Cummins Reports Third Quarter 2020 Results

Rhea-AI Summary

Cummins Inc. (NYSE: CMI) reported third quarter 2020 revenues of $5.1 billion, an 11% decline from the same quarter in 2019. North American sales dropped 18%, while international revenues were stable. EBITDA reached $876 million (17.1% of sales), down from $958 million (16.6%). Net income fell to $501 million ($3.36 per diluted share) due to a 26.5% tax rate and $31 million in discrete tax items. Cummins announced a 3% increase in its quarterly dividend, marking 11 consecutive years of increases, and completed a $2 billion debt offering. Outlook for Q4 suggests stable revenues with caution on demand visibility.

Positive

• Dividends increased by 3%, marking the 11th consecutive year of dividend increases.
• Record operating cash flow achieved despite revenue decline.
• Successful completion of a $2 billion debt offering.
• EBITDA margin improved due to VAT recovery.

Negative

• Third quarter revenues decreased 11% year-over-year.
• Net income down 19.5% compared to Q3 2019.
• North American sales declined by 18%.
• New Power Segment faced an EBITDA loss of $40 million.

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

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

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

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

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

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

2020 Outlook:

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

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

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

Third Quarter 2020 Highlights:

• The company completed an aggregate $2 billion debt offering of 5, 10, and 30-year maturities. The company’s long-term credit ratings remain unchanged at A+ from Standard & Poor’s and A2 from Moody’s with stable outlooks

• A collaboration with the Department of Energy’s Oak Ridge National Laboratory (ORNL) has resulted in the ability to produce enough filter media to supply more than a million face masks and respirators per day to U.S. healthcare facilities

• Cummins was awarded over $12 million of funding for five separate Department of Energy projects related to PEM and Solid Oxide fuel cell and electrolyzer technologies

• The company announced an increase in its quarterly dividend from $1.311 to $1.35 a share

1 Generally Accepted Accounting Principles

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

Engine Segment

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

Distribution Segment

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

Components Segment

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

Power Systems Segment

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

New Power Segment

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

About Cummins Inc.

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

Forward-looking disclosure statement

Information provided in this release that is not purely historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our forecasts, guidance, preliminary results, expectations, hopes, beliefs and intentions on strategies regarding the future. These forward-looking statements include, without limitation, statements relating to our plans and expectations for our revenues and EBITDA. Our actual future results could differ materially from those projected in such forward-looking statements because of a number of factors, including, but not limited to: market slowdown due to the impacts from COVID-19 pandemic, other public health crises, epidemics or pandemics; impacts to manufacturing and supply chain abilities from an extended shutdown or disruption of our operations due to the COVID-19 pandemic; supply shortages and supplier financial risk, particularly from any of our single-sourced suppliers, including suppliers that may be impacted by the COVID-19 pandemic; aligning our capacity and production with our demand, including impacts of COVID-19; a major customer experiencing financial distress, particularly related to the COVID-19 pandemic; any adverse results of our internal review into our emissions certification process and compliance with emission standards; increased scrutiny from regulatory agencies, as well as unpredictability in the adoption, implementation and enforcement of emission standards around the world; disruptions in global credit and financial markets as the result of the COVID-19 pandemic; adverse impacts from government actions to stabilize credit markets and financial institutions and other industries; product recalls; the development of new technologies that reduce demand for our current products and services; policy changes in international trade; a slowdown in infrastructure development and/or depressed commodity prices; the U.K.'s exit from the European Union (EU); labor relations or work stoppages; reliance on our executive leadership team and other key personnel; lower than expected acceptance of new or existing products or services; changes in the engine outsourcing practices of significant customers; our plan to reposition our portfolio of product offerings through exploration of strategic acquisitions and divestitures and related uncertainties of entering such transactions; exposure to potential security breaches or other disruptions to our information technology systems and data security; challenges or unexpected costs in completing cost reduction actions and restructuring initiatives; failure to realize expected results from our investment in Eaton Cummins Automated Transmission Technologies joint venture; political, economic and other risks from operations in numerous countries; competitor activity; increasing competition, including increased global competition among our customers in emerging markets; foreign currency exchange rate changes; variability in material and commodity costs; the actions of, and income from, joint ventures and other investees that we do not directly control; changes in taxation; global legal and ethical compliance costs and risks; product liability claims; increasingly stringent environmental laws and regulations; the performance of our pension plan assets and volatility of discount rates, particularly those related to the sustained slowdown of the global economy due to the COVID-19 pandemic; future bans or limitations on the use of diesel-powered products; the price and availability of energy; our sales mix of products; protection and validity of our patent and other intellectual property rights; the outcome of pending and future litigation and governmental proceedings; continued availability of financing, financial instruments and financial resources in the amounts, at the times and on the terms required to support our future business; and other risks detailed from time to time in our SEC filings, including particularly in the Risk Factors section of our 2019 Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are made only as of the date of this press release and we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. More detailed information about factors that may affect our performance may be found in our filings with the SEC, which are available at http://www.sec.gov or at http://www.cummins.com in the Investor Relations section of our website.

