Cummins Reports Fourth Quarter and Full Year 2020 Results
02/04/2021 - 07:30 AM
Cummins Inc. (NYSE: CMI) today reported results for the fourth quarter of 2020.
Fourth quarter revenues of $5.8 billion increased 5 percent from the same quarter in 2019. Sales in North America were flat while international revenues increased 12 percent driven by strong demand in China truck and construction markets as well as the growth in new product sales in India.
Earnings before interest, taxes, depreciation and amortization (EBITDA) in the fourth quarter were $837 million (14.4 percent of sales), compared to $682 million (12.2 percent of sales) excluding restructuring a year ago. Fourth quarter EBITDA included $36 million of expenses associated with reorganization activities and facility closures primarily driven by transformation initiatives in our Distribution segment.
Net income attributable to Cummins in the fourth quarter was $501 million ($3.36 per diluted share) compared to $390 million ($2.56 per diluted share) excluding restructuring in 2019. The tax rate in the fourth quarter was 19.7 percent.
Revenues for the full year were $19.8 billion , 16 percent lower than 2019. Sales in North America declined 21 percent and international revenues declined 7 percent. Sales declined in all major regions except China, where demand for trucks and construction equipment reached record levels.
“We faced many challenges in 2020 driven by the severe global impact of the COVID-19 pandemic,” said Chairman and CEO Tom Linebarger. “I want to thank all of our employees for their dedication to our company and our customers as they adjusted to the unprecedented slowdown in the global economy and then responded as demand accelerated sharply in the second half of the year, all while facing significant disruption to their daily routines at work and home.”
EBITDA for the year was $3.1 billion (15.7 percent of sales) compared to $3.7 billion (15.8 percent of sales) excluding restructuring in 2019.
Net income attributable to Cummins for the full year was $1.8 billion ($12.01 per diluted share), compared to net income of $2.4 billion ($15.05 per diluted share) excluding restructuring in 2019. The tax rate for 2020 was 22.5 percent.
2021 Outlook:
Based on the current forecast, Cummins projects full year 2021 revenues to be up 8 to 12 percent, and EBITDA to be in the range of 15.0 and 15.5 percent of sales. We expect revenues to increase in all regions and major markets except China where we expect demand to moderate after a record year in 2020.
“Current indicators point to improving demand in a number of key regions and markets in 2021. However, significant uncertainty remains, requiring continued strong focus on managing costs and cash flow as our markets continue to recover around the world. We are still operating under a pandemic with extreme safety measures in place and our suppliers and customers are doing the same. This is presenting challenges to global supply chains as our industry responds to rising demand across multiple end markets. Having effectively managed through an extremely challenging 2020, Cummins is in a strong position to keep investing in future growth while continuing to return cash to shareholders,” said Chairman and CEO Tom Linebarger.
The Company plans to return 75 percent of Operating Cash Flow to shareholders in the form of dividends and share repurchases.
2020 Highlights:
The Company announced the creation of the Cummins Advocates for Racial Equity Group to focus on police reform, criminal justice, social justice, and economic empowerment of Black people in the United States.
Cummins increased its cash dividend for the 11th straight year and returned a total of $1.4 billion to shareholders in the form of dividends and share repurchases.
In response to the COVID-19 pandemic, the Company used its filter technology to provide 146 tons of filtration media to mask manufacturers across the globe, which has been used to produce more than 108 million masks.
The Company established a joint venture called NPROXX to provide hydrogen storage tank solutions to customers in multiple applications including rail, truck, bus, and other on-highway applications to advance the adoption of hydrogen-based technologies.
In November of 2020, Cummins was named to the S&P Dow Jones Sustainability Indices for North America, one of the premier measures of corporate sustainability, for a 15th consecutive year.
Cummins is one of 21 companies named a “Culture Champion” in October 2020 by a partnership between the Massachusetts Institute of Technology and Glassdoor, one of the world’s leading recruiting websites. The Company receives high marks for creating cultures of integrity and respect while ranking first in the study’s category for promoting a diverse and inclusive workplace culture.
