy.”

“Our people demonstrated remarkable flexibility as did our operations and supply chain. A pronounced example of our organization’s agility in this challenging period was our ramp up in China, where many of our facilities went from complete shut down in February and March to producing record volumes in the second quarter.”

“While customer demand did improve in some regions as the quarter progressed, significant uncertainty around the pace of recovery in our markets remains, requiring a continued strong focus on managing expenses and cash flow. Our strong financial position will enable us to continue to prioritize our investments in technology and new products including advanced diesel engines, battery electric powertrains, fuel cells, and hydrogen electrolyzers that will help drive future profitable growth.”

Second Quarter 2020 Highlights:

  • Announced an external-facing approach to complement the company’s internal diversity and inclusion activities, including the creation of the Cummins Against Racial Injustice Management Review Group to focus on police reform, criminal justice, social justice, and economic empowerment of Black people in the United States.
  • Manufactured more than 14 tons of its filtration media which has been used to produce more than eight million N95 and surgical masks globally.
  • Cummins announced a joint venture with NPROXX, a leader in hydrogen storage and transportation, for hydrogen storage tanks. The transaction is expected to close by the end of the first quarter 2021.
  • Published the Cummins Work Playbook, a one-stop resource highlighting our health and wellness protocols that ensure the safety of our employees, customers, suppliers and communities during the global COVID-19 pandemic.
  • Paid a $1.311 dividend to shareholders. Cummins has paid a dividend for over 70 years.

1 Generally Accepted Accounting Principles

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

Engine Segment

  • Sales - $1.4 billion, down 47 percent
  • Segment EBITDA - $150 million, or 10.5 percent of sales, compared to $416 million or 15.4 percent of sales
  • On-highway revenues decreased 55 percent and off-highway revenues declined 15 percent
  • Sales declined in all regions except China, where sales increased by 40 percent due to higher demand in construction markets

Distribution Segment

  • Sales - $1.6 billion, down 21 percent
  • Segment EBITDA - $160 million, or 10.0 percent of sales, compared to $172 million or 8.5 percent of sales
  • Revenues in North America were down 25 percent and international sales declined by 12 percent
  • Demand declined in all lines of business and a stronger US dollar negatively impacted revenues by 1 percent

Components Segment

  • Sales - $1.2 billion, down 38 percent
  • Segment EBITDA - $141 million, or 12.3 percent of sales, compared to $297 million or 16.1 percent of sales
  • Revenues in North America decreased by 55 percent and international sales declined by 9 percent due to lower demand in Europe, India, and Brazil
  • Sales in China increased by 63 percent driven by record levels of truck production

Power Systems Segment

  • Sales - $777 million, down 35 percent
  • Segment EBITDA - $91 million, or 11.7 percent of sales, compared to $173 million, or 14.4 percent of sales
  • Power generation revenues decreased by 37 percent while industrial revenues decreased 33 percent due to lower demand in mining and oil and gas markets

New Power Segment

  • Sales - $10 million
  • Segment EBITDA loss - $38 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

 

June 28,
2020

 

March 29,
2020

 

June 30,
2019

NET SALES

 

$

3,852

 

 

$

5,011

 

 

$

6,221

 

Cost of sales

 

2,962

 

 

3,717

 

 

4,580

 

GROSS MARGIN

 

890

 

 

1,294

 

 

1,641

 

OPERATING EXPENSES AND INCOME

 

 

 

 

 

 

Selling, general and administrative expenses

 

470

 

 

546

 

 

629

 

Research, development and engineering expenses

 

189

 

 

238

 

 

251

 

Equity, royalty and interest income from investees

 

115

 

 

129

 

 

96

 

Other operating expense, net

 

(10

)

 

(5

)

 

(9

)

OPERATING INCOME

 

336

 

 

634

 

 

848

 

Interest income

 

4

 

 

7

 

 

12

 

Interest expense

 

23

 

 

23

 

 

29

 

Other income, net

 

45

 

 

37

 

 

40

 

INCOME BEFORE INCOME TAXES

 

362

 

 

655

 

 

871

 

Income tax expense

 

93

 

 

127

 

 

186

 

CONSOLIDATED NET INCOME

 

269

 

 

528

 

 

685

 

Less: Net (loss) income attributable to noncontrolling interests

 

(7

)

 

17

 

 

10

 

NET INCOME ATTRIBUTABLE TO CUMMINS INC.