Presentation of Non-GAAP Financial Information

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

Webcast information

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

CUMMINS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF NET INCOME (Unaudited) (a)
		Three months ended
In millions, except per share amounts		September 27, 2020				June 28, 2020				September 29, 2019
NET SALES		$	5,118			$	3,852			$	5,768
Cost of sales		3,769				2,962				4,274
GROSS MARGIN		1,349				890				1,494
OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses		533				470				600
Research, development and engineering expenses		224				189				242
Equity, royalty and interest income from investees		98				115				68
Other operating expense, net		(20		)		(10		)		(21		)
OPERATING INCOME		670				336				699
Interest income		4				4				14
Interest expense		25				23				26
Other income, net		37				45				68
INCOME BEFORE INCOME TAXES		686				362				755
Income tax expense		182				93				139
CONSOLIDATED NET INCOME		504				269				616
Less: Net income (loss) attributable to noncontrolling interests		3				(7		)		(6		)
NET INCOME ATTRIBUTABLE TO CUMMINS INC.		$	501			$	276			$	622
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
Basic		$	3.39			$	1.87			$	3.99
Diluted		$	3.36			$	1.86			$	3.97
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
Basic		147.9				147.6				155.9
Diluted		148.9				148.0				156.6
(a) Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America.

CUMMINS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF NET INCOME (Unaudited) (a)
		Nine months ended
In millions, except per share amounts		September 27, 2020				September 29, 2019
NET SALES		$	13,981			$	17,993
Cost of sales		10,448				13,326
GROSS MARGIN		3,533				4,667
OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses		1,549				1,822
Research, development and engineering expenses		651				730
Equity, royalty and interest income from investees		342				256
Other operating expense, net		(35		)		(25		)
OPERATING INCOME		1,640				2,346
Interest income		15				38
Interest expense		71				87
Other income, net		119				174
INCOME BEFORE INCOME TAXES		1,703				2,471
Income tax expense		402				501
CONSOLIDATED NET INCOME		1,301				1,970
Less: Net income attributable to noncontrolling interests		13				10
NET INCOME ATTRIBUTABLE TO CUMMINS INC.		$	1,288			$	1,960
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
Basic		$	8.69			$	12.50
Diluted		$	8.65			$	12.45
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
Basic		148.3				156.8
Diluted		148.9				157.4
(a) Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America.