1 Generally Accepted Accounting Principles in the U.S.
Fourth quarter 2020 detail (all comparisons to same period in 2019):
Engine Segment
Sales - $2.3 billion , up 2 percent
Segment EBITDA - $338 million , or 14.5 percent of sales, compared to $277 million or 12.1 percent of sales excluding restructuring
On-highway revenues increased 1 percent and off-highway revenues increased 4 percent
Sales were flat in North America but increased 8 percent in international markets primarily due to increased demand in China and India
Distribution Segment
Sales - $2.0 billion , down 2 percent
Segment EBITDA - $165 million , or 8.3 percent of sales, compared to $164 million or 8.0 percent of sales excluding restructuring
Revenues in North America were down 7 percent and international sales increased by 8 percent
Increased demand in power generation markets offset by declines in parts and service
Components Segment
Sales - $1.8 billion , up 18 percent
Segment EBITDA - $280 million , or 15.3 percent of sales, compared to $209 million or 13.4 percent of sales excluding restructuring
Revenues in North America increased by 1 percent and international sales increased by 40 percent due to higher demand in China and India
Power Systems Segment
Sales - $989 million , down 6 percent
Segment EBITDA - $74 million , or 7.5 percent of sales, compared to $55 million , or 5.2 percent of sales excluding restructuring
Power generation revenues decreased by 2 percent while industrial revenues decreased 12 percent due to lower demand in mining and oil and gas markets
New Power Segment
Sales - $34 million , up 89 percent
Segment EBITDA loss - $51 million
Revenues increased due to greater demand in transit and school bus markets in addition to 29 megawatts of electrolyzer projects commissioned
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 57,825 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 $1.8 billion on sales of $19.8 billion in 2020. 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; 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 December 31,
In millions, except per share amounts
2020
2019
NET SALES
$
5,830
$
5,578
Cost of sales
4,469
4,265
GROSS MARGIN
1,361
1,313
OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses
576
632
Research, development and engineering expenses
255
271
Equity, royalty and interest income from investees
110
74
Restructuring actions
—
119
Other operating expense, net
(11
)
(11
)
OPERATING INCOME
629
354
Interest expense
29
22
Other income, net
35
31
INCOME BEFORE INCOME TAXES
635
363
Income tax expense
125
65
CONSOLIDATED NET INCOME
510
298
Less: Net income (loss) attributable to noncontrolling interests
9
(2
)
NET INCOME ATTRIBUTABLE TO CUMMINS INC.
$
501
$
300
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
Basic
$
3.39
$
1.98
Diluted
$
3.36
$
1.97
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
Basic
148.0
151.5
Diluted
149.3
152.4
(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 STATEMENTS OF NET INCOME
(Unaudited) (a)
Years ended December 31,
In millions, except per share amounts
2020
2019
NET SALES
$
19,811
$
23,571
Cost of sales
14,917
17,591
GROSS MARGIN
4,894
5,980
OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses
2,125
2,454
Research, development and engineering expenses
906
1,001
Equity, royalty and interest income from investees
452
330
Restructuring actions
—
119
Other operating expense, net
(46
)
(36
)
OPERATING INCOME
2,269
2,700
Interest expense
100
109
Other income, net
169
243
INCOME BEFORE INCOME TAXES
2,338
2,834
Income tax expense
527
566
CONSOLIDATED NET INCOME
1,811
2,268
Less: Net income attributable to noncontrolling interests
22
8
NET INCOME ATTRIBUTABLE TO CUMMINS INC.