 

$

276

 

 

$

511

 

 

$

675

 

 

 

 

 

 

 

 

EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.

 

 

 

 

 

 

Basic

 

$

1.87

 

 

$

3.42

 

 

$

4.29

 

Diluted

 

$

1.86

 

 

$

3.41

 

 

$

4.27

 

 

 

 

 

 

 

 

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING

 

 

 

 

 

 

Basic

 

147.6

 

 

149.3

 

 

157.4

 

Diluted

 

148.0

 

 

149.7

 

 

158.0

 

 

 

 

 

 

 

 

(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)

 

Six months ended

In millions, except per share amounts

 

June 28,
2020

 

June 30,
2019

NET SALES

 

$

8,863

 

 

$

12,225

 

Cost of sales

 

6,679

 

 

9,052

 

GROSS MARGIN

 

2,184

 

 

3,173

 

OPERATING EXPENSES AND INCOME

 

 

 

 

Selling, general and administrative expenses

 

1,016

 

 

1,222

 

Research, development and engineering expenses

 

427

 

 

488

 

Equity, royalty and interest income from investees

 

244

 

 

188

 

Other operating expense, net

 

(15

)

 

(4

)

OPERATING INCOME

 

970

 

 

1,647

 

Interest income

 

11

 

 

24

 

Interest expense

 

46

 

 

61

 

Other income, net

 

82

 

 

106

 

INCOME BEFORE INCOME TAXES

 

1,017

 

 

1,716

 

Income tax expense

 

220

 

 

362

 

CONSOLIDATED NET INCOME

 

797

 

 

1,354

 

Less: Net income attributable to noncontrolling interests

 

10

 

 

16

 

NET INCOME ATTRIBUTABLE TO CUMMINS INC.

 

$

787

 

 

$

1,338

 

 

 

 

 

 

EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.

 

 

 

 

Basic

 

$

5.30

 

 

$

8.51

 

Diluted

 

$

5.29

 

 

$

8.47

 

 

 

 

 

 

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING

 

 

 

 

Basic

 

148.4

 

 

157.3

 

Diluted

 

148.8

 

 

157.9

 

 

 

 

 

 

(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

 

June 28,
2020

 

December 31,
2019

ASSETS

 

 

 

 

Current assets

 

 

 

 

Cash and cash equivalents

 

$

1,751

 

 

$

1,129

 

Marketable securities

 

353

 

 

341

 

Total cash, cash equivalents and marketable securities

 

2,104

 

 

1,470

 

Accounts and notes receivable, net

 

3,441

 

 

3,670

 

Inventories

 

3,655

 

 

3,486

 

Prepaid expenses and other current assets

 

634

 

 

761

 

Total current assets

 

9,834

 

 

9,387

 

Long-term assets

 

 

 

 

Property, plant and equipment, net

 

4,067

 

 

4,245

 

Investments and advances related to equity method investees

 

1,362

 

 

1,237

 

Goodwill

 

1,284

 

 

1,286

 

Other intangible assets, net

 

1,017

 

 

1,003

 

Pension assets

 

998

 

 

1,001

 

Other assets

 

1,752

 

 

1,578

 

Total assets

 

$

20,314

 

 

$

19,737

 

 

 

 

 

 

LIABILITIES

 

 

 

 

Current liabilities

 

 

 

 

Accounts payable (principally trade)

 

$

2,281

 

 

$

2,534

 

Loans payable

 

109

 

 

100

 

Commercial paper

 

2,027

 

 

660

 

Accrued compensation, benefits and retirement costs

 

309

 

 

560

 

Current portion of accrued product warranty

 

681

 

 

803

 

Current portion of deferred revenue

 

523

 

 

533

 

Other accrued expenses

 

920

 

 

1,039

 

Current maturities of long-term debt

 

66

 

 

31

 

Total current liabilities

 

6,916

 

 

6,260

 

Long-term liabilities

 

 

 

 

Long-term debt

 

1,639

 

 

1,576

 

Pensions and other postretirement benefits

 

578

 

 

591

 

Accrued product warranty

 

