Cummins Reports Third Quarter Results, Confirms Full Year Guidance

  • Expects full-year revenues of $17 billion, EBIT of 13.5 percent

COLUMBUS, Ind.--()--Cummins Inc. (NYSE: CMI) today reported results for the third quarter of 2012.

Third quarter revenue of $4.1 billion decreased 11 percent from the same quarter in 2011. Revenues in North America grew 2 percent while revenues from international markets declined 21 percent.

Earnings before interest and taxes (EBIT) were $496 million or 12.0 percent of sales compared to $640 million or 13.8 percent of sales in the third quarter of 2011.

Net income attributable to Cummins in the third quarter of 2012 was $352 million ($1.86 per diluted share) compared to $452 million in the same period a year ago ($2.35 per diluted share).

“Demand has dropped sharply over the last three months, reflecting a high degree of uncertainty among customers in most geographic markets,” said Tom Linebarger, Chairman and Chief Executive Officer. “We have been responding to the conditions by delaying or cancelling projects, flexing production at some of our manufacturing plants, reducing discretionary expenses, and reducing our workforce by 1000 to 1500 people by the end of this year. We are continuing to fund projects that are important for future growth and meeting commitments to customers. We are working to respond to the conditions now to ensure the long term strength of the company and to best serve the many stakeholders who rely on Cummins long term success.”

Based on the current forecast, Cummins expects full year revenues to be $17 billion, with EBIT in the range of 13.5 percent of sales.

Other recent highlights:

  • Fitch Rating Services raised its Long-term Issuer Default Rating and long-term debt ratings for Cummins to “A”;
  • Cummins became the first engine manufacturer to receive certification for the EPA 2013 regulations and the new Greenhouse Gas rules that come into effect in the U.S. in 2014 with our ISX15 engine;
  • Cummins Power Generation’s stationary diesel generator set received EPA Tier 4 interim certification for the North American market 3 years ahead of deadline; and
  • Newsweek’s 2012 Green Rankings of businesses ranked Cummins #64 among the 500 largest public companies in the United States, which is #1 among industrial companies;

Third quarter 2012 detail (all comparisons to same period in 2011)

Engine Segment

  • Sales – $2.5 billion, down 14 percent
  • Segment EBIT – $239 million, or 9.5 percent of sales, compared to $349 million or 11.8 percent of sales
  • Lower demand in North American heavy duty truck, medium duty truck, oil and gas and mining markets, lower demand for trucks in Brazil and in the construction market in China offset stronger demand for light duty truck and construction engines in North America.

Components Segment

  • Sales - $938 million, down 8 percent
  • Segment EBIT - $89 million, or 9.5 percent of sales, compared to $113 million or 11.1 percent of sales
  • Lower demand in on-highway markets in North America, Europe and China offset higher product content in Brazil. The net impact of acquisitions and divestitures slightly increased revenues

Power Generation Segment

  • Sales – $814 million, down 7 percent
  • Segment EBIT – $73 million, or 9.0 percent of sales, compared to $92 million or 10.5 percent of sales
  • Higher revenues in North America offset by lower demand in Europe, China, the Middle East and Latin America

Distribution Segment

  • Sales – $801 million, up 2 percent, down 7 percent excluding acquisitions
  • Segment EBIT – $99 million, or 12.4 percent of sales, compared to $104 million or 13.3 percent of sales
  • Lower sales in Africa, Europe and Asia Pacific offsetting growth in North America, China and the Middle East

About Cummins

Cummins Inc., a global power leader, is a corporation of complementary business units that design, manufacture, distribute and service diesel and natural gas engines and related technologies, including fuel systems, controls, air handling, filtration, emission solutions and electrical power generation systems. Headquartered in Columbus, Indiana, (USA) Cummins employed approximately 44,000 people worldwide at the end of 2011 and serves customers in approximately 190 countries and territories through a network of more than 600 company-owned and independent distributor locations and approximately 6,500 dealer locations. Cummins earned $1.85 billion on sales of $18.0 billion in 2011. Press releases can be found on the Web at www.cummins.com.

