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Cummins Reports Results for the Third Quarter of 2013
Third Quarter Revenues of $4.3 Billion and EBIT of 12.6 Percent of Sales; Now Expects Full Year Revenues to Be Down 3 Percent Compared to 2012; Full Year EBIT to Be in the Range 12.5 to 13 Percent of Sales

COLUMBUS, IN -- (Marketwired) -- 10/29/13 -- Cummins Inc. (NYSE: CMI) today reported results for the third quarter of 2013.

Third quarter revenues of $4.3 billion increased 4 percent from the third quarter of 2012. Revenues in North America increased by 11 percent and international revenues declined by 4 percent. Within international markets, growth in China and Brazil was offset by weaker demand in India, Australia and Europe.

Earnings before interest and taxes (EBIT) were $536 million or 12.6 percent of sales, compared to $496 million or 12.0 percent of sales a year ago.

Net income attributable to Cummins in the third quarter was $355 million ($1.90 per diluted share), compared to $352 million ($1.86 per diluted share) in the third quarter of 2012.

"The Company increased gross margins in the third quarter primarily due to the benefits of our cost reduction initiatives. Material cost savings, productivity gains and lower warranty expenses all contributed to the improvement," said Tom Linebarger, Chairman and CEO. "Revenues were below our expectations as we continue to face an environment of weak demand for capital goods in most of our major markets. Our focus on lowering costs in all parts of our business positions us well to deliver strong earnings growth as market conditions improve."

Based on the current forecast, the Company expects full year revenues to be down 3 percent compared to 2012 and EBIT to be in the range of 12.5 to 13 percent of sales. Previously the Company expected revenues to be flat compared to 2012 and EBIT to be in the range of 13 to 14 percent.

Recent highlights include:

  • The Company issued $1 billion of debt, consisting of $500 million of 3.65% senior unsecured notes due in 2023 and $500 million of 4.875% senior unsecured notes due in 2043
  • Cummins leaders shared their five-year plans for profitable growth with analysts and investors, including expected revenues of between $25 and $31 billion and EBIT in the range of 16 to 18 percent by 2018
  • The Company announced plans to acquire the remaining interest in its North American distributors, principally over the next three to five years
  • Cummins made the Dow Jones Sustainability Indices for the 9th consecutive year and was recognized for the strides it has made in decreasing energy use
  • Nissan announced plans to offer the Cummins 5.0 L V8 Turbo Diesel engine in its next generation Titan pickup truck
  • The Company received its best score ever on greenhouse gas reduction from CDP, formerly known as the Carbon Disclosure Project

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

Engine Segment

  • Sales - $2.5 billion, down 1 percent
  • Segment EBIT - $272 million, or 10.9 percent of sales, compared to $239 million or 9.5 percent of sales
  • Lower demand in global mining, stationary power and the light duty on-highway market in the US were the most significant drivers of the lower revenues
  • Demand increased for medium duty truck engines in North America and Brazil

Components

  • Sales - $1.1 billion, an increase of 14 percent
  • Segment EBIT - $132 million, or 12.3 percent of sales, compared to $89 million or 9.5 percent of sales
  • Higher revenues primarily related to higher on-highway demand in North America, Europe and China

Power Generation

  • Sales - $712 million, down 13 percent
  • Segment EBIT - $45 million, or 6.3 percent of sales, compared to $73 million or 9.0 percent of sales
  • Weaker demand in most international markets, particularly Europe and India, offsetting stronger revenues in North America

Distribution

  • Sales - $944 million, up 2% excluding acquisitions
  • Segment EBIT - $86 million, or 9.1 percent of sales, compared to $99 million or 12.4 percent of sales
  • Higher power generation and parts sales in North America offset by lower sales in South Pacific and China

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 2012 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 10 a.m. EST. This teleconference will be webcast and available on the Investor Relations section of the Cummins website at  www.cummins.com . Participants wishing to view the visuals available with the audio are encouraged to sign-in a few minutes prior to the start of the teleconference.