CUMMINS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (a)
In millions, except par value		September 27, 2020				December 31, 2019
ASSETS
Current assets
Cash and cash equivalents		$	2,967			$	1,129
Marketable securities		345				341
Total cash, cash equivalents and marketable securities		3,312				1,470
Accounts and notes receivable, net		3,628				3,670
Inventories		3,470				3,486
Prepaid expenses and other current assets		652				761
Total current assets		11,062				9,387
Long-term assets
Property, plant and equipment, net		4,087				4,245
Investments and advances related to equity method investees		1,418				1,237
Goodwill		1,288				1,286
Other intangible assets, net		990				1,003
Pension assets		1,010				1,001
Other assets		1,713				1,578
Total assets		$	21,568			$	19,737
LIABILITIES
Current liabilities
Accounts payable (principally trade)		$	2,597			$	2,534
Loans payable		129				100
Commercial paper		316				660
Accrued compensation, benefits and retirement costs		433				560
Current portion of accrued product warranty		646				803
Current portion of deferred revenue		540				533
Other accrued expenses		990				1,039
Current maturities of long-term debt		58				31
Total current liabilities		5,709				6,260
Long-term liabilities
Long-term debt		3,609				1,576
Pensions and other postretirement benefits		571				591
Accrued product warranty		635				645
Deferred revenue		837				821
Other liabilities		1,566				1,379
Total liabilities		$	12,927			$	11,272
EQUITY
Cummins Inc. shareholders’ equity
Common stock, $2.50 par value, 500 shares authorized, 222.5 and 222.4 shares issued		$	2,385			$	2,346
Retained earnings		15,118				14,416
Treasury stock, at cost, 74.4 and 71.7 shares		(7,696		)		(7,225		)
Common stock held by employee benefits trust, at cost, 0.0 and 0.2 shares		—				(2		)
Accumulated other comprehensive loss		(2,107		)		(2,028		)
Total Cummins Inc. shareholders’ equity		7,700				7,507
Noncontrolling interests		941				958
Total equity		$	8,641			$	8,465
Total liabilities and equity		$	21,568			$	19,737
(a) Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America.

CUMMINS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (a)
		Three months ended
In millions		September 27, 2020				June 28, 2020				September 29, 2019
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net income		$	504			$	269			$	616
Adjustments to reconcile consolidated net income to net cash provided by (used in) operating activities
Depreciation and amortization		166				165				178
Deferred income taxes		4				—				(31		)
Equity in income of investees, net of dividends		(12		)		(46		)		(1		)
Pension and OPEB expense		27				27				19
Pension contributions and OPEB payments		(20		)		(22		)		(38		)
Stock-based compensation expense		10				8				9
Restructuring payments		(19		)		(33		)		—
Gain on corporate owned life insurance		(12		)		(21		)		(9		)
Foreign currency remeasurement and transaction exposure		(5		)		(5		)		(100		)
Changes in current assets and liabilities, net of acquisitions
Accounts and notes receivable		(123		)		63				211
Inventories		174				(53		)		63
Other current assets		(22		)		16				33
Accounts payable		329				(391		)		(151		)
Accrued expenses		186				(101		)		120
Changes in other liabilities		9				171				48
Other, net		27				(69		)		156
Net cash provided by (used in) operating activities		1,223				(22		)		1,123
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures		(116		)		(77		)		(153		)
Investments in internal use software		(12		)		(13		)		(16		)
Investments in and advances to equity investees		(13		)		(10		)		2
Acquisitions of businesses, net of cash acquired		—				—				(222		)
Investments in marketable securities—acquisitions		(137		)		(169		)		(108		)
Investments in marketable securities—liquidations		154				159				143
Cash flows from derivatives not designated as hedges		7				(28		)		(60		)
Other, net		14				3				(4		)
Net cash used in investing activities		(103		)		(135		)		(418		)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings		1,977				22				—
Net (payments) borrowings of commercial paper		(1,711		)		410				468
Payments on borrowings and finance lease obligations		(16		)		(15		)		(30		)
Net borrowings (payments) under short-term credit agreements		2				(21		)		(4		)
Distributions to noncontrolling interests		(13		)		—				(20		)
Dividend payments on common stock		(194		)		(193		)		(204		)
Repurchases of common stock		—				—				(706		)
Other, net		59				23				9
Net cash provided by (used in) financing activities		104				226				(487		)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		(8		)		(9		)		(55		)
Net increase in cash and cash equivalents		1,216				60				163
Cash and cash equivalents at beginning of period		1,751				1,691				1,397
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	2,967			$	1,751			$	1,560
(a) Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America.