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 for the second quarter of 2012, as well as the full year. 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: the adoption and implementation of global emission standards; the price and availability of energy; the pace of infrastructure development; increasing global competition among our customers; general economic, business and financing conditions; governmental action; changes in our customers’ business strategies; competitor pricing activity; expense volatility; labor relations; and other risks detailed from time to time in our Securities and Exchange Commission filings, including particularly in the Risk Factors section of our 2011 Annual Report on Form 10-K. 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 Securities and Exchange Commission, 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

EBIT 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 EBIT 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 11 a.m. EDT. 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 INCOME
(Unaudited) (a)
       
Three months ended
September 30, July 1,

September 25,

In millions, except per share amounts 2012 2012 2011
NET SALES $ 4,118 $ 4,452 $ 4,626
Cost of sales   3,076   3,242   3,438
GROSS MARGIN 1,042 1,210 1,188
 
OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses 456 487 489
Research, development and engineering expenses 186 187 164
Equity, royalty and interest income from investees (Note 1) 94 104 102
Gain on sale of businesses - 6 -
Other operating income (expense), net   (1)   2   2
OPERATING INCOME 493 648 639
 
Interest income 5 7 9
Interest expense 9 8 11
Other income (expense), net   (2)   14   (8)
INCOME BEFORE INCOME TAXES 487 661 629
 
Income tax expense (Note 2)   117   166   157
CONSOLIDATED NET INCOME 370 495 472
 
Less: Net income attributable to noncontrolling interests   18   26   20
NET INCOME ATTRIBUTABLE TO CUMMINS INC. $ 352 $ 469 $ 452
 

EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.

Basic $ 1.87 $ 2.47 $ 2.35
Diluted $ 1.86 $ 2.47 $ 2.35
 
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 188.6 189.8 192.1
Diluted 189.0 190.1 192.7
 
CASH DIVIDENDS DECLARED PER COMMON SHARE $ 0.50 $ 0.40 $ 0.40
 

(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 INCOME
(Unaudited) (a)
     
Nine months ended
In millions, except per share amounts

September 30,
2012

September 25,
2011

NET SALES $ 13,042 $ 13,127
Cost of sales   9,592   9,779
GROSS MARGIN 3,450 3,348
 
OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses 1,418 1,341
Research, development and engineering expenses 554 450
Equity, royalty and interest income from investees (Note 1) 302 315
Gain on sale of businesses 6 68
Other operating income (expense), net   3   (4)
OPERATING INCOME 1,789 1,936
 
Interest income 20 25
Interest expense 25 34
Other income (expense), net   14   (14)
INCOME BEFORE INCOME TAXES 1,798 1,913
 
Income tax expense (Note 2)   458   539
CONSOLIDATED NET INCOME 1,340 1,374
 
Less: Net income attributable to noncontrolling interests   64   74
NET INCOME ATTRIBUTABLE TO CUMMINS INC. $ 1,276 $ 1,300
 

EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.

Basic $ 6.73 $ 6.71
Diluted $ 6.72 $ 6.69
 
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 189.6 193.8
Diluted 190.0 194.4
 
CASH DIVIDENDS DECLARED PER COMMON SHARE $ 1.30 $ 0.925
 

(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)
  September 30,   December 31,
In millions, except par value 2012 2011
ASSETS
Current assets
  Cash and cash equivalents $ 1,033 $ 1,484
Marketable securities   239   277
  Total cash, cash equivalents and marketable securities 1,272 1,761
Accounts and notes receivable, net 2,503 2,526
Inventories 2,570 2,141
Prepaid expenses and other current assets   770   663
  Total current assets   7,115   7,091
Long-term assets
Property, plant and equipment 5,691 5,245
Accumulated depreciation   (3,134)   (2,957)
Property, plant and equipment, net   2,557   2,288
Investments and advances related to equity method investees 962 838
Goodwill 443 339
Other intangible assets, net 365 227
Other assets   972   885
  Total assets $ 12,414 $ 11,668
 
