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

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.

Employee termination and severance costs were recorded based on approved plans developed by the businesses and corporate management which specified positions to be eliminated, benefits to be paid under existing severance plans or statutory requirements and the expected timetable for completion of the plan. Estimates of restructuring were made based on information available at the time charges were recorded. Due to the inherent uncertainty involved, actual amounts paid for such activities may differ from amounts initially recorded and we may need to revise previous estimates.

We incurred a $1 million charge for lease terminations and a $2 million charge for asset impairments and other non-cash charges. During 2012, we recorded restructuring and other charges of $52 million ($35 million after-tax). These restructuring actions included:
              Year ended
In millions December 31, 2012
Workforce reductions $ 49
Exit activities 1
Other   2
Restructuring and other charges $ 52
 

If the 2012 restructuring actions are successfully implemented, we expect the annualized savings from the professional actions to be approximately $39 million.

At December 31, 2012, of the approximately 1,300 employees to be affected by this plan, 1,130 had been terminated.

Restructuring charges were included in each segment in our operating results.

The table below summarizes where the restructuring costs are located in our Condensed Consolidated Statements of Income for the year ended December 31, 2012.
          Year ended
In millions December 31, 2012
Cost of sales $ 29
Selling, general and administrative expenses 20
Research, development and engineering expenses   3
Restructuring and other charges $ 52
 

NOTE 3. INCOME TAXES

Our income tax rates are generally less than the 35 percent U.S. income tax rate primarily because of lower taxes on foreign earnings and research tax credits. Our effective tax rate for the fourth quarter and full year of 2012 was 16.1 percent and 23.5 percent, respectively. The tax rate for the fourth quarter and full year includes one-time tax items that total a benefit of $39 million ($0.21 per diluted share) and $55 million ($0.29 per diluted share), respectively. The one-time tax items for the fourth quarter and full year related primarily to benefits resulting from transactions entered into and elections made with respect to our U.K. operations. Our effective tax rate for the fourth quarter and full year of 2011 was 24.5 percent and 27.1 percent, respectively. Excluding the gain on sale of certain assets and liabilities of the businesses and the flood insurance recovery, our effective tax rate for the fourth quarter and full year of 2011 was 22.8 percent and 26.3 percent, respectively.

A reconciliation of the U.S. federal income tax rate of 35 percent to the actual effective tax rate is as follows:

  Years ended December 31,
2012   2011
U.S. federal statutory rate 35.0 %   35.0 %
State income tax, net of federal effect 1.0 0.4
Research tax credits (0.4) (4.7)
Differences in rates and taxability of foreign subsidiaries and joint ventures (12.1) (4.6)
Other, net - 1.0
Effective tax rate 23.5 % 27.1 %
 

On January 2, 2013, the American Taxpayer Relief Act of 2012 was enacted. This legislation retroactively extended the U.S. federal research credit for two years, from January 1, 2012 through December 31, 2013. We expect our 2013 effective tax rate, which will include an estimated 1 percent benefit for the 2013 research credit, to be 26 percent excluding any one-time tax items that may arise. Additionally, we anticipate that our first quarter 2013 results will include a one-time tax benefit of approximately $28 million representing the net benefit attributable to the 2012 research credit.

NOTE 4. DEPRECIATION AND AMORTIZATION

Depreciation and amortization expense included in operating activities of the Condensed Consolidated Statements of Cash Flows for the years ended December 31, 2012 and 2011, was $361 million and $325 million, respectively.

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 period presented as it illustrates our operating performance without regard to special items including the gains related to restructuring charges, one-time income tax items, the sale of certain assets and liabilities and a flood insurance recovery. This measure is not in accordance with, or an alternative for, accounting principles generally accepted in the United States of America 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 quarters ended December 31, 2012, September 30, 2012 and December 31, 2011 and for the years ended December 31, 2012 and December 31, 2011.
    Three months ended
December 31, 2012   September 30, 2012   December 31, 2011
In millions Net Income   Diluted EPS Net Income   Diluted EPS Net Income   Diluted EPS
Net income attributable to Cummins Inc. $ 369 $ 1.95 $ 352 $ 1.86 $ 548 $ 2.86
Add
Restructuring charges 35 0.19 - - - -
Less
One-time tax benefits (1) 39 0.21 16 0.08 - -
Gain on sale of business (2) - - - - 33 0.17
Flood insurance recovery (3) - - - - 24 0.13

 
                       

Net income attributable to Cummins Inc. excluding special items
$ 365 $ 1.93 $ 336 $ 1.78 $ 491 $ 2.56
 
For the years ended
December 31, 2012 December 31, 2011
In millions Net Income Diluted EPS Net Income Diluted EPS
Net income attributable to Cummins Inc. $ 1,645 $ 8.67 $ 1,848 $ 9.55
Add
Restructuring charges 35 0.18 - -
Less
One-time tax benefits (1) 55 0.29 - -
Gain on sale of business (2) 4 0.02 70 0.36
Flood insurance recovery (3) - - 24 0.12
               