CUMMINS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (a)
		Nine months ended
In millions		September 27, 2020				September 29, 2019
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net income		$	1,301			$	1,970
Adjustments to reconcile consolidated net income to net cash provided by operating activities
Depreciation and amortization		499				493
Deferred income taxes		(7		)		(14		)
Equity in income of investees, net of dividends		(136		)		(44		)
Pension and OPEB expense		81				56
Pension contributions and OPEB payments		(102		)		(130		)
Stock-based compensation expense		22				37
Restructuring payments		(100		)		—
Gain on corporate owned life insurance		(50		)		(64		)
Foreign currency remeasurement and transaction exposure		(7		)		(54		)
Changes in current assets and liabilities, net of acquisitions
Accounts and notes receivable		47				(101		)
Inventories		(50		)		(62		)
Other current assets		73				48
Accounts payable		109				(3		)
Accrued expenses		(236		)		(74		)
Changes in other liabilities		208				168
Other, net		(72		)		117
Net cash provided by operating activities		1,580				2,343
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures		(268		)		(395		)
Investments in internal use software		(33		)		(50		)
Investments in and advances to equity investees		(30		)		(16		)
Acquisitions of businesses, net of cash acquired		—				(237		)
Investments in marketable securities—acquisitions		(422		)		(367		)
Investments in marketable securities—liquidations		408				296
Cash flows from derivatives not designated as hedges		(15		)		(86		)
Other, net		23				26
Net cash used in investing activities		(337		)		(829		)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings		1,999				10
Net (payments) borrowings of commercial paper		(344		)		122
Payments on borrowings and finance lease obligations		(41		)		(47		)
Net borrowings under short-term credit agreements		6				53
Distributions to noncontrolling interests		(26		)		(33		)
Dividend payments on common stock		(582		)		(562		)
Repurchases of common stock		(550		)		(806		)
Other, net		102				65
Net cash provided by (used in) financing activities		564				(1,198		)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		31				(59		)
Net increase in cash and cash equivalents		1,838				257
Cash and cash equivalents at beginning of year		1,129				1,303
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	2,967			$	1,560
(a) Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America.

CUMMINS INC. AND SUBSIDIARIES SEGMENT INFORMATION (Unaudited)
In millions		Engine				Distribution				Components				Power Systems				New Power				Total Segments				Intersegment Eliminations (1)				Total
Three months ended September 27, 2020
External sales		$	1,617			$	1,715			$	1,201			$	567			$	18			$	5,118			$	—			$	5,118
Intersegment sales		495				6				340				414				—				1,255				(1,255		)		—
Total sales		2,112				1,721				1,541				981				18				6,373				(1,255		)		5,118
Research, development and engineering expenses		72				9				64				53				26				224				—				224
Equity, royalty and interest income (loss) from investees		74				13				13				—				(2		)		98				—				98
Interest income		1				1				1				1				—				4				—				4
EBITDA (2)		382				182				261				101				(40		)		886				(10		)		876
Depreciation and amortization (3)		51				30				47				32				5				165				—				165
EBITDA as a percentage of total sales		18.1		%		10.6		%		16.9		%		10.3		%			NM			13.9		%						17.1		%
Three months ended September 29, 2019
External sales		$	1,822			$	2,001			$	1,253			$	683			$	9			$	5,768			$	—			$	5,768
Intersegment sales		594				3				397				443				—				1,437				(1,437		)		—
Total sales		2,416				2,004				1,650				1,126				9				7,205				(1,437		)		5,768
Research, development and engineering expenses		79				7				73				58				25				242				—				242
Equity, royalty and interest income from investees		34				12				9				13				—				68				—				68
Interest income		5				4				2				3				—				14				—				14
EBITDA (2)		341				186				286				158				(36		)		935				23				958
Depreciation and amortization (3)		50				29				67				29				2				177				—				177
EBITDA as a percentage of total sales		14.1		%		9.3		%		17.3		%		14.0		%			NM			13.0		%						16.6		%
"NM" - not meaningful information
(1) Includes intersegment sales, intersegment profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the three months ended September 27, 2020 and September 29, 2019.
(2) EBITDA is defined as earnings or losses before interest expense, income taxes, depreciation and amortization and noncontrolling interests.
(3) Depreciation and amortization, as shown on a segment basis, excludes the amortization of debt discount and deferred costs included in the Condensed Consolidated Statements of Net Income as "Interest expense." A portion of depreciation expense is included in "Research, development and engineering expenses."