   
   
CUMMINS INC. AND SUBSIDIARIES  
CONDENSED CONSOLIDATED STATEMENTS OF INCOME  
(Unaudited) (a)  
   
    Three months ended  
In millions, except per share amounts  
 
September 29,
2013
 
 
 
 
June 30,
2013
 

September 30,
2012
 
 
NET SALES   $ 4,266     $ 4,525     4,118  
  Cost of sales     3,157       3,372     3,076  
GROSS MARGIN     1,109       1,153     1,042  
                       
OPERATING EXPENSES AND INCOME                      
  Selling, general and administrative expenses     492       484     456  
  Research, development and engineering expenses     173       177     186  
  Equity, royalty and interest income from investees (Note 1)     91       108     94  
  Other operating income (expense), net     (11 )     10     (1 )
OPERATING INCOME     524       610     493  
                       
  Interest income     6       10     5  
  Interest expense     8       8     9  
  Other income (expense), net     6       1     (2 )
INCOME BEFORE INCOME TAXES     528       613     487  
                       
  Income tax expense (Note 2)     154       172     117  
CONSOLIDATED NET INCOME     374       441     370  
                       
  Less: Net income attributable to noncontrolling interests     19       27     18  
NET INCOME ATTRIBUTABLE TO CUMMINS INC.   $ 355     $ 414   $ 352  
                       
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO                      
CUMMINS INC.                      
  Basic   $ 1.91     $ 2.20   $ 1.87  
  Diluted   $ 1.90     $ 2.20   $ 1.86  
                       
WEIGHTED AVERAGE SHARES OUTSTANDING                      
  Basic     186.0       187.8     188.6  
  Diluted     186.5       188.2     189.0  
                       
CASH DIVIDENDS DECLARED PER COMMON SHARE   $ 0.625     $ 0.50   $ 0.50  
                       

(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 29,
2013
 
September 30,
2012
NET SALES   $ 12,713   $ 13,042
  Cost of sales     9,494     9,592
GROSS MARGIN     3,219     3,450
             
OPERATING EXPENSES AND INCOME            
  Selling, general and administrative expenses     1,420     1,418
  Research, development and engineering expenses     532     554
  Equity, royalty and interest income from investees (Note 1)     281     302
  Gain on sale of businesses     -     6
  Other operating income (expense), net     -     3
OPERATING INCOME     1,548     1,789
             
  Interest income     21     20
  Interest expense     22     25
  Other income (expense), net     25     14
INCOME BEFORE INCOME TAXES     1,572     1,798
             
  Income tax expense (Note 2)     445     458
CONSOLIDATED NET INCOME     1,127     1,340
             
  Less: Net income attributable to noncontrolling interests     76     64
NET INCOME ATTRIBUTABLE TO CUMMINS INC.   $ 1,051   $ 1,276
             
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO            
CUMMINS INC.            
  Basic   $ 5.61   $ 6.73
  Diluted   $ 5.60   $ 6.72
             
WEIGHTED AVERAGE SHARES OUTSTANDING            
  Basic     187.4     189.6
  Diluted     187.8     190.0
             
CASH DIVIDENDS DECLARED PER COMMON SHARE   $ 1.625   $ 1.30
             

(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 29,     December 31,  
In millions, except par value   2013     2012  
ASSETS                
Current assets                
  Cash and cash equivalents   $ 2,499     $ 1,369  
  Marketable securities     162       247  
    Total cash, cash equivalents and marketable securities     2,661       1,616  
  Accounts and notes receivable, net     2,709       2,475  
  Inventories     2,513       2,221  
  Prepaid expenses and other current assets     643       855  
      Total current assets     8,526       7,167  
Long-term assets                
  Property, plant and equipment     6,182       5,876  
  Accumulated depreciation     (3,234 )     (3,152 )
    Property, plant and equipment, net     2,948       2,724  
  Investments and advances related to equity method investees     966       897  
  Goodwill     457       445  
  Other intangible assets, net     362       369  
  Other assets     1,077       946  
          Total assets   $ 14,336     $ 12,548  
                 