LIABILITIES
Current liabilities
Loans payable $ 54 $ 28
Accounts payable (principally trade) 1,460 1,546
Current portion of accrued product warranty 406 422
Accrued compensation, benefits and retirement costs 388 511
Deferred revenue 208 208
Taxes payable (including taxes on income) 172 282
Other accrued expenses   621   660
Total current liabilities   3,309   3,657
Long-term liabilities
Long-term debt 670 658
Postretirement benefits other than pensions 417 432
Other liabilities and deferred revenue   1,184   1,090
Total liabilities   5,580   5,837
 
EQUITY
Cummins Inc. shareholders’ equity
Common stock, $2.50 par value, 500 shares authorized, 222.4 and 222.2 shares issued 2,046 2,001
Retained earnings 7,068 6,038
Treasury stock, at cost, 32.3 and 30.2 shares (1,809) (1,587)
Common stock held by employee benefits trust, at cost, 1.6 and 1.8 shares (19) (22)
Accumulated other comprehensive loss
Defined benefit postretirement plans (694) (724)
Other   (114)   (214)
Total accumulated other comprehensive loss   (808)   (938)
Total Cummins Inc. shareholders’ equity 6,478 5,492
Noncontrolling interests   356   339
Total equity   6,834   5,831
Total liabilities and equity $ 12,414 $ 11,668
 

(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
September 30,   September 25,
In millions 2012 2011
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net income $ 1,340 $ 1,374
Adjustments to reconcile consolidated net income to net cash provided by operating activities
Depreciation and amortization 262 243
Gain on sale of businesses (6) (68)
Gain on fair value adjustment for consolidated investee (7) -
Deferred income taxes 91 148
Equity in income of investees, net of dividends (51) 7
Pension contributions in excess of expense (74) (71)
Other post-retirement benefits payments in excess of expense (16) (10)
Stock-based compensation expense 29 28
Excess tax benefits on stock-based awards (12) (4)
Translation and hedging activities 16 (14)
Changes in current assets and liabilities, net of acquisitions and divestitures:
Accounts and notes receivable 66 (469)
Inventories (367) (367)
Other current assets (54) (5)
Accounts payable (145) 317
Accrued expenses (398) 173
Changes in other liabilities and deferred revenue 154 93
Other, net   (41)   (7)
Net cash provided by operating activities   787   1,368
 
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (424) (377)
Investments in internal use software (62) (31)
Investments in and advances to equity investees (92) (104)
Proceeds from sale of business, net of cash sold 10 111
Acquisition of businesses, net of cash acquired (215) -
Investments in marketable securities—acquisitions (433) (538)
Investments in marketable securities—liquidations 475 572
Cash flows from derivatives not designated as hedges 13 4
Other, net   9   7
Net cash used in investing activities   (719)   (356)
 
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 64 96
Payments on borrowings and capital lease obligations (120) (174)
Net borrowings under short-term credit agreements 5 (5)
Distributions to noncontrolling interests (50) (50)
Dividend payments on common stock (246) (178)
Repurchases of common stock (231) (546)
Excess tax benefits on stock-based awards 12 4
Other, net   16   13
Net cash used in financing activities   (550)   (840)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS   31   (30)
Net increase (decrease) in cash and cash equivalents (451) 142
Cash and cash equivalents at beginning of year   1,484   1,023
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,033 $ 1,165
 

(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)

             
Engine Components

Power
Generation

Distribution

Non-segment
Items(1)

Total
In millions
Three months ended September 30, 2012
External sales $ 2,131 $ 663 $ 526 $ 798 $ - $ 4,118
Intersegment sales 396 275 288 3 (962)   -
  Total sales 2,527 938 814 801 (962) 4,118
Depreciation and amortization(2) 48 21 12 8 - 89
Research, development and engineering expenses 115 51 19 1 - 186
Equity, royalty and interest income from investees 25 7 12 50 - 94
Interest income 2 1 2 - - 5
Segment EBIT 239 89 73 99 (4) 496
 
Three months ended July 1, 2012
External sales $ 2,381 $ 710 $ 572 $ 789 $ - $ 4,452
Intersegment sales 460   326   337   5   (1,128)   -
Total sales 2,841 1,036 909 794 (1,128) 4,452
Depreciation and amortization(2) 47 19 11 8 - 85
Research, development and engineering expenses 115 51 19 2 - 187
Equity, royalty and interest income from investees 37 8 10 49 - 104
Interest income 3 1 3 - - 7
Segment EBIT 376 116 94 92 (9) 669
 
