Cummins Reports Fourth Quarter and Full Year 2020 Results

Rhea-AI Summary

Cummins reported a 4Q 2020 revenue of $5.8 billion, a 5% increase from 4Q 2019. Full year revenues fell 16% to $19.8 billion. While North America faced a 21% decline, international sales rose 12% due to strong demand in China and India. Net income for the quarter was $501 million ($3.36/share), exceeding 2019 figures. The annual EBITDA was $3.1 billion. For 2021, Cummins projects an 8-12% revenue increase. The company plans to return 75% of its operating cash flow to shareholders.

Positive

• 4Q 2020 revenue increased by 5% to $5.8 billion.
• International revenues rose 12%, particularly in China and India.
• 4Q net income reached $501 million, up from $390 million in 2019.
• Full-year EBITDA was $3.1 billion, demonstrating resilience amid challenges.
• Plans to return 75% of operating cash flow to shareholders.

Negative

• 2020 full-year revenues fell 16% year-over-year to $19.8 billion.
• North American sales decreased by 21% in 2020.
• Power Systems Segment sales declined 6% in the fourth quarter.

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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FAQ

What were Cummins' 4Q 2020 revenues?

Cummins reported 4Q 2020 revenues of $5.8 billion, a 5% increase from 4Q 2019.

How did Cummins perform internationally in 4Q 2020?

International revenues increased 12%, driven by strong demand in China and India.

What is Cummins' net income for 4Q 2020?

The net income attributable to Cummins for 4Q 2020 was $501 million, or $3.36 per diluted share.

What is the revenue outlook for Cummins in 2021?

Cummins projects full year 2021 revenues to increase by 8 to 12%.

How much cash will Cummins return to shareholders?

Cummins plans to return 75% of operating cash flow to shareholders through dividends and share repurchases.