636

 

 

645

 

Deferred revenue

 

829

 

 

821

 

Other liabilities

 

1,586

 

 

1,379

 

Total liabilities

 

$

12,184

 

 

$

11,272

 

 

 

 

 

 

EQUITY

 

 

 

 

Cummins Inc. shareholders’ equity

 

 

 

 

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

 

$

2,353

 

 

$

2,346

 

Retained earnings

 

14,811

 

 

14,416

 

Treasury stock, at cost, 74.8 and 71.7 shares

 

(7,729

)

 

(7,225

)

Common stock held by employee benefits trust, at cost, 0.1 and 0.2 shares

 

(1

)

 

(2

)

Accumulated other comprehensive loss

 

(2,242

)

 

(2,028

)

Total Cummins Inc. shareholders’ equity

 

7,192

 

 

7,507

 

Noncontrolling interests

 

938

 

 

958

 

Total equity

 

$

8,130

 

 

$

8,465

 

Total liabilities and equity

 

$

20,314

 

 

$

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

 

June 28,
2020

 

March 29,
2020

 

June 30,
2019

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Consolidated net income

 

$

269

 

 

$

528

 

 

$

685

 

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

 

 

 

 

 

 

Depreciation and amortization

 

165

 

 

168

 

 

158

 

Deferred income taxes

 

 

 

(11

)

 

6

 

Equity in income of investees, net of dividends

 

(46

)

 

(78

)

 

21

 

Pension and OPEB expense

 

27

 

 

27

 

 

19

 

Pension contributions and OPEB payments

 

(22

)

 

(60

)

 

(45

)

Stock-based compensation expense

 

8

 

 

4

 

 

19

 

Restructuring payments

 

(33

)

 

(48

)

 

 

Gain on corporate owned life insurance

 

(21

)

 

(17

)

 

(18

)

Foreign currency remeasurement and transaction exposure

 

(5

)

 

3

 

 

(33

)

Changes in current assets and liabilities

 

 

 

 

 

 

Accounts and notes receivable

 

63

 

 

107

 

 

(177

)

Inventories

 

(53

)

 

(171

)

 

(18

)

Other current assets

 

16

 

 

79

 

 

(52

)

Accounts payable

 

(391

)

 

171

 

 

(18

)

Accrued expenses

 

(101

)

 

(321

)

 

99

 

Changes in other liabilities

 

171

 

 

28

 

 

56

 

Other, net

 

(69

)

 

(30

)

 

106

 

Net cash (used in) provided by operating activities

 

(22

)

 

379

 

 

808

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

Capital expenditures

 

(77

)

 

(75

)

 

(133

)

Investments in internal use software

 

(13

)

 

(8

)

 

(14

)

Investments in and advances to equity investees

 

(10

)

 

(7

)

 

(8

)

Investments in marketable securities—acquisitions

 

(169

)

 

(116

)

 

(138

)

Investments in marketable securities—liquidations

 

159

 

 

95

 

 

50

 

Cash flows from derivatives not designated as hedges

 

(28

)

 

6

 

 

(81

)

Other, net

 

3

 

 

6

 

 

(16

)

Net cash used in investing activities

 

(135

)

 

(99

)

 

(340

)

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

Net borrowings (payments) of commercial paper

 

410

 

 

957

 

 

(275

)

Payments on borrowings and finance lease obligations

 

(15

)

 

(10

)

 

(7

)

Net (payments) borrowings under short-term credit agreements

 

(21

)

 

25

 

 

42

 

Distributions to noncontrolling interests

 

 

 

(13

)

 

 

Dividend payments on common stock

 

(193

)

 

(195

)

 

(179

)

Repurchases of common stock

 

 

 

(550

)

 

 

Other, net

 

45

 

 

20

 

 

55

 

Net cash provided by (used in) financing activities

 

226

 

 

234

 

 

(364

)

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS

 

(9

)

 

48

 

 

(35

)

Net increase in cash and cash equivalents

 

60

 

 

562

 

 

69

 

Cash and cash equivalents at beginning of period

 

1,691

 

 

1,129

 

 

1,328

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

 

$

1,751

 

 

$

1,691

 

 

$

1,397

 

 

 

 

 

 

 

 

(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)

 