$
1,789
$
2,260
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
Basic
$
12.07
$
14.54
Diluted
$
12.01
$
14.48
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
Basic
148.2
155.4
Diluted
149.0
156.1
(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
December 31,
2020
December 31,
2019
ASSETS
Current assets
Cash and cash equivalents
$
3,401
$
1,129
Marketable securities
461
341
Total cash, cash equivalents and marketable securities
3,862
1,470
Accounts and notes receivable, net
3,820
3,670
Inventories
3,425
3,486
Prepaid expenses and other current assets
790
761
Total current assets
11,897
9,387
Long-term assets
Property, plant and equipment, net
4,255
4,245
Investments and advances related to equity method investees
1,441
1,237
Goodwill
1,293
1,286
Other intangible assets, net
963
1,003
Pension assets
1,042
1,001
Other assets
1,733
1,578
Total assets
$
22,624
$
19,737
LIABILITIES
Current liabilities
Accounts payable (principally trade)
$
2,820
$
2,534
Loans payable
169
100
Commercial paper
323
660
Accrued compensation, benefits and retirement costs
484
560
Current portion of accrued product warranty
674
803
Current portion of deferred revenue
691
533
Other accrued expenses
1,112
1,039
Current maturities of long-term debt
62
31
Total current liabilities
6,335
6,260
Long-term liabilities
Long-term debt
3,610
1,576
Pensions and OPEB
630
591
Accrued product warranty
672
645
Deferred revenue
840
821
Other liabilities
1,548
1,379
Total liabilities
$
13,635
$
11,272
EQUITY
Cummins Inc. shareholders’ equity
Common stock, $2.50 par value, 500 shares authorized, 222.4 and 222.4 shares issued
$
2,404
$
2,346
Retained earnings
15,419
14,416
Treasury stock, at cost, 74.8 and 71.7 shares
(7,779
)
(7,225
)
Common stock held by employee benefits trust, at cost, — and 0.2 shares
—
(2
)
Accumulated other comprehensive loss
(1,982
)
(2,028
)
Total Cummins Inc. shareholders’ equity
8,062
7,507
Noncontrolling interests
927
958
Total equity
$
8,989
$
8,465
Total liabilities and equity
$
22,624
$
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 December 31,
In millions
2020
2019
NET CASH PROVIDED BY OPERATING ACTIVITIES
$
1,142
$
838
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures
(260
)
(305
)
Investments in internal use software
(14
)
(25
)
Investments in and advances to equity investees
(21
)
(4
)
Investments in marketable securities—acquisitions
(171
)
(128
)
Investments in marketable securities—liquidations
61
93
Cash flows from derivatives not designated as hedges
19
42
Other, net
4
6
Net cash used in investing activities
(382
)
(321
)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings
15
1
Net borrowings (payments) of commercial paper
7
(242
)
Payments on borrowings and finance lease obligations
(32
)
(49
)
Net borrowings under short-term credit agreements
4
—
Dividend payments on common stock
(200
)
(199
)
Repurchases of common stock
(91
)
(465
)
Proceeds from issuing common stock
10
28
Other, net
3
29
Net cash used in financing activities
(284
)
(897
)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
(42
)
(51
)
Net increase (decrease) in cash and cash equivalents
434
(431
)
Cash and cash equivalents at beginning of period
2,967
1,560
CASH AND CASH EQUIVALENTS AT END OF PERIOD
$
3,401
$
1,129
(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)
Years ended December 31,
In millions
2020
2019
NET CASH PROVIDED BY OPERATING ACTIVITIES
$
2,722
$
3,181
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures
(528
)
(700
)
Investments in internal use software
(47
)
(75
)
Investments in and advances to equity investees
(51
)
(20
)
Acquisitions of businesses, net of cash acquired
—
(237
)
Investments in marketable securities—acquisitions
(593
)
(495
)
Investments in marketable securities—liquidations
469
389
Cash flows from derivatives not designated as hedges
4
(44
)
Other, net
27
32
Net cash used in investing activities
(719
)
(1,150
)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings
2,014
11
Net payments of commercial paper