CUMMINS INC. AND SUBSIDIARIES SEGMENT INFORMATION (Unaudited)
In millions		Engine				Distribution				Components				Power Systems				New Power				Total Segments				Intersegment Eliminations (1)				Total
Nine months ended September 27, 2020
External sales		$	4,133			$	5,123			$	3,192			$	1,495			$	38			$	13,981			$	—			$	13,981
Intersegment sales		1,560				17				1,001				1,147				—				3,725				(3,725		)		—
Total sales		5,693				5,140				4,193				2,642				38				17,706				(3,725		)		13,981
Research, development and engineering expenses		217				20				187				148				79				651				—				651
Equity, royalty and interest income (loss) from investees		236				45				46				18				(3		)		342				—				342
Interest income		6				3				3				3				—				15				—				15
EBITDA (2)		897				500				681				269				(121		)		2,226				45				2,271
Depreciation and amortization (3)		155				91				142				96				13				497				—				497
EBITDA as a percentage of total sales		15.8		%		9.7		%		16.2		%		10.2		%		NM				12.6		%						16.2		%
Nine months ended September 29, 2019
External sales		$	5,879			$	6,009			$	4,055			$	2,030			$	20			$	17,993			$	—			$	17,993
Intersegment sales		1,893				24				1,302				1,376				—				4,595				(4,595		)		—
Total sales		7,772				6,033				5,357				3,406				20				22,588				(4,595		)		17,993
Research, development and engineering expenses		245				21				223				171				70				730				—				730
Equity, royalty and interest income from investees		152				35				30				39				—				256				—				256
Interest income		13				12				6				7				—				38				—				38
EBITDA (2)		1,195				529				908				469				(98		)		3,003				46				3,049
Depreciation and amortization (3)		151				86				160				88				6				491				—				491
EBITDA as a percentage of total sales		15.4		%		8.8		%		16.9		%		13.8		%		NM				13.3		%						16.9		%
"NM" - not meaningful information
(1) Includes intersegment sales, intersegment profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the nine months ended September 27, 2020 and September 29, 2019.
(2) EBITDA is defined as earnings or losses before interest expense, income taxes, depreciation and amortization and noncontrolling interests.
(3) Depreciation and amortization, as shown on a segment basis, excludes the amortization of debt discount and deferred costs included in the Condensed Consolidated Statements of Net Income as "Interest expense." The amortization of debt discount and deferred costs was $2 million and $2 million for the nine months ended September 27, 2020 and September 29, 2019, respectively. A portion of depreciation expense is included in "Research, development and engineering expense."

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

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

		Three months ended								Nine months ended
In millions		September 27, 2020				September 29, 2019				September 27, 2020				September 29, 2019
Total EBITDA		$	876			$	958			$	2,271			$	3,049
Less:
Depreciation and amortization		165				177				497				491
Interest expense		25				26				71				87
Income before income taxes		$	686			$	755			$	1,703			$	2,471

CUMMINS INC. AND SUBSIDIARIES
SELECT FOOTNOTE DATA
(Unaudited)

EQUITY, ROYALTY AND INTEREST INCOME FROM INVESTEES

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

		Three months ended								Nine months ended
In millions		September 27, 2020				September 29, 2019				September 27, 2020				September 29, 2019
Manufacturing entities
Beijing Foton Cummins Engine Co., Ltd.		$	30			$	15			$	81			$	56
Dongfeng Cummins Engine Company, Ltd.		20				10				54				40
Chongqing Cummins Engine Company, Ltd.		7				10				27				32
All other manufacturers		22			(1)	21				100			(1)(2)	76
Distribution entities
Komatsu Cummins Chile, Ltda.		6				6				23				19
All other distributors		1				1				1				—
Cummins share of net income		86				63				286				223
Royalty and interest income		12				5				56				33
Equity, royalty and interest income from investees		$	98			$	68			$	342			$	256
(1) Includes impairment charges of $10 million and $13 million for the three and nine months ended September 27, 2020, respectively, for a joint venture in the Power Systems segment.
(2) Includes $37 million in adjustments related to tax changes within India's 2020-2021 Union Budget of India (India Tax Law Changes) passed in March 2020.

