UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC  20549


FORM 8-K

 

CURRENT REPORT

 

PURSUANT TO SECTION 13 OR 15(d) OF THE
 SECURITIES EXCHANGE ACT OF 1934


Date of Report: 
October 31, 2012

 

  CUMMINS INC.
(Exact name of registrant as specified in its charter)

Indiana
(State or other Jurisdiction of
Incorporation)

1-4949
(Commission File Number)

35-0257090
(I.R.S. Employer Identification
 No.)


500 Jackson Street
P. O. Box 3005

Columbus, IN  47202-3005
(Principal Executive Office)  (Zip Code)

Registrant's telephone number, including area code:  (812) 377-5000

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

[ ]

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

[ ]

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

[ ]

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

[ ]

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

  

 


Item 2.02. Results of Operations and Financial Condition.

 

On October 31, 2012, Cummins Inc. (“Cummins,” “the Company,” “the registrant,” “we,” “our,” or “us”) issued the attached press release reporting its financial results for the third quarter of 2012.  A copy of Cummins' press release is attached hereto as Exhibit 99 and hereby incorporated by reference.
 

Item 9.01. Financial Statements and Exhibits.

 

 

(d)

The following exhibit is furnished pursuant to Item 2.02 herewith:
 

99-Press Release dated October 31, 2012


SIGNATURE
 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

Date: October 31, 2012

 

CUMMINS INC.

 

 

/s/ Marsha L. Hunt
______________________________

Marsha L. Hunt
Vice President - Corporate Controller
(Principal Accounting Officer)

 

 



 

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 with 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