Three months ended September 25, 2011
External sales $ 2,539 $ 704 $ 604 $ 779 $ - $ 4,626
Intersegment sales 416 311 270 4 (1,001)   -
Total sales 2,955 1,015 874 783 (1,001) 4,626
Depreciation and amortization(2) 46 19 11 6 - 82
Research, development and engineering expenses 103 46 14 1 - 164
Equity, royalty and interest income from investees 35 7 16 44 - 102
Interest income 5 1 2 1 - 9
Segment EBIT 349 113 92 104 (18) 640
 
Nine months ended September 30, 2012
External sales $ 6,924 $ 2,147 $ 1,614 $ 2,357 $ - $ 13,042
Intersegment sales 1,303 926 889 13 (3,131)   -
Total sales 8,227 3,073 2,503 2,370 (3,131) 13,042
Depreciation and amortization(2) 142 59 34 23 - 258
Research, development and engineering expenses 341 153 56 4 - 554
Equity, royalty and interest income from investees 100 23 32 147 - 302
Interest income 9 3 7 1 - 20
Segment EBIT 996 348 243 285 (49) 1,823
 
Nine months ended September 25, 2011
External sales $ 7,021 $ 2,105 $ 1,810 $ 2,191 $ - $ 13,127
Intersegment sales 1,225 866 768 19 (2,878)   -
Total sales 8,246 2,971 2,578 2,210 (2,878) 13,127
Depreciation and amortization(2) 135 55 32 17 - 239
Research, development and engineering expenses 285 126 37 2 - 450
Equity, royalty and interest income from investees 126 24 37 128 - 315
Interest income 14 3 6 2 - 25
Segment EBIT 1,016 338 286 299 8 1,947
 
(1)   Includes intersegment sales and profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the three months ended September 30, 2012 and September 25, 2011. The three months ended July 1, 2012, and nine months ended September 30, 2012, include a $6 million gain ($4 million after-tax) related to adjustments from our 2011 divestitures. The nine months ended September 25, 2011, include a $68 million gain ($37 million after-tax) related to the sale of certain assets and liabilities of our exhaust business from the Components segment. The gains have been excluded from segment results as they were not considered in our evaluation of operating results for the corresponding periods. There were no other significant unallocated corporate expenses.
(2) Depreciation and amortization as shown on a segment basis excludes the amortization of debt discount that is included in the Condensed Consolidated Statements of Income as “Interest 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 Income is shown in the table below:

 
Three months ended Nine months ended
September 30,   July 1,   September 25, September 30,   September 25,
In millions 2012 2012 2011 2012 2011
Segment EBIT $ 496 $ 669 $ 640 $ 1,823 $ 1,947
Less: Interest expense   9   8   11   25   34
Income before income taxes $ 487 $ 661 $ 629 $ 1,798 $ 1,913
 

CUMMINS INC. AND SUBSIDIARIES
SELECTED FOOTNOTE DATA
(Unaudited)

 

NOTE 1.  EQUITY, ROYALTY AND INTEREST INCOME FROM INVESTEES

 
Equity, royalty and interest income from investees included in our Condensed Consolidated Statements of Income for the interim reporting periods was as follows:
 
      Three months ended   Nine months ended
September 30,   July 1,   September 25, September 30,   September 25,
In millions 2012 2012 2011 2012 2011
Distribution Entities
North American distributors $ 37 $ 38 $ 35 $ 115 $ 100
Komatsu Cummins Chile, Ltda. 9 6 6 20 16
All other distributors - 2 1 3 3
Manufacturing Entities
Chongqing Cummins Engine Company, Ltd. 14 17 20 49 51
Dongfeng Cummins Engine Company, Ltd. 9 17 15 42 64
Shanghai Fleetguard Filter Co., Ltd. 3 4 4 10 12
Beijing Foton Cummins Engine Co., Ltd. 3 2 (2) 3 (5)
Cummins Westport, Inc. 2 4 4 11 8
Valvoline Cummins, Ltd. 2 2 2 6 6
Tata Cummins, Ltd. - 3 2 7 9
Komatsu manufacturing alliances (1) 1 - (1) 1
All other manufacturers   7   (1)   7   7   19
Cummins share of net income 85 95 94 272 284
Royalty and interest income   9   9   8   30   31
Equity, royalty and interest income from investees $ 94 $ 104 $ 102 $ 302 $ 315
 

