8-K
Cummins Inc (CMI)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: July 28, 2020
CUMMINS INC.
(Exact name of registrant as specified in its charter)
| Indiana | 1-4949 | 35-0257090 |
|---|---|---|
| (State or other Jurisdiction of<br>Incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) |
500 Jackson Street
P. O. Box 3005
Columbus, Indiana 47202-3005
(Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code: (812) 377-5000
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Sections 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered |
|---|---|---|
| Common stock, $2.50 par value | CMI | New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter)
Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02. Results of Operations and Financial Condition.
On July 28, 2020, Cummins Inc. (“Cummins,” “the Company,” “the registrant,” “we,” “our,” or “us”) issued the attached press release reporting its financial results for the second quarter of 2020, which is furnished herewith as Exhibit 99.
The information furnished pursuant to this Item 2.02, including Exhibit 99, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities under that Section and shall not be deemed to be incorporated by reference into any filing of the Company under the Securities Act of 1933 or the Exchange Act.
Item 9.01. Financial Statements and Exhibits.
(d)Exhibits. - The exhibit below is furnished herewith:
Exhibit Index
| Exhibit No. | Description |
|---|---|
| Exhibit 99 | Press Release datedJuly28, 2020 |
| Exhibit 104 | Cover Page Interactive Data File (the cover page Interactive Data File is embedded within the Inline XBRL document) |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: July 28, 2020
| CUMMINS INC. |
|---|
| /s/ CHRISTOPHER C. CLULOW |
| Christopher C. Clulow<br><br>Vice President - Corporate Controller<br><br>(Principal Accounting Officer) |
Document
EXHIBIT 99
For Immediate Release
July 28, 2020
Cummins Reports Second Quarter 2020 Results
•Second quarter revenues of $3.9 billion; GAAP^1^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. - 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 second 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.
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
^1^ Generally Accepted Accounting Principles
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 decision to exit 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,<br>2020 | March 29,<br>2020 | June 30,<br>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,<br>2020 | June 30,<br>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,<br>2020 | December 31,<br>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,<br>2020 | March 29,<br>2020 | June 30,<br>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,<br>2020 | June 30,<br>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 | 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 | 11 | 661 | 733 | — | 2,470 | (2,470) | — | ||||||||||||||
| Total sales | 3,419 | 2,652 | 1,661 | 20 | 11,333 | (2,470) | 8,863 | ||||||||||||||
| Research, development and engineering expenses | 11 | 123 | 95 | 53 | 427 | — | 427 | ||||||||||||||
| Equity, royalty and interest income from investees | 32 | 33 | 18 | (1) | 244 | — | 244 | ||||||||||||||
| Interest income | 2 | 2 | 2 | — | 11 | — | 11 | ||||||||||||||
| Segment EBITDA | 318 | 420 | 168 | (81) | 1,340 | 55 | 1,395 | ||||||||||||||
| Depreciation and amortization (2) | 61 | 95 | 64 | 8 | 332 | — | 332 | ||||||||||||||
| Segment EBITDA as a percentage of total sales | % | 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 | 21 | 905 | 933 | — | 3,158 | (3,158) | — | ||||||||||||||
| Total sales | 4,029 | 3,707 | 2,280 | 11 | 15,383 | (3,158) | 12,225 | ||||||||||||||
| Research, development and engineering expenses | 14 | 150 | 113 | 45 | 488 | — | 488 | ||||||||||||||
| Equity, royalty and interest income from investees | 23 | 21 | 26 | — | 188 | — | 188 | ||||||||||||||
| Interest income | 8 | 4 | 4 | — | 24 | — | 24 | ||||||||||||||
| Segment EBITDA | 343 | 622 | 311 | (62) | 2,068 | 23 | 2,091 | ||||||||||||||
| Depreciation and amortization (2) | 57 | 93 | 59 | 4 | 314 | — | 314 | ||||||||||||||
| EBITDA as a percentage of total sales | % | 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." |
All values are in US Dollars.
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,<br>2020 | June 30,<br>2019 | June 28,<br>2020 | June 30,<br>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:
| Six months ended | ||||||||
|---|---|---|---|---|---|---|---|---|
| In millions | June 30,<br>2019 | June 28,<br>2020 | June 30,<br>2019 | |||||
| Manufacturing entities | ||||||||
| Beijing Foton Cummins Engine Co., Ltd. | 34 | $ | 20 | $ | 51 | $ | 41 | |
| Dongfeng Cummins Engine Company, Ltd. | 16 | 34 | 30 | |||||
| Chongqing Cummins Engine Company, Ltd. | 10 | 20 | 22 | |||||
| All other manufacturers | 28 | 78 | ^(1)^ | 55 | ||||
| Distribution entities | ||||||||
| Komatsu Cummins Chile, Ltda. | 7 | 17 | 13 | |||||
| All other distributors | — | — | (1) | |||||
| Cummins share of net income | 81 | 200 | 160 | |||||
| Royalty and interest income | 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. |
All values are in US Dollars.
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 | |
|---|---|
| Equity, royalty and interest income from investees | 37 |
| Income tax expense (1) | |
| Less: Net income attributable to noncontrolling interests | |
| Net income statement impact | 35 |
| (1) The adjustment to "Income tax expense" includes 15 million of discrete items. |
All values are in US Dollars.
CUMMINS INC. AND SUBSIDIARIES
SELECT FOOTNOTE DATA
(Unaudited)
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:
| In millions | U.S. | International | Primary location of international balances | |||
| Cash and cash equivalents | 1,751 | $ | 836 | $ | 915 | Singapore, China, Mexico, Belgium, Australia |
| Marketable securities (1) | 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. |
All values are in US Dollars.
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,<br>2020 | March 29,<br>2020 | June 30,<br>2019 | June 28,<br>2020 | June 30,<br>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 |
CUMMINS INC. AND SUBSIDIARIES
BUSINESS UNIT SALES DATA
(Unaudited)
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 |
CUMMINS INC. AND SUBSIDIARIES
BUSINESS UNIT SALES DATA
(Unaudited)
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 |
18