LIABILITIES                
Current liabilities                
  Loans payable   $ 15     $ 16  
  Accounts payable (principally trade)     1,613       1,339  
  Current maturities of long-term debt     47       61  
  Current portion of accrued product warranty     374       386  
  Accrued compensation, benefits and retirement costs     413       400  
  Deferred revenue     269       215  
  Taxes payable (including taxes on income)     112       173  
  Other accrued expenses     547       546  
      Total current liabilities     3,390       3,136  
Long-term liabilities                
  Long-term debt (Note 3)     1,731       698  
  Postretirement benefits other than pensions     407       432  
  Other liabilities and deferred revenue     1,344       1,308  
        Total liabilities     6,872       5,574  
                 
EQUITY                
Cummins Inc. shareholders' equity                
  Common stock, $2.50 par value, 500 shares authorized, 222.3 and 222.4 shares issued     2,095       2,058  
  Retained earnings     8,089       7,343  
  Treasury stock, at cost, 34.9 and 32.6 shares     (2,104 )     (1,830 )
  Common stock held by employee benefits trust, at cost, 1.3 and 1.5 shares     (16 )     (18 )
  Accumulated other comprehensive loss                
    Defined benefit postretirement plans     (738 )     (794 )
    Other     (230 )     (156 )
    Total accumulated other comprehensive loss     (968 )     (950 )
      Total Cummins Inc. shareholders' equity     7,096       6,603  
Noncontrolling interests     368       371  
        Total equity     7,464       6,974  
          Total liabilities and equity   $ 14,336     $ 12,548  
                           

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

   
   
   
CUMMINS INC. AND SUBSIDIARIES  
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  
(Unaudited) (a)  
   
    Nine months ended  
In millions   September 29, 2013     September 30, 2012  
CASH FLOWS FROM OPERATING ACTIVITIES                
  Consolidated net income   $ 1,127     $ 1,340  
  Adjustments to reconcile consolidated net income to net cash provided by operating activities                
    Depreciation and amortization     305       262  
    Restructuring payments, net     (25 )     -  
    Gain on sale of businesses     -       (6 )
    Gain on fair value adjustment for consolidated investees     (12 )     (7 )
    Deferred income taxes     78       91  
    Equity in income of investees, net of dividends     (98 )     (51 )
    Pension contributions in excess of expense     (96 )     (74 )
    Other post-retirement benefits payments in excess of expense     (20 )     (16 )
    Stock-based compensation expense     29       29  
    Excess tax benefits on stock-based awards     (13 )     (12 )
    Translation and hedging activities     26       16  
  Changes in current assets and liabilities, net of acquisitions:                
    Accounts and notes receivable     (216 )     66  
    Inventories     (206 )     (367 )
    Other current assets     182       (54 )
    Accounts payable     252       (145 )
    Accrued expenses     (146 )     (398 )
  Changes in other liabilities and deferred revenue     147       154  
  Other, net     19       (41 )
Net cash provided by operating activities     1,333       787  
CASH FLOWS FROM INVESTING ACTIVITIES                
  Capital expenditures     (417 )     (424 )
  Investments in internal use software     (43 )     (62 )
  Investments in and advances to equity investees     (12 )     (92 )
  Acquisition of businesses, net of cash acquired     (145 )     (215 )
  Proceeds from sale of business, net of cash sold     -       10  
  Investments in marketable securities-acquisitions     (360 )     (433 )
  Investments in marketable securities-liquidations     433       475  
  Cash flows from derivatives not designated as hedges     (15 )     13  
  Other, net     14       9  
Net cash used in investing activities     (545 )     (719 )
CASH FLOWS FROM FINANCING ACTIVITIES                
  Proceeds from borrowings (Note 3)     987       64  
  Payments on borrowings and capital lease obligations     (62 )     (120 )
  Net borrowings under short-term credit agreements     34       5  
  Distributions to noncontrolling interests     (53 )     (50 )
  Dividend payments on common stock     (305 )     (246 )
  Repurchases of common stock     (289 )     (231 )
  Excess tax benefits on stock-based awards     13       12  
  Other, net     19       16  
Net cash provided by (used in) financing activities     344       (550 )
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS     (2 )     31  
Net increase (decrease) in cash and cash equivalents     1,130       (451 )
Cash and cash equivalents at beginning of year     1,369       1,484  
CASH AND CASH EQUIVALENTS AT END OF PERIOD   $ 2,499     $ 1,033  