NOTE 2. INCOME TAXES

Our effective tax rate for the year is expected to approximate 26.5 percent, absent any discrete period activity. Our tax rate is generally less than the 35 percent U.S. income tax rate primarily due to lower tax rates on foreign income. The tax rates for the three and nine month periods ended September 30, 2012, were 24.1 percent and 25.5 percent, respectively. These tax rates include a $16 million tax benefit for third quarter discrete tax adjustments, $6 million of which related to a dividend distribution of accumulated foreign income earned in prior years. These discrete tax adjustments also included a discrete tax benefit of $13 million for prior year tax return true-up adjustments and a discrete tax charge of $3 million related to the third quarter enactment of U.K. tax law changes.

The effective tax rate for the three month period ended July 1, 2012, was 25.1 percent and was less than the 35 percent U.S. income tax rate primarily due to lower tax rates on foreign income.

The tax rates for the three and nine month periods ended September 25, 2011, were 25.0 percent and 28.2 percent, respectively, and included a net discrete income tax benefit of $29 million (net of additional reserves for uncertain tax positions of $39 million) related to prior year refund claims filed for additional research tax credits, additional foreign income and foreign tax credits, as well as other adjustments. This benefit also included discrete income tax charges of $2 million for prior year tax return true-up adjustments and $3 million related to the third quarter enactment of U.K. tax law changes in the three and nine month periods ended September 25, 2011. Additionally, the tax rate for the nine month period included a second quarter discrete income tax charge of $4 million related to the enactment of state tax law changes in Indiana. The decrease in the 2012 effective tax rates versus the comparable periods in 2011 is due primarily to our assertion that income earned after 2011 by our China operations is permanently reinvested, as well as certain tax planning strategies implemented in our U.K. subsidiaries.

CUMMINS INC. AND SUBSIDIARIES
SELECTED FOOTNOTE DATA
(Unaudited)

NOTE 3. ACQUISITIONS

In April 2012, we reached an agreement to acquire the doser technology and business assets from Hilite Germany GmbH (Hilite) in a cash transaction. Dosers are products that enable compliance with emission standards in certain aftertreatment systems and complement our current product offerings. The transaction was approved by German regulators in June and closed on July 18, 2012. The purchase price was $176 million and is summarized below. There was no contingent consideration associated with this transaction. During the first nine months of 2012 we expensed approximately $4 million of acquisition related costs.

The acquisition of Hilite was accounted for as a business combination, with the results of the acquired entity and the goodwill included in the Components operating segment in the third quarter of 2012. The majority of the purchase price was allocated to technology and customer related intangible assets and goodwill, most of which is expected to be fully deductible for tax purposes. We expect the Hilite acquisition to strengthen our aftertreatment product offerings. This acquisition enhances our technical capabilities and keeps us in a strong position to meet the needs of current customers and grow into new markets, especially as an increasing number of regions around the world adopt tougher emission standards.

Intangible assets by asset class, including weighted average amortization life, are as follows:

Dollars in millions      

Purchase price
allocation

     

Weighted average
amortization life
in years

Technology $ 52 10.6
Customer 23 4.5
License arrangements   8 6.0
  Total intangible assets $ 83 8.5
 

The purchase price was allocated as follows:

In millions      
Inventory $ 5
Fixed assets 5
Intangible assets 83
Goodwill 91
Liabilities   (8)
  Total purchase price $ 176
 

Net sales for Hilite were $77 million for the 12 months ended December 31, 2011.

In July 2012, we acquired an additional 45 percent interest in Cummins Central Power from the former principal for consideration of approximately $20 million. The acquisition was accounted for as a business combination, with the results of the acquired entity included in the Distribution operating segment in the third quarter of 2012. Distribution segment results also included a $7 million gain, as we were required to re-measure our pre-existing 35 percent ownership interest in Cummins Central Power to fair value in accordance with GAAP. Net sales for Cummins Central Power were $209 million for the 12 months ended December 31, 2011.