Six months ended

In millions

 

June 28,
2020

 

June 30,
2019

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

Consolidated net income

 

$

797

 

 

$

1,354

 

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

 

 

 

 

Depreciation and amortization

 

333

 

 

315

 

Deferred income taxes

 

(11

)

 

17

 

Equity in income of investees, net of dividends

 

(124

)

 

(43

)

Pension and OPEB expense

 

54

 

 

37

 

Pension contributions and OPEB payments

 

(82

)

 

(92

)

Stock-based compensation expense

 

12

 

 

28

 

Restructuring payments

 

(81

)

 

 

Gain on corporate owned life insurance

 

(38

)

 

(55

)

Foreign currency remeasurement and transaction exposure

 

(2

)

 

46

 

Changes in current assets and liabilities

 

 

 

 

Accounts and notes receivable

 

170

 

 

(312

)

Inventories

 

(224

)

 

(125

)

Other current assets

 

95

 

 

15

 

Accounts payable

 

(220

)

 

148

 

Accrued expenses

 

(422

)

 

(194

)

Changes in other liabilities

 

199

 

 

120

 

Other, net

 

(99

)

 

(39

)

Net cash provided by operating activities

 

357

 

 

1,220

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

Capital expenditures

 

(152

)

 

(242

)

Investments in internal use software

 

(21

)

 

(34

)

Investments in and advances to equity investees

 

(17

)

 

(18

)

Investments in marketable securities—acquisitions

 

(285

)

 

(259

)

Investments in marketable securities—liquidations

 

254

 

 

153

 

Cash flows from derivatives not designated as hedges

 

(22

)

 

(26

)

Other, net

 

9

 

 

15

 

Net cash used in investing activities

 

(234

)

 

(411

)

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

Net borrowings (payments) of commercial paper

 

1,367

 

 

(346

)

Payments on borrowings and finance lease obligations

 

(25

)

 

(17

)

Net borrowings under short-term credit agreements

 

4

 

 

57

 

Distributions to noncontrolling interests

 

(13

)

 

(13

)

Dividend payments on common stock

 

(388

)

 

(358

)

Repurchases of common stock

 

(550

)

 

(100

)

Other, net

 

65

 

 

66

 

Net cash provided by (used in) financing activities

 

460

 

 

(711

)

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS

 

39

 

 

(4

)

Net increase in cash and cash equivalents

 

622

 

 

94

 

Cash and cash equivalents at beginning of year

 

1,129

 

 

1,303

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

 

$

1,751

 

 

$

1,397

 

 

 

 

 

 

(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 June 28, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

External sales

 

$

937

 

 

$

1,601

 

 

$

876

 

 

$

428

 

 

$

10

 

 

 

$

3,852

 

 

$

 

 

 

$

3,852

 

Intersegment sales

 

486

 

 

4

 

 

274

 

 

349

 

 

 

 

 

1,113

 

 

(1,113

)

 

 

 

Total sales

 

1,423

 

 

1,605

 

 

1,150

 

 

777

 

 

10

 

 

 

4,965

 

 

(1,113

)

 

 

3,852

 

Research, development and engineering expenses

 

65

 

 

4

 

 

55

 

 

41

 

 

24

 

 

 

189

 

 

 

 

 

189

 

Equity, royalty and interest income from investees

 

84

 

 

11

 

 

12

 

 

9

 

 

(1

)

 

 

115

 

 

 

 

 

115

 

Interest income

 

1

 

 

1

 

 

1

 

 

1

 

 

 

 

 

4

 

 

 

 

 

4

 

Segment EBITDA

 

150

 

 

160

 

 

141

 

 

91

 

 

(38

)

 

 

504

 

 

45

 

 

 

549

 

Depreciation and amortization (2)

 

51

 

 

30

 

 

47

 

 

32

 

 

4

 

 

 

164

 

 

 

 

 

164

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment EBITDA as a percentage of total sales

 

10.5

%

 

10.0

%

 

12.3

%

 

11.7

%

 

NM

 

 

 

10.2

%

 

 

 

14.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended June 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

External sales

 

$

2,073

 

 

$

2,015

 

 

$

1,401

 

 

$

724

 

 

$

8

 

 

 

$

6,221

 

 

$

 