Net income attributable to Cummins Inc. excluding special items
$ 1,621 $ 8.54 $ 1,754 $ 9.07
(1)   The one-time tax benefits for the three months ended December 31, 2012, and the year ended December 31, 2012, related primarily to benefits resulting from transactions entered into and elections made with respect to our U.K. operations. The three month period ended September 30, 2012, included a $16 million one-time tax benefit for third quarter 2012, $6 million of which related to a dividend distribution of accumulated foreign income earned in prior years. These one-time tax adjustments also included a one-time tax benefit of $13 million for prior year tax return true-up adjustments and a one-time tax charge of $3 million related to the third quarter enactment of U.K. tax law changes.
(2) In the second and fourth quarter of 2011 we sold certain assets and liabilities of our exhaust business and our light-duty filtration business. In the second quarter of 2011 we recognized a gain on the sale of $68 million ($37 million after-tax). In the fourth quarter of 2011 we recognized a gain on the sale of $53 million ($33 million after-tax). In the second quarter of 2012 we recognized a $6 million gain ($4 million after-tax) related to adjustments from our 2011 divestitures.
(3) In the fourth quarter of 2011 we recognized a gain of $38 million ($24 million after-tax) on a flood settlement with our insurance carriers to settle 2008 flood claims.
 

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

Earnings before interest expense, income taxes, noncontrolling interests and restructuring charges

We define EBIT as earnings or loss 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 and EBIT excluding restructuring and other charges, non-GAAP financial measures, to “Net income attributable to Cummins Inc.,” for each of the applicable periods:
    Three months ended   For the years ended
December 31,   September 30,   December 31, December 31,   December 31,
In millions 2012 2012 2011 2012 2011

Earnings before interest expense, income taxes and special items
$ 532 $ 496 $ 677 $ 2,349 $ 2,556
 

Earnings before interest expense, income taxes and special items as a percentage of net sales
12.4% 12.0% 13.8% 13.6% 14.2%
 
Less
Restructuring charges 52 - - 52 -
Add
Gain on sale of businesses - - 53 6 121
Flood insurance recovery   -   -   38   -   38
 
Earnings before interest expense and income taxes $ 480 $ 496 $ 768 $ 2,303 $ 2,715
 
EBIT as a percentage of net sales 11.2% 12.0% 15.6% 13.3% 15.0%
 
Less
Interest expense 7 9 10 32 44
Income tax expense   75   117   186   533   725
Consolidated net income   398   370   572   1,738   1,946
 
Less
Net income attributable to noncontrolling interests   29   18   24   93   98
Net income attributable to Cummins Inc. $ 369 $ 352 $ 548 $ 1,645 $ 1,848
 

Net income attributable to Cummins Inc. as a percentage of net sales
8.6% 8.5% 11.1% 9.5% 10.2%
 

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 $ 609 $ 2,964
Medium-duty truck and bus 526 512 478 575 2,091
Light-duty automotive and RV 286 297 353 343 1,279
Industrial 861 859 766 747 3,233
Stationary power   294   366   274   232   1,166
  Total sales $ 2,859 $ 2,841 $ 2,527 $ 2,506 $ 10,733
 
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
Mid-range 109,000 110,000 113,000 108,500 440,500
Heavy-duty 36,000 33,000 26,000 24,100 119,100
High horsepower   5,500   5,800   4,600   3,900   19,800
  Total units   150,500   148,800   143,600   136,500   579,400
 
2011
Units Q1 Q2 Q3 Q4 YTD
Mid-range 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 $ 337 $ 1,415
Turbo technologies 298 297 257 254 1,106
Filtration 270 266 260 252 1,048
Fuel systems   127   124   96   96   443
  Total sales $ 1,099 $ 1,036 $ 938 $ 939 $ 4,012
 
2011
In millions Q1 Q2 Q3 Q4 YTD
Emission solutions $ 273 $ 311 $ 306 $ 372 $ 1,262
Turbo technologies 297 314 298 314 1,223
Filtration 255 287 288 283 1,113
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 operating 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 reorganized balances) were as follows:
2012          
In millions Q1 Q2 Q3 Q4 YTD
Power products $ 375 $ 459 $ 425 $ 395 $ 1,654
Power systems 188 217 174 178 757
Generator technologies 141 160 138 127 566
Power solutions   76   73   77   65   291
  Total sales $ 780 $ 909 $ 814 $ 765 $ 3,268
 
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
 

Distribution segment sales by business
2012          
In millions Q1 Q2 Q3 Q4 YTD
Parts and filtration $ 288 $ 302 $ 326 $ 319 $ 1,235
Power generation 186 201 178 242 807
Engines 166 147 157 195 665
Service   135   144   140   151   570
  Total sales $ 775 $ 794 $ 801 $ 907 $ 3,277
 
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
 

Copyright Business Wire 2010

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