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

   
   
   
CUMMINS INC. AND SUBSIDIARIES  
SEGMENT INFORMATION  
(Unaudited)  
   

In millions
 
Engine
   
Components
    Power
Generation
   
Distribution
    Non-segment
Items (1)
   
Total
 
Three months ended September 29, 2013                                                
External sales   $ 2,045     $ 784     $ 499     $ 938     $ -     $ 4,266  
Intersegment sales     447       288       213       6       (954 )     -  
  Total sales     2,492       1,072       712       944       (954 )     4,266  
Depreciation and amortization(2)     53       24       13       15       -       105  
Research, development and engineering expenses     103       51       18       1       -       173  
Equity, royalty and interest income from investees     31       5       13       42       -       91  
Interest income     4       1       1       -       -       6  
Segment EBIT     272       132       45       86       1       536  
                                                 
Segment EBIT as a percentage of total sales     10.9 %     12.3 %     6.3 %     9.1 %             12.6 %
                                                 
Three months ended June 30, 2013                                                
External sales   $ 2,209     $ 786     $ 583     $ 947     $ -     $ 4,525  
Intersegment sales     447       331       231       7       (1,016 )     -  
  Total sales     2,656       1,117       814       954       (1,016 )     4,525  
Depreciation and amortization(2)     51       23       12       15       -       101  
Research, development and engineering expenses     102       57       17       1       -       177  
Equity, royalty and interest income from investees     52       9       10       37       -       108  
Interest income     7       -       2       1       -       10  
Segment EBIT(3)     339       136       76       100       (30 )     621  
                                                 
Segment EBIT as a percentage of total sales     12.8 %     12.2 %     9.3 %     10.5 %             13.7 %
                                                 
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(3)     239       89       73       99       (4 )     496  
                                                 
Segment EBIT as a percentage of total sales     9.5 %     9.5 %     9.0 %     12.4 %             12.0 %
                                                 
  • (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 29, 2013, June 30, 2013, and September 30, 2012.
  • (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) Distribution segment EBIT for the three months ended June 30, 2013, included a $5 million gain on the fair value adjustment resulting from the acquisition of a controlling interest in Cummins Rocky Mountain LLC. Distribution segment EBIT for the three months ended September 30, 2012, included a $7 million gain on the fair value adjustment resulting from the acquisition of a controlling interest in Cummins Central Power.
   
   
   
CUMMINS INC. AND SUBSIDIARIES  
SEGMENT INFORMATION  
(Unaudited)  
   

In millions
 
Engine
   
Components
    Power
Generation
   
Distribution
    Non-segment
Items (1)
   
Total
 
Nine months ended September 29, 2013                                                
External sales   $ 6,139     $ 2,292     $ 1,621     $ 2,661     $ -     $ 12,713  
Intersegment sales     1,312       915       651       15       (2,893 )     -  
  Total sales     7,451       3,207       2,272       2,676       (2,893 )     12,713  
Depreciation and amortization(2)     156       71       37       40       -       304  
Research, development and engineering expenses     310       165       53       4       -       532  
Equity, royalty and interest income from investees     106       21       30       124       -       281  
Interest income     13       2       5       1       -       21  
Segment EBIT(3)     806       387       172       281       (52 )     1,594  
                                                 
Segment EBIT as a percentage of total sales     10.8 %     12.1 %     7.6 %     10.5 %             12.5 %
                                                 
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(3)     996       348       243       285       (49 )     1,823  
                                                 
Segment EBIT as a percentage of total sales     12.1 %     11.3 %     9.7 %     12.0 %             14.0 %
                                                 