 

 

$

6,221

 

Intersegment sales

 

630

 

 

13

 

 

445

 

 

479

 

 

 

 

 

1,567

 

 

(1,567

)

 

 

 

Total sales

 

2,703

 

 

2,028

 

 

1,846

 

 

1,203

 

 

8

 

 

 

7,788

 

 

(1,567

)

 

 

6,221

 

Research, development and engineering expenses

 

88

 

 

7

 

 

75

 

 

57

 

 

24

 

 

 

251

 

 

 

 

 

251

 

Equity, royalty and interest income from investees

 

62

 

 

12

 

 

11

 

 

11

 

 

 

 

 

96

 

 

 

 

 

96

 

Interest income

 

4

 

 

4

 

 

2

 

 

2

 

 

 

 

 

12

 

 

 

 

 

12

 

Segment EBITDA

 

416

 

 

172

 

 

297

 

 

173

 

 

(33

)

 

 

1,025

 

 

33

 

 

 

1,058

 

Depreciation and amortization (2)

 

51

 

 

28

 

 

47

 

 

30

 

 

2

 

 

 

158

 

 

 

 

 

158

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA as a percentage of total sales

 

15.4

%

 

8.5

%

 

16.1

%

 

14.4

%

 

NM

 

 

 

13.2

%

 

 

 

17.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

"NM" - not meaningful information

 

(1) Includes intersegment sales, intersegment profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the three months ended June 28, 2020 and June 30, 2019.

 

(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." 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

Six months ended June 28, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

External sales

 

$

2,516

 

 

$

3,408

 

 

$

1,991

 

 

$

928

 

 

$

20

 

 

 

$

8,863

 

 

$

 

 

 

$

8,863

 

Intersegment sales

 

1,065

 

 

11

 

 

661

 

 

733

 

 

 

 

 

2,470

 

 

(2,470

)

 

 

 

Total sales

 

3,581

 

 

3,419

 

 

2,652

 

 

1,661

 

 

20

 

 

 

11,333

 

 

(2,470

)

 

 

8,863

 

Research, development and engineering expenses

 

145

 

 

11

 

 

123

 

 

95

 

 

53

 

 

 

427

 

 

 

 

 

427

 

Equity, royalty and interest income from investees

 

162

 

 

32

 

 

33

 

 

18

 

 

(1

)

 

 

244

 

 

 

 

 

244

 

Interest income

 

5

 

 

2

 

 

2

 

 

2

 

 

 

 

 

11

 

 

 

 

 

11

 

Segment EBITDA

 

515

 

 

318

 

 

420

 

 

168

 

 

(81

)

 

 

1,340

 

 

55

 

 

 

1,395

 

Depreciation and amortization (2)

 

104

 

 

61

 

 

95

 

 

64

 

 

8

 

 

 

332

 

 

 

 

 

332

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment EBITDA as a percentage of total sales

 

14.4

%

 

9.3

%

 

15.8

%

 

10.1

%

 

NM

 

 

 

11.8

%

 

 

 

15.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

External sales

 

$

4,057

 

 

$

4,008

 

 

$

2,802

 

 

$

1,347

 

 

$

11

 

 

 

$

12,225

 

 

$

 

 

 

$

12,225

 

Intersegment sales

 

1,299

 

 

21

 

 

905

 

 

933

 

 

 

 

 

3,158

 

 

(3,158

)

 

 

 

Total sales

 

5,356

 

 

4,029

 

 

3,707

 

 

2,280

 

 

11

 

 

 

15,383

 

 

(3,158

)

 

 

12,225

 

Research, development and engineering expenses

 

166

 

 

14

 

 

150

 

 

113

 

 

45

 

 

 

488

 

 

 

 

 

488

 

Equity, royalty and interest income from investees

 

118

 

 

23

 

 

21

 

 

26

 

 

 

 

 

188

 

 

 

 

 

188

 

Interest income

 

8

 

 

8

 

 

4

 

 

4

 

 

 

 

 

24

 

 

 

 

 

24

 

Segment EBITDA

 

854

 

 

343

 

 

622

 

 

311

 

 

(62

)

 

 

2,068

 

 

23

 

 

 

2,091

 

Depreciation and amortization (2)

 

101

 

 

57

 

 

93

 

 

59

 

 

4

 

 

 

314

 

 

 

 

 

314

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA as a percentage of total sales

 

15.9

%

 

8.5

%

 

16.8

%

 

13.6

%

 

NM

 

 

 

13.4

%

 

 

 

17.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

"NM" - not meaningful information

 

(1) Includes intersegment sales, intersegment profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the six months ended June 28, 2020 and June 30, 2019.