(337
)
(120
)
Payments on borrowings and finance lease obligations
(73
)
(96
)
Net borrowings under short-term credit agreements
10
53
Distributions to noncontrolling interests
(26
)
(33
)
Dividend payments on common stock
(782
)
(761
)
Repurchases of common stock
(641
)
(1,271
)
Proceeds from issuing common stock
88
76
Other, net
27
46
Net cash provided by (used in) financing activities
280
(2,095
)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
(11
)
(110
)
Net increase (decrease) in cash and cash equivalents
2,272
(174
)
Cash and cash equivalents at beginning of year
1,129
1,303
CASH AND CASH EQUIVALENTS AT END OF PERIOD
$
3,401
$
1,129
(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 December 31, 2020
External sales
$
1,792
$
1,987
$
1,458
$
560
$
33
$
5,830
$
—
$
5,830
Intersegment sales
537
9
373
429
1
1,349
(1,349
)
—
Total sales
2,329
1,996
1,831
989
34
7,179
(1,349
)
5,830
Research, development and engineering expenses
73
11
77
64
30
255
—
255
Equity, royalty and interest income (loss) from investees
76
17
15
3
(1
)
110
—
110
Interest income
3
1
1
1
—
6
—
6
EBITDA (2)
338
165
280
74
(51
)
806
31
837
Depreciation and amortization (3)
53
31
50
34
5
173
—
173
EBITDA as a percentage of total sales
14.5
%
8.3
%
15.3
%
7.5
%
NM
11.2
%
14.4
%
Three months ended December 31, 2019
External sales
$
1,691
$
2,031
$
1,198
$
640
$
18
$
5,578
$
—
$
5,578
Intersegment sales
593
7
359
414
—
1,373
(1,373
)
—
Total sales
2,284
2,038
1,557
1,054
18
6,951
(1,373
)
5,578
Research, development and engineering expenses
92
7
77
59
36
271
—
271
Equity, royalty and interest income (loss) from investees
48
17
10
(1
)
—
74
—
74
Interest income
2
3
2
1
—
8
—
8
EBITDA (excluding restructuring actions)
277
164
209
55
(50
)
655
27
682
Restructuring actions
18
37
20
12
1
88
31
119
EBITDA (2)
259
127
189
43
(51
)
567
(4
)
563
Depreciation and amortization (3)
51
29
62
30
6
178
—
178
EBITDA (excluding restructuring actions) as a percentage of total sales
12.1
%
8.0
%
13.4
%
5.2
%
NM
9.4
%
12.2
%
EBITDA as a percentage of total sales
11.3
%
6.2
%
12.1
%
4.1
%
NM
8.2
%
10.1
%
"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 three months ended December 31, 2020. The three months ended December 31, 2019, includes a $31 million restructuring charge related to corporate functions.
(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
Year ended December 31, 2020
External sales
$
5,925
$
7,110
$
4,650
$
2,055
$
71
$
19,811
$
—
$
19,811
Intersegment sales
2,097
26
1,374
1,576
1
5,074
(5,074
)
—
Total sales
8,022
7,136
6,024
3,631
72
24,885
(5,074
)
19,811
Research, development and engineering expenses
290
31
264
212
109
906
—
906
Equity, royalty and interest income (loss) from investees
312
62
61
21
(4
)
452
—
452
Interest income
9
4
4
4
—
21
—
21
EBITDA (2)
1,235
665
961
343
(172
)
3,032
76
3,108
Depreciation and amortization (3)
208
122
192
130
18
670
—
670
EBITDA as a percentage of total sales
15.4
%
9.3
%
16.0
%
9.4
%
NM
12.2
%
15.7
%
Year ended December 31, 2019
External sales
$
7,570
$
8,040
$
5,253
$
2,670
$
38
$
23,571
$
—
$
23,571
Intersegment sales
2,486
31
1,661
1,790
—
5,968
(5,968
)
—
Total sales
10,056
8,071
6,914
4,460
38
29,539
(5,968
)
23,571
Research, development and engineering expenses
337
28
300
230
106
1,001
—
1,001
Equity, royalty and interest income from investees
200
52
40
38
—
330
—
330
Interest income
15
15
8
8
—
46
—
46
EBITDA (excluding restructuring actions)
1,472
693
1,117
524
(148
)
3,658
73
3,731
Restructuring actions
18
37
20
12
1
88
31
119
EBITDA (2)
1,454
656
1,097
512
(149
)
3,570
42
3,612
Depreciation and amortization (3)
202
115
222
118
12
669
—
669
EBITDA (excluding restructuring actions) as a percentage of total sales
14.6
%
8.6
%
16.2
%
11.7
%
NM
12.4
%
15.8
%
EBITDA as a percentage of total sales
14.5
%
8.1
%
15.9
%
11.5
%
NM
12.1
%
15.3
%
"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 year ended December 31, 2020. The year ended December 31, 2019, includes a $31 million restructuring charge related to corporate functions.