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

Net income and diluted earnings per share (EPS) attributable to Cummins Inc. excluding special items

We believe this is a useful measure of our operating performance for the periods presented as it illustrates our operating performance without regard to special items including the gain related to the sale of certain assets and liabilities and discrete income tax items. This measure is not in accordance with, or an alternative for, GAAP and may not be consistent with measures used by other companies. It should be considered supplemental data. The following table reconciles net income attributable to Cummins Inc. to net income attributable to Cummins Inc. excluding special items for the three month periods ended September 30, 2012, July 1, 2012 and September 25, 2011.

  Three months ended
September 30, 2012   July 1, 2012   September 25, 2011
In millions Net Income   Diluted EPS Net Income   Diluted EPS Net Income   Diluted EPS
Net income attributable to Cummins Inc. $ 352 $ 1.86 $ 469 $ 2.47 $ 452 $ 2.35
Subtract
Gain on sale of businesses(1) - - 4 0.02 - -
Discrete income tax items(2) 16 0.08 - - 29 0.15
Net income attributable to Cummins Inc.                        
excluding special items $ 336 $ 1.78 $ 465 $ 2.45 $ 423 $ 2.20
 
(1)   The gain has been excluded from operating results as it was not considered in our evaluation of performance for the three months ended July 1, 2012.
(2) The three month period ended September 30, 2012, includes a $16 million tax benefit for third quarter 2012 discrete tax adjustments, $6 million of which related to a dividend distribution of accumulated foreign income earned in prior years. These discrete tax adjustments also included a discrete tax benefit of $13 million for prior year tax return true-up adjustments and a discrete tax charge of $3 million related to the third quarter enactment of U.K. tax law changes.
 
The three month period ended September 25, 2011, includes a net discrete income tax benefit of $29 million (net of additional reserves for uncertain tax positions of $39 million) related to prior year refund claims filed for additional research tax credits, additional foreign income and foreign tax credits, as well as other adjustments. This benefit also included discrete income tax charges of $2 million for prior year tax return true-up adjustments and $3 million related to the third quarter enactment of U.K. tax law changes in the three month period ended September 25, 2011.
 

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

Earnings before interest, taxes and noncontrolling interests

We define EBIT as earnings before interest expense, income tax expense and noncontrolling interests in income of consolidated subsidiaries (EBIT). We use EBIT to assess and measure the performance of our operating segments and also as a component in measuring our variable compensation programs. Below is a reconciliation of EBIT, a non-GAAP financial measure, to “Net income attributable to Cummins Inc.,” for each of the applicable periods:

      Three months ended   Nine months ended
September 30,   July 1,   September 25, September 30,   September 25,
In millions 2012 2012 2011 2012 2011

Earnings before interest expense, income taxes and special items

$ 496 $ 663 $ 640 $ 1,817 $ 1,879
 

Earnings before interest expense, income taxes and special items as a percentage of net sales

12.0% 14.9% 13.8% 13.9% 14.3%
 
Add
Gain on sale of businesses - 6 - 6 68
                   
Earnings before interest expense and income taxes $ 496 $ 669 $ 640 $ 1,823 $ 1,947
 
EBIT as a percentage of net sales 12.0% 15.0% 13.8% 14.0% 14.8%
 
Less
Interest expense 9 8 11 25 34
Income tax expense   117   166   157   458   539
Consolidated net income   370   495   472   1,340   1,374
 
Less
Net income attributable to noncontrolling interests   18   26   20   64   74
Net income attributable to Cummins Inc. $ 352 $ 469 $ 452 $ 1,276 $ 1,300
 

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

8.5% 10.5% 9.8% 9.8% 9.9%
 

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

         

Engine segment net sales by market

 

2012

In millions Q1 Q2 Q3 Q4 YTD
Heavy-duty truck $ 892 $ 807 $ 656 $ - $ 2,355
Medium-duty truck and bus 526 512 478 - 1,516
Light-duty automotive and RV 286 297 353 - 936
Industrial 861 859 766 - 2,486
Stationary power   294   366   274   -   934
  Total sales $ 2,859 $ 2,841 $ 2,527 $ - $ 8,227
 