 

(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 $1 million for the six months ended June 28, 2020 and June 30, 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

 

Six months ended

In millions

 

June 28,
2020

 

June 30,
2019

 

June 28,
2020

 

June 30,
2019

Total EBITDA

 

$

549

 

 

$

1,058

 

 

$

1,395

 

 

$

2,091

 

Less:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

164

 

 

158

 

 

332

 

 

314

 

Interest expense

 

23

 

 

29

 

 

46

 

 

61

 

Income before income taxes

 

$

362

 

 

$

871

 

 

$

1,017

 

 

$

1,716

 

 
 

CUMMINS INC. AND SUBSIDIARIES
SELECT FOOTNOTE DATA
(Unaudited)

 

EQUITY, ROYALTY AND INTEREST INCOME FROM INVESTEES

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

 

 

Three months ended

 

Six months ended

In millions

 

June 28,
2020

 

June 30,
2019

 

June 28,
2020

 

June 30,
2019

Manufacturing entities

 

 

 

 

 

 

 

 

Beijing Foton Cummins Engine Co., Ltd.

 

$

34

 

 

$

20

 

 

$

51

 

 

$

41

 

Dongfeng Cummins Engine Company, Ltd.

 

26

 

 

16

 

 

34

 

 

30

 

Chongqing Cummins Engine Company, Ltd.

 

11

 

 

10

 

 

20

 

 

22

 

All other manufacturers

 

23

 

 

28

 

 

78

 

(1)

55

 

Distribution entities

 

 

 

 

 

 

 

 

Komatsu Cummins Chile, Ltda.

 

7

 

 

7

 

 

17

 

 

13

 

All other distributors

 

 

 

 

 

 

 

(1

)

Cummins share of net income

 

101

 

 

81

 

 

200

 

 

160

 

Royalty and interest income

 

14

 

 

15

 

 

44

 

 

28

 

Equity, royalty and interest income from investees

 

$

115

 

 

$

96

 

 

$

244

 

 

$

188

 

 

 

 

 

 

 

 

 

 

(1) 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 six months ended June 28, 2020, were 25.7 percent and 21.6 percent, respectively. Our effective tax rates for the three and six months ended June 30, 2019, were 21.4 percent and 21.1 percent, respectively, and contained immaterial discrete items.

The three months ended June 28, 2020, contained unfavorable discrete items of $14 million, primarily due to changes in tax reserves on certain U.S. tax matters.

The six months ended June 28, 2020, contained $4 million of favorable net discrete tax items, primarily due to favorable tax changes within India's 2020-2021 Union Budget of India (India Tax Law Change) passed in March of 2020, partially offset by unfavorable changes in tax reserves in the second quarter 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 Income Statement in the first half 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 $357 million generated in the six months ended June 28, 2020, although we had a net use of cash from operations of $22 million for the three months ended June 28, 2020, due to the impacts of the pandemic. Our sources of liquidity include:

 

 

June 28, 2020

In millions

 

Total

 

U.S.

 

International

 

Primary location of
international balances

Cash and cash equivalents

 

$

1,751

 

 

$

836

 

 

$

915

 

 

Singapore, China, Mexico, Belgium, Australia

Marketable securities (1)

 

353

 

 

80

 

 

273

 

 

India

Total

 

$

2,104

 

 

$

916

 

 

$

1,188

 

 

 

Available credit capacity

 

 

 

 

 

 

 

 

Revolving credit facilities (2)

 

$

3,473

 

 

 

 

 

 

 

International and other uncommitted domestic credit facilities

 

$

189

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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 2020, respectively, are maintained primarily to provide backup liquidity for our commercial paper borrowings and general corporate purposes. On May 1, 2020, we entered into an additional 364-day credit facility agreement that allows us to borrow up to $2.0 billion of senior unsecured funds at any time through April 30, 2021. This program does not backstop or increase our borrowing capacity for our commercial paper programs. At June 28, 2020, we had $2,027 million of commercial paper outstanding, which effectively reduced the available capacity under our revolving credit facilities to $3.5 billion.

