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Cummins Revises Previously Announced 2012 Pre-Tax Earnings Results By $20 Million

Stock quotes in this article: CMI

Cummins Inc. (NYSE: CMI) announced today that it has revised its previously announced fourth quarter and full year 2012 operating results to reflect information learned in February related to certain legal matters. The revisions were made to reflect a post-period increase to the Company’s contingent legal reserves for a recent adverse court ruling in a commercial contract dispute.

As a result of the new information, Earnings Before Interest and Taxes (EBIT) for the fourth quarter and the full year decreased by $20 million, while net income attributable to Cummins was reduced by $12 million, or $0.07 per diluted share. This matter does not alter operating segment results as previously reported.

The Company’s revised fourth quarter EBIT was $532 million excluding $52 million of restructuring costs. Net income attributable to Cummins was $369 million, or $1.95 cents per diluted share, including $0.19 per diluted share of restructuring costs and one-time tax benefits of $0.21 per diluted share.

For the full year, the Company’s revised EBIT, excluding special items, was $2.35 billion or 13.6% of sales compared to $2.6 billion or 14.2% of sales in 2011.

Net income for the full year 2012 was $1.65 billion ($8.67 per diluted share) down from $1.85 billion ($9.55 per diluted share) in 2011. Excluding the costs of restructuring ($0.18 per diluted share), and the gain on the sale of the exhaust business ($0.02 per diluted share), the Company reported Net Income for 2012 of $1.68 billion ($8.83 per diluted share).

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 currently employs approximately 46,000 people worldwide and serves customers in approximately 190 countries and territories through a network of approximately 600 company-owned and independent distributor locations and approximately 6,500 dealer locations. Cummins earned $1.65 billion on sales of $17.3 billion in 2012. Press releases can be found on the Web at www.cummins.com. Follow Cummins on Twitter at @Cummins and on YouTube at CumminsInc.

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 full year of 2013. 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.

CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) (a)
       
Three months ended
December 31, September 30, December 31,
In millions, except per share amounts 2012 2012 2011
NET SALES $ 4,292 $ 4,118 $ 4,921
Cost of sales   3,234   3,076   3,680
GROSS MARGIN 1,058 1,042 1,241
 
OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses 482 456 496
Research, development and engineering expenses 174 186 179

Equity, royalty and interest income from investees (Note 1)

82 94 101
Gain on sale of businesses - - 53
Other operating income (expense), net   (19)   (1)   25
OPERATING INCOME 465 493 745
 
Interest income 5 5 9
Interest expense 7 9 10
Other income (expense), net   10   (2)   14
INCOME BEFORE INCOME TAXES 473 487 758
 
Income tax expense (Note 3)   75   117   186
CONSOLIDATED NET INCOME 398 370 572
 
Less: Net income attributable to noncontrolling interests   29   18   24
NET INCOME ATTRIBUTABLE TO CUMMINS INC. $ 369 $ 352 $ 548
 
EARNINGS PER COMMON SHARE ATTRIBUTABLE
TO CUMMINS INC.
Basic $ 1.96 $ 1.87 $ 2.87
Diluted $ 1.95 $ 1.86 $ 2.86
 
WEIGHTED AVERAGE SHARES OUTSANDING
Basic 188.4 188.6 190.9
Diluted 188.8 189.0 191.5
 
CASH DIVIDENDS DECLARED PER COMMON SHARE $ 0.50 $ 0.50 $ 0.40
 

(a) Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America (GAAP).

CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Unaudited (a)
     
For the years ended
December 31, December 31,
In millions, except per share amounts 2012 2011
NET SALES $ 17,334 $ 18,048
Cost of sales   12,826   13,459
GROSS MARGIN 4,508 4,589
 
OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses 1,900 1,837
Research, development and engineering expenses 728 629
Equity, royalty and interest income from investees (Note 1) 384 416
Gain on sale of businesses 6 121
Other operating income, net   (16)   21
OPERATING INCOME 2,254 2,681
 
Interest income 25 34
Interest expense 32 44
Other income, net   24   -
INCOME BEFORE INCOME TAXES 2,271 2,671
 
Income tax expense (Note 3)   533   725
CONSOLIDATED NET INCOME 1,738 1,946
 
Less: Net income attributable to noncontrolling interests   93   98
NET INCOME ATTRIBUTABLE TO CUMMINS INC. $ 1,645 $ 1,848
 
EARNINGS PER COMMON SHARE ATTRIBUTABLE
TO CUMMINS INC.
Basic $ 8.69 $ 9.58
Diluted $ 8.67 $ 9.55
 
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 189.3 193.0
Diluted 189.7 193.6
 
CASH DIVIDENDS DECLARED PER COMMON SHARE $ 1.80 $ 1.325
 

(a) Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America (GAAP).

CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (a)
             
December 31, December 31,
In millions, except par value 2012 2011
ASSETS
Current assets
Cash and cash equivalents $ 1,369 $ 1,484
Marketable securities   247   277
Total cash, cash equivalents and marketable securities 1,616 1,761
Accounts and notes receivable, net 2,475 2,526
Inventories 2,221 2,141
Prepaid expenses and other current assets   855   663
Total current assets   7,167   7,091
Long-term assets
Property, plant and equipment, net 2,724 2,288
Investments and advances related to equity method investees 897 838
Goodwill and other intangibles, net 814 566
Other assets   946   885
Total assets $ 12,548 $ 11,668
 
LIABILITIES
Current liabilities
Loans payable $ 16 $ 28
Accounts payable (principally trade) 1,339 1,546
Accrued expenses   1,781   2,083
Total current liabilities   3,136   3,657
Long-term liabilities
Long-term debt 698 658
Other liabilities   1,740   1,522
Total liabilities   5,574   5,837
 
EQUITY
Cummins Inc. shareholders’ equity
Common stock, $2.50 par value, 500 shares authorized, 222.4 and 222.2 shares issued 2,058 2,001
Retained earnings 7,343 6,038
Treasury stock, at cost, 32.6 and 30.2 shares (1,830) (1,587)
Common stock held by employee benefits trust, at cost, 1.5 and 1.8 shares (18) (22)
Accumulated other comprehensive loss   (950)   (938)
Total Cummins Inc. shareholders’ equity 6,603 5,492
Noncontrolling interests   371   339
Total equity   6,974   5,831
Total liabilities and equity $ 12,548 $ 11,668
 

(a) Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America (GAAP).

CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (a)
       
For the years ended
December 31, December 31,
In millions 2012 2011
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 1,532 $ 2,073
 
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (690) (622)
Investments in internal use software (87) (60)
Proceeds from disposals of property, plant and equipment 11 8
Investments in and advances to equity investees (70) (81)
Acquisition of businesses, net of cash acquired (215) -
Proceeds from sale of businesses, net of cash sold 10 199
Investments in marketable securities-acquisitions (561) (729)
Investments in marketable securities-liquidations 585 750
Proceeds from sale of equity investment 23 -
Cash flows from derivatives not designated as hedges 12 (18)
Other, net   -   1
Net cash used in investing activities   (982)   (552)
 
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 64 127
Payments on borrowings and capital lease obligations (145) (237)
Net borrowings under short-term credit agreements 11 6
Distributions to noncontrolling interests (62) (56)
Dividend payments on common stock (340) (255)
Repurchases of common stock (256) (629)
Excess tax benefits on stock-based awards 14 5
Other, net   20   14
Net cash used in financing activities   (694)   (1,025)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS   29   (35)
Net increase (decrease) in cash and cash equivalents (115) 461
Cash and cash equivalents at beginning of year   1,484   1,023
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,369 $ 1,484
 

(a) Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America (GAAP).

CUMMINS INC. AND SUBSIDIARIES SEGMENT INFORMATION (Unaudited)

           
In millions Engine Components

Power Generation

Distribution

Non-segment Items (1)

Total
 
Three months ended December 31, 2012
External sales $ 2,177 $ 662 $ 549 $ 904 $ - $ 4,292
Intersegment sales   329   277   216   3   (825)   -
  Total sales 2,506 939 765 907 (825) 4,292
Depreciation and amortization (2) 50 23 13 11 - 97
Research, development and engineering expenses 92 60 20 2 - 174
Equity, royalty and interest income from investees 27 6 8 41 - 82
Interest income 2 - 2 1 - 5
Segment EBIT 252 78 42 84 24 480
Add back restructuring charges (3)   20   6   12   14   -   52
Segment EBIT excluding restructuring charges 272 84 54 98 24 532
 
Segment EBIT as a percentage of total sales 10.1% 8.3% 5.5% 9.3% 11.2%

Segment EBIT excluding restructuring charges as a percentage of total sales

10.9% 8.9% 7.1% 10.8% 12.4%
 
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
 
Segment EBIT as a percentage of total sales 9.5% 9.5% 9.0% 12.4% 12.0%
 
Three months ended December 31, 2011
External sales $ 2,628 $ 781 $ 682 $ 830 $ - $ 4,921
Intersegment sales   433   311   238   4   (986)   -
Total sales 3,061 1,092 920 834 (986) 4,921
Depreciation and amortization (2) 46 18 10 8 - 82
Research, development and engineering expenses 112 49 17 1 - 179
Equity, royalty and interest income from investees 40 7 10 44 - 101
Interest income 4 2 2 1 - 9
Segment EBIT 368 132 87 87 94 768
 
Segment EBIT as a percentage of total sales 12.0% 12.1% 9.5% 10.4% 15.6%
 

(1)

  Includes intersegment sales and profit in inventory eliminations and unallocated corporate expenses. The three months ended December 31, 2012 includes a $20 million reserve ($12 million after-tax) related to legal matters. There were no significant unallocated corporate expenses for the three months ended September 30, 2012. The three months ended December 31, 2011 includes a $53 million gain ($33 million after-tax) recorded for the sale of certain assets and liabilities of our light-duty filtration business from the Components segment and a $38 million gain ($24 million after-tax) related to flood damage recoveries from the insurance settlement regarding a June 2008 flood in Southern Indiana. 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."