2011

In millions Q1 Q2 Q3 Q4 YTD
Heavy-duty truck $ 485 $ 693 $ 748 $ 865 $ 2,791
Medium-duty truck and bus 474 608 640 598 2,320
Light-duty automotive and RV 296 310 271 299 1,176
Industrial 855 988 977 1,030 3,850
Stationary power   281   301   319   269   1,170
Total sales $ 2,391 $ 2,900 $ 2,955 $ 3,061 $ 11,307
 

Unit shipments by engine classification (including unit shipments to Power Generation)

2012                    
Units Q1 Q2 Q3 Q4 YTD
Midrange 109,000 110,000 113,000 - 332,000
Heavy-duty 36,000 33,000 26,000 - 95,000
High horsepower   5,500   5,800   4,600   -   15,900
  Total units   150,500   148,800   143,600   -   442,900
 
2011
Units Q1 Q2 Q3 Q4 YTD
Midrange 109,400 131,300 130,600 138,100 509,400
Heavy-duty 20,000 29,900 31,100 35,300 116,300
High horsepower   4,900   5,700   5,600   5,400   21,600
Total units   134,300   166,900   167,300   178,800   647,300
 

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

         

Component segment sales by business

 
2012
In millions Q1 Q2 Q3 Q4 YTD
Emission solutions $ 404 $ 349 $ 325 $ - $ 1,078
Filtration 270 266 260 - 796
Turbo technologies 298 297 257 - 852
Fuel systems   127   124   96   -   347
  Total sales $ 1,099 $ 1,036 $ 938 $ - $ 3,073
 
2011
In millions Q1 Q2 Q3 Q4 YTD
Emission solutions $ 273 $ 311 $ 306 $ 372 $ 1,262
Filtration 255 287 288 283 1,113
Turbo technologies 297 314 298 314 1,223
Fuel systems   99   120   123   123   465
Total sales $ 924 $ 1,032 $ 1,015 $ 1,092 $ 4,063
 

In the first quarter of 2012, our Power Generation segment reorganized its reporting structure to include the following businesses: power products, power systems, generator technologies and power solutions. Sales for our Power Generation segment by business (including 2011 and 2010 reorganized balances) were as follows:

2012          
In millions Q1 Q2 Q3 Q4 YTD
Power products $ 375 $ 459 $ 425 $ - $ 1,259
Power systems 188 217 174 - 579
Generator technologies 141 160 138 - 439
Power solutions   76   73   77   -   226
  Total sales $ 780 $ 909 $ 814 $ - $ 2,503
 
2011
In millions Q1 Q2 Q3 Q4 YTD
Power products $ 377 $ 415 $ 433 $ 411 $ 1,636
Power systems 189 210 188 228 815
Generator technologies 154 189 166 164 673
Power solutions   75   95   87   117   374
Total sales $ 795 $ 909 $ 874 $ 920 $ 3,498
 
2010
In millions YTD
Power products $ 1,465
Power systems 616
Generator technologies 550
Power solutions   288
Total sales $ 2,919
 

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

       

Distribution segment sales by product

 
2012
In millions Q1 Q2 Q3 Q4 YTD
Parts and filtration $ 288 $ 302 $ 326 $ - $ 916
Power generation 186 201 178 - 565
Engines 166 147 157 - 470
Service   135   144   140   -   419
  Total sales $ 775 $ 794 $ 801 $ - $ 2,370
 
2011
In millions Q1 Q2 Q3 Q4 YTD
Parts and filtration $ 235 $ 271 $ 283 $ 296 $ 1,085
Power generation 145 195 191 191 722
Engines 140 186 171 206 703
Service   122   133   138   141   534
Total sales $ 642 $ 785 $ 783 $ 834 $ 3,044

Contacts

Cummins Inc.
Carole Casto, Executive Director - Corporate Communications, 317-610-2480
carole.casto@cummins.com

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Contacts

Cummins Inc.
Carole Casto, Executive Director - Corporate Communications, 317-610-2480
carole.casto@cummins.com