  • (1) Includes intersegment sales and profit in inventory eliminations and unallocated corporate expenses. The nine months ended September 30, 2012, included a $6 million gain ($4 million after-tax) related to adjustments from our 2011 divestitures. The gain has been excluded from segment results as it was not considered in our evaluation of operating results for the corresponding periods. There were no other significant unallocated corporate expenses for the nine months ended September 29, 2013 and September 30, 2012.
  • (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) Distribution segment EBIT for the nine months ended September 29, 2013, included a $7 million gain and $5 million gain on the fair value adjustment resulting from the acquisitions of a controlling interest in Cummins Northwest LLC and Cummins Rocky Mountain LLC, respectively. Distribution segment EBIT for the nine months ended September 30, 2012, included a $7 million gain on the fair value adjustment resulting from the acquisition of a controlling interest in Cummins Central Power.
 
 
 
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

In millions
  September 29,  2013   June 30,  2013   September 30,  2012   September 29,  2013   September 30,  2012
Total EBIT   $ 536   $ 621   $ 496   $ 1,594   $ 1,823
Less: Interest expense     8     8     9     22     25
  Income before income taxes   $ 528   $ 613   $ 487   $ 1,572   $ 1,798
   
   
   
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  
 
In millions
 
 
September 29,  2013  
 
June 30,  2013  
 
September 30,  2012  
 
 
 
September 29,  2013  
 
September 30,  2012  
 
Distribution Entities                                  
North American distributors   $ 34   $ 29   $ 37     $ 98   $ 115  
Komatsu Cummins Chile, Ltda.     6     6     9       17     20  
All other distributors     1     -     -       1     3  
Manufacturing Entities                                  
Chongqing Cummins Engine Company, Ltd.     15     17     14       44     49  
Dongfeng Cummins Engine Company, Ltd.     13     20     9       45     42  
Beijing Foton Cummins Engine Co., Ltd.     4     9     3       14     3  
Shanghai Fleetguard Filter Co., Ltd.     4     4     3       11     10  
Cummins Westport, Inc.     2     3     2       5     11  
Tata Cummins, Ltd.     1     2     -       4     7  
Komatsu manufacturing alliances     -     4     (1 )     3     (1 )
Valvoline Cummins, Ltd.     -     2     2       5     6  
Xian Cummins Engine Company Ltd.     -     1     1       1     (5 )
All other manufacturers     3     1     6       6     12  
  Cummins share of net income     83     98     85       254     272  
Royalty and interest income     8     10     9       27     30  
    Equity, royalty and interest income from investees   $ 91   $ 108   $ 94     $ 281   $ 302  
                                   
                                   

NOTE 2. INCOME TAXES

Our effective tax rate for the year is expected to approximate 28.5 percent, excluding any one-time items that may arise. Our tax rate is generally less than the 35 percent U.S. statutory income tax rate primarily due to lower tax rates on foreign income and research tax credits. The tax rates for the three and nine month periods ended September 29, 2013, were 29.2 percent and 28.3 percent, respectively. These tax rates include a $7 million discrete net tax expense for the third quarter tax adjustments: $4 million expense attributable to prior year tax return true-up adjustments, $1 million benefit related to release of prior year tax reserves and a discrete tax charge for $4 million related to a third quarter enactment of U.K. tax law changes. In addition the nine month tax rate includes a discrete tax benefit in the first quarter of 2013 of $28 million attributable to the reinstatement of the research credit back to 2012 as well as a discrete tax expense in the first quarter of 2013 of $17 million, which primarily relates to the write-off of a deferred tax asset deemed unrecoverable. On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law and reinstated the research tax credit. As tax law changes are accounted for in the period of enactment, we recognized the discrete tax benefit in the first quarter of 2013.

Our 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 increase in the 2013 effective tax rates compared to 2012 is primarily due to unfavorable changes in the pre-tax mix of income taxed in higher rate jurisdictions and discrete tax items.

CUMMINS INC. AND SUBSIDIARIES
SELECTED FOOTNOTE DATA
(Unaudited)

NOTE 3. DEBT

In September 2013, we issued $1 billion aggregate principal amount of senior notes consisting of $500 million aggregate principal amount of