 
 

Credit Ratings

In June of 2020, Moody's Investors Service, Inc. reviewed and reaffirmed our credit rating and stable outlook. Our ratings 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, noncontrolling interests, depreciation and amortization (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

 

Six months ended

In millions

 

June 28,
2020

 

March 29,
2020

 

June 30,
2019

 

June 28,
2020

 

June 30,
2019

Net income attributable to Cummins Inc.

 

$

276

 

 

$

511

 

 

$

675

 

 

$

787

 

 

$

1,338

 

 

 

 

 

 

 

 

 

 

 

 

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

 

7.2

%

 

10.2

%

 

10.9

%

 

8.9

%

 

10.9

%

 

 

 

 

 

 

 

 

 

 

 

Add:

 

 

 

 

 

 

 

 

 

 

Net (loss) income attributable to noncontrolling interests

 

(7

)

 

17

 

 

10

 

 

10

 

 

16

 

Consolidated net income

 

269

 

 

528

 

 

685

 

 

797

 

 

1,354

 

 

 

 

 

 

 

 

 

 

 

 

Add:

 

 

 

 

 

 

 

 

 

 

Interest expense

 

23

 

 

23

 

 

29

 

 

46

 

 

61

 

Income tax expense

 

93

 

 

127

 

 

186

 

 

220

 

 

362

 

Depreciation and amortization

 

164

 

 

168

 

 

158

 

 

332

 

 

314

 

EBITDA

 

$

549

 

 

$

846

 

 

$

1,058

 

 

$

1,395

 

 

$

2,091

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA as a percentage of net sales

 

14.3

%

 

16.9

%

 

17.0

%

 

15.7

%

 

17.1

%

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

 

 

$

 

 

$

 

 

$

1,165

 

Medium-duty truck and bus

 

618

 

 

391

 

 

 

 

 

 

1,009

 

Light-duty automotive

 

353

 

 

180

 

 

 

 

 

 

533

 

Off-highway

 

437

 

 

437

 

 

 

 

 

 

874

 

Total sales

 

$

2,158

 

 

$

1,423

 

 

$

 

 

$

 

 

$

3,581

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

41,700

Medium-duty

 

61,200

 

44,900

 

 

 

106,100

Light-duty

 

49,400

 

29,800

 

 

 

79,200

Total units

 

136,400

 

90,600

 

 

 

227,000

 

 

 

 

 

 

 

 

 

 

 

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

 

 

$

 

 

$

 

 

$

1,441

 

Power generation

 

376

 

 

377

 

 

 

 

 

 

753

 

Service

 

328

 

 

297

 

 

 

 

 

 

625

 

Engines

 

323

 

 

277

 

 

 

 

 

 

600

 

Total sales

 

$

1,814

 

 

$

1,605

 

 

$

 

 

$

 

 

$

3,419

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

$

 

 

$

 

 

$

1,136

 

Filtration

 

312

 

 

255

 

 

 

 

 

 

567

 

Turbo technologies

 

270

 

 

216

 

 

 

 

 

 

486

 

Electronics and fuel systems

 

174

 

 

164

 

 

 

 

 

 

338

 

Automated transmissions

 

82

 

 

43

 

 

 

 

 

 

125

 

Total sales

 

$

1,502

 

 

$

1,150

 

 

$

 

 

$

 

 

$

2,652

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

$

 

 

$

 

 

$

943

 

Industrial

 

296

 

 

291

 

 

 

 

 

 

587

 

Generator technologies

 

69

 

 

62

 

 

 

 

 

 

131

 

Total sales

 

$

884

 

 

$

777

 

 

$

 

 

$

 

 

$

1,661

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

2,800

Industrial

 

1,000

 

1,000

 

 

 

2,000

Total units

 

2,800

 

2,000

 

 

 

4,800

 

 

 

 

 

 

 

 

 

 

 

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

 

Jon Mills
Director, External Communications
(317) 658-4540
jon.mills@cummins.com

Source: Cummins Inc.