(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 $3 million and $3 million for the years ended December 31, 2020 and December 31, 2019, respectively. A portion of depreciation expense is included in "Research, development and engineering expenses."
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 December 31,
Years ended December 31,
In millions
2020
2019
2020
2019
EBITDA excluding restructuring actions
$
837
$
682
$
3,108
$
3,731
Less: Restructuring actions
—
119
—
119
Total EBITDA
837
563
3,108
3,612
Less:
Depreciation and amortization
173
178
670
669
Interest expense
29
22
100
109
Income before income taxes
$
635
$
363
$
2,338
$
2,834
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 December 31,
Years ended December 31,
In millions
2020
2019
2020
2019
Manufacturing entities
Beijing Foton Cummins Engine Co., Ltd.
$
32
$
4
$
113
$
60
Dongfeng Cummins Engine Company, Ltd.
9
12
63
52
Chongqing Cummins Engine Company, Ltd.
8
9
35
41
All other manufacturers
34
(1)
12
134
(1)(2)
88
Distribution entities
Komatsu Cummins Chile, Ltda.
8
9
31
28
All other distributors
1
2
2
2
Cummins share of net income
92
48
378
271
Royalty and interest income
18
26
74
59
Equity, royalty and interest income from investees
$
110
$
74
$
452
$
330
(1) Includes loss on sale of business of $8 million for a joint venture in the Power Systems segment.
(2) Includes $37 million in favorable adjustments related to tax changes within India's 2020-2021 Union Budget of India (India Tax Law Changes) passed in March 2020 and impairment charges of $13 million for a joint venture in the Power Systems segment.
INCOME TAXES
Our effective tax rate for the three and twelve months ended December 31, 2020, was 19.7 percent and 22.5 percent, respectively.
The three months ended December 31, 2020, contained favorable discrete items of $1 million , or $0.01 per share, consisting of $9 million of favorable changes of provision to return adjustments relating to tax returns filed for 2019, almost offset by $8 million of unfavorable net other discrete items.
The twelve months ended December 31, 2020, contained $26 million , or $0.17 per share, of unfavorable net discrete tax items, primarily due to $33 million of unfavorable changes in tax reserves and $10 million of withholding tax adjustments, partially offset by $15 million of favorable changes due to the India Tax Law Change. 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 year ended December 31, 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 favorable discrete items.
AVAILABLE LIQUIDITY AND CREDIT RATINGS
Available Liquidity
Cash provided by operations is typically our principal source of liquidity with $2,722 million generated in the year ended December 31, 2020. Our sources of liquidity include:
December 31, 2020
In millions
Total
U.S.
International
Primary location of international balances
Cash and cash equivalents
$
3,401
$
1,914
$
1,487
China, Singapore, Mexico, Belgium, Australia, Canada
Marketable securities (1)
461
86
375
India
Total
$
3,862
$
2,000
$
1,862
Available credit capacity
Revolving credit facilities (2)
$
3,177
International and other uncommitted domestic credit facilities
$
256
(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 December 31, 2020, we had $323 million of commercial paper outstanding, which effectively reduced the available capacity under our revolving credit facilities to $3.2 billion .