INCOME TAXES

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

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

The nine months ended September 27, 2020, contained $27 million, or $0.18 per share, of unfavorable net discrete tax items, primarily due to $34 million of unfavorable changes in tax reserves and $8 million of provision to return adjustments, partially offset by $15 million of favorable tax changes within India's 2020-2021 Union Budget of India (India Tax Law Change) passed in March of 2020. The India Tax Law Change eliminated the dividend distribution tax and replaced it with a lower rate withholding tax as the burden shifted from the dividend payor to the dividend recipient for a net favorable income statement impact of $35 million.

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

In millions		Favorable (Unfavorable)
Equity, royalty and interest income from investees		$	37
Income tax expense (1)		17
Less: Net income attributable to noncontrolling interests		(19		)
Net income statement impact		$	35
(1) The adjustment to "Income tax expense" includes $15 million of discrete items.

AVAILABLE LIQUIDITY AND CREDIT RATINGS

Available Liquidity

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

		September 27, 2020
In millions		Total				U.S.				International				Primary location of international balances
Cash and cash equivalents		$	2,967			$	1,793			$	1,174			China, Mexico, Singapore, Belgium, Australia, Netherlands, Canada
Marketable securities (1)		345				75				270				India
Total		$	3,312			$	1,868			$	1,444
Available credit capacity
Revolving credit facilities (2)		$	3,184
International and other uncommitted domestic credit facilities		$	191
(1) The majority of marketable securities could be liquidated into cash within a few days.
(2) The five-year credit facility for $2.0 billion and the 364-day credit facility for $1.5 billion, maturing August 2023 and August 2021, respectively, are maintained primarily to provide backup liquidity for our commercial paper borrowings and general corporate purposes. At September 27, 2020, we had $316 million of commercial paper outstanding, which effectively reduced the available capacity under our revolving credit facilities to $3.2 billion.

Credit Ratings

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

		Long-Term		Short-Term
Credit Rating Agency (1)		Senior Debt Rating		Debt Rating		Outlook
Standard and Poor’s Rating Services		A+		A1		Stable
Moody’s Investors Service, Inc.		A2		P1		Stable
(1) Credit ratings are not recommendations to buy, are subject to change, and each rating should be evaluated independently of any other rating. In addition, we undertake no obligation to update disclosures concerning our credit ratings, whether as a result of new information, future events or otherwise.

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

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

We believe EBITDA is a useful measure of our operating performance as it assists investors and debt holders in comparing our performance on a consistent basis without regard to financing methods, capital structure, income taxes or depreciation and amortization methods, which can vary significantly depending upon many factors.

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

		Three months ended												Nine months ended
In millions		September 27, 2020				June 28, 2020				September 29, 2019				September 27, 2020				September 29, 2019
Net income attributable to Cummins Inc.		$	501			$	276			$	622			$	1,288			$	1,960
Net income attributable to Cummins Inc. as a percentage of net sales		9.8		%		7.2		%		10.8		%		9.2		%		10.9		%
Add:
Net income (loss) attributable to noncontrolling interests		3				(7		)		(6		)		13				10
Consolidated net income		504				269				616				1,301				1,970
Add:
Interest expense		25				23				26				71				87
Income tax expense		182				93				139				402				501
Depreciation and amortization		165				164				177				497				491
EBITDA		$	876			$	549			$	958			$	2,271			$	3,049
EBITDA as a percentage of net sales		17.1		%		14.3		%		16.6		%		16.2		%		16.9		%

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

Engine Segment Sales by Market and Unit Shipments by Engine Classification

Sales for our Engine segment by market were as follows:

2020
In millions		Q1				Q2				Q3				Q4				YTD
Heavy-duty truck		$	750			$	415			$	694			$	—			$	1,859
Medium-duty truck and bus		618				391				492				—				1,501
Light-duty automotive		353				180				522				—				1,055
Off-highway		437				437				404				—				1,278
Total sales		$	2,158			$	1,423			$	2,112			$	—			$	5,693
2019
In millions		Q1				Q2				Q3				Q4				YTD
Heavy-duty truck		$	979			$	970			$	851			$	755			$	3,555
Medium-duty truck and bus		721				739				645				602				2,707
Light-duty automotive		382				480				478				464				1,804
Off-highway		571				514				442				463				1,990
Total sales		$	2,653			$	2,703			$	2,416			$	2,284			$	10,056

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

2020
Units		Q1			Q2			Q3			Q4			YTD
Heavy-duty		25,800			15,900			23,300			—			65,000
Medium-duty		61,200			44,900			50,100			—			156,200
Light-duty		49,400			29,800			67,200			—			146,400
Total units		136,400			90,600			140,600			—			367,600
2019
Units		Q1			Q2			Q3			Q4			YTD
Heavy-duty		33,900			35,000			28,000			25,700			122,600
Medium-duty		79,000			76,400			63,200			64,800			283,400
Light-duty		56,400			64,100			62,600			62,800			245,900
Total units		169,300			175,500			153,800			153,300			651,900

Distribution Segment Sales by Product Line

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

2020
In millions		Q1				Q2				Q3				Q4				YTD
Parts		$	787			$	654			$	722			$	—			$	2,163
Power generation		376				377				416				—				1,169
Service		328				297				304				—				929
Engines		323				277				279				—				879
Total sales		$	1,814			$	1,605			$	1,721			$	—			$	5,140
2019
In millions		Q1				Q2				Q3				Q4				YTD
Parts		$	844			$	833			$	798			$	815			$	3,290
Power generation		403				427				467				487				1,784
Service		363				373				376				367				1,479
Engines		391				395				363				369				1,518
Total sales		$	2,001			$	2,028			$	2,004			$	2,038			$	8,071

Component Segment Sales by Product Line

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

2020
In millions		Q1				Q2				Q3				Q4				YTD
Emission solutions		$	664			$	472			$	665			$	—			$	1,801
Filtration		312				255				314				—				881
Turbo technologies		270				216				281				—				767
Electronics and fuel systems		174				164				187				—				525
Automated transmissions		82				43				94				—				219
Total sales		$	1,502			$	1,150			$	1,541			$	—			$	4,193
2019
In millions		Q1				Q2				Q3				Q4				YTD
Emission solutions		$	854			$	828			$	745			$	695			$	3,122
Filtration		325				331				310				315				1,281
Turbo technologies		335				319				279				285				1,218
Electronics and fuel systems		198				212				170				179				759
Automated transmissions		149				156				146				83				534
Total sales		$	1,861			$	1,846			$	1,650			$	1,557			$	6,914

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

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

2020
In millions		Q1				Q2				Q3				Q4				YTD
Power generation		$	519			$	424			$	601			$	—			$	1,544
Industrial		296				291				309				—				896
Generator technologies		69				62				71				—				202
Total sales		$	884			$	777			$	981			$	—			$	2,642
2019
In millions		Q1				Q2				Q3				Q4				YTD
Power generation		$	567			$	668			$	647			$	636			$	2,518
Industrial		420				432				392				332				1,576
Generator technologies		90				103				87				86				366
Total sales		$	1,077			$	1,203			$	1,126			$	1,054			$	4,460

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

2020
Units		Q1			Q2			Q3			Q4			YTD
Power generation		1,800			1,000			2,300			—			5,100
Industrial		1,000			1,000			1,200			—			3,200
Total units		2,800			2,000			3,500			—			8,300
2019
Units		Q1			Q2			Q3			Q4			YTD
Power generation		2,100			2,300			2,300			2,400			9,100
Industrial		1,600			1,600			1,400			1,400			6,000
Total units		3,700			3,900			3,700			3,800			15,100