(3)

See Note 2, "RESTRUCTURING CHARGES," for more details.
 

CUMMINS INC. AND SUBSIDIARIES SEGMENT INFORMATION (Unaudited)

           
In millions Engine Components

Power Generation

Distribution

Non-segment Items (1)

Total
 
For the year ended December 31, 2012
External sales $ 9,101 $ 2,809 $ 2,163 $ 3,261 $ - $ 17,334
Intersegment sales   1,632   1,203   1,105   16   (3,956)   -
  Total sales 10,733 4,012 3,268 3,277 (3,956) 17,334
Depreciation and amortization (2) 192 82 47 34 - 355
Research, development and engineering expenses 433 213 76 6 - 728
Equity, royalty and interest income from investees 127 29 40 188 - 384
Interest income 11 3 9 2 - 25
Segment EBIT 1,248 426 285 369 (25) 2,303
Add back restructuring charges (3)   20   6   12   14   -   52
Segment EBIT excluding restructuring charges 1,268 432 297 383 (25) 2,355
 
Segment EBIT as a percentage of total sales 11.6% 10.6% 8.7% 11.3% 13.3%

Segment EBIT excluding restructuring charges as a percentage of total sales

11.8% 10.8% 9.1% 11.7% 13.6%
 
For the year ended December 31, 2011
External sales $ 9,649 $ 2,886 $ 2,492 $ 3,021 $ - $ 18,048
Intersegment sales   1,658   1,177   1,006   23   (3,864)   -
Total sales 11,307 4,063 3,498 3,044 (3,864) 18,048
Depreciation and amortization (2) 181 73 42 25 - 321
Research, development and engineering expenses 397 175 54 3 - 629
Equity, royalty and interest income from investees 166 31 47 172 - 416
Interest income 18 5 8 3 - 34
Segment EBIT 1,384 470 373 386 102 2,715
 
Segment EBIT as a percentage of total sales 12.2% 11.6% 10.7% 12.7% 15.0%
 

(1)

  Includes intersegment sales and profit in inventory eliminations and unallocated corporate expenses. The year ended December 31, 2012 includes a $6 million gain ($4 million after-tax) related to adjustments from our 2011 divestitures and a $20 million reserve ($12 million after-tax) related to legal matters. The year ended December 31, 2011, includes a $121 million gain ($70 million after-tax) related to the sale of certain assets and liabilities of our exhaust business and light-duty filtration business, both from the Components segment, and a $38 million gain ($24 million after-tax) related to flood damage recoveries from the insurance settlement regarding a June 2008 flood in Southern Indiana. 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."

(3)

See Note 2, "RESTRUCTURING CHARGES," for more details.
 

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   For the years ended
December 31,   September 30,   December 31, December 31,   December 31,
In millions 2012 2012 2011 2012 2011
Segment EBIT excluding restructuring charges $ 532 $ 496 $ 768 $ 2,355 $ 2,715
Add: Restructuring charges   (52)   -   -   (52)   -
Segment EBIT 480 496 768 2,303 2,715
Less: Interest expense   7   9   10   32   44
Income before income taxes $ 473 $ 487 $ 758 $ 2,271 $ 2,671
 

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   For the years ended
December 31,   September 30,   December 31, December 31,   December 31,
In millions 2012 2012 2011 2012 2011
Distribution Entities
North American distributors $ 32 $ 37 $ 34 $ 147 $ 134
Komatsu Cummins Chile, Ltda. 6 9 6 26 22
All other distributors 1 - 1 4 4
Manufacturing Entities
Chongqing Cummins Engine Company, Ltd. 12 14 17 61 68
Dongfeng Cummins Engine Company, Ltd. 10 9 16 52 80
Tata Cummins, Ltd. 4 - 5 11 14
Cummins Westport, Inc. 3 2 6 14 14
Shanghai Fleetguard Filter Co., Ltd. 3 3 3 13 15
Valvoline Cummins, Ltd. 2 2 1 8 7
Beijing Foton Cummins Engine Co., Ltd. 2 3 (2) 5 (7)
Komatsu manufacturing alliances (2) (1) 2 (3) 3
All other manufacturers   2   7   2   9   21
Cummins share of net income 75 85 91 347 375
Royalty and interest income   7   9   10   37   41
Equity, royalty and interest income from investees $ 82 $ 94 $ 101 $ 384 $ 416
 

NOTE 2. RESTRUCTURING CHARGES

We have executed restructuring actions primarily in the form of involuntary separation programs in the fourth quarter of 2012. These actions were in response to deterioration in our U.S. businesses and most key markets around the world in the second half of 2012, as well as a reduction in orders in most U.S. and global markets for 2013. We reduced our worldwide professional workforce by approximately 650 employees, or 3 percent. We also reduced our hourly workforce by approximately 650 employees. During 2012, we incurred a pre-tax charge related to the professional and hourly workforce reductions of approximately $49 million.

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