Credit Ratings
Our rating and outlook from each of the credit rating agencies as of the date of filing are shown in the table below.
Long-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 December 31,
Years ended December 31,
In millions
2020
2019
2020
2019
Net income attributable to Cummins Inc.
$
501
$
300
$
1,789
$
2,260
Net income attributable to Cummins Inc. as a percentage of net sales
8.6
%
5.4
%
9.0
%
9.6
%
Add:
Net income (loss) attributable to noncontrolling interests
9
(2
)
22
8
Consolidated net income
510
298
1,811
2,268
Add:
Interest expense
29
22
100
109
Income tax expense
125
65
527
566
Depreciation and amortization
173
178
670
669
EBITDA
$
837
$
563
$
3,108
$
3,612
EBITDA as a percentage of net sales
14.4
%
10.1
%
15.7
%
15.3
%
Add:
Restructuring actions
—
119
—
119
EBITDA, excluding impact of restructuring actions
$
837
$
682
$
3,108
$
3,731
EBITDA, excluding impact of restructuring actions, as a percentage of net sales
14.4
%
12.2
%
15.7
%
15.8
%
Net income and diluted earnings per share (EPS) attributable to Cummins Inc. excluding restructuring actions
We believe these are useful measures of our operating performance for the periods presented as they illustrate our operating performance without regard to restructuring actions. These measures are not in accordance with, or an alternative for GAAP and may not be consistent with measures used by other companies. This should be considered supplemental data. The following table reconciles net income and diluted EPS attributable to Cummins Inc. to net income and diluted EPS attributable to Cummins Inc. excluding restructuring actions for the following periods:
Three months ended December 31,
2019
In millions
Net Income
Diluted EPS
Net income and diluted EPS attributable to Cummins Inc.
$
300
$
1.97
Restructuring actions, net of tax (1)
90
0.59
Net income and diluted EPS attributable to Cummins Inc. excluding restructuring actions
$
390
$
2.56
Year ended December 31,
2019
In millions
Net Income
Diluted EPS
Net income and diluted EPS attributable to Cummins Inc.
$
2,260
$
14.48
Restructuring actions, net of tax (1)
90
0.57
Net income and diluted EPS attributable to Cummins Inc. excluding restructuring actions
$
2,350
$
15.05
(1) In the fourth quarter of 2019, we recorded restructuring actions totaling $119 million ($90 million after-tax).
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
$
789
$
2,648
Medium-duty truck and bus
618
391
492
565
2,066
Light-duty automotive
353
180
522
492
1,547
Off-highway
437
437
404
483
1,761
Total sales
$
2,158
$
1,423
$
2,112
$
2,329
$
8,022
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
27,500
92,500
Medium-duty
61,200
44,900
50,100
64,700
220,900
Light-duty
49,400
29,800
67,200
69,400
215,800
Total units
136,400
90,600
140,600
161,600
529,200
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
$
768
$
2,931
Power generation
376
377
416
523
1,692
Service
328
297
304
334
1,263
Engines
323
277
279
371
1,250
Total sales
$
1,814
$
1,605
$
1,721
$
1,996
$
7,136
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
$
831
$
2,632
Filtration
312
255
314
351
1,232
Turbo technologies
270
216
281
331
1,098
Electronics and fuel systems
174
164
187
229
754
Automated transmissions
82
43
94
89
308
Total sales
$
1,502
$
1,150
$
1,541
$
1,831
$
6,024
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
$
623
$
2,167
Industrial
296
291
309
292
1,188
Generator technologies
69
62
71
74
276
Total sales
$
884
$
777
$
981
$
989
$
3,631
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
2,600
7,700
Industrial
1,000
1,000
1,200
1,100
4,300
Total units
2,800
2,000
3,500
3,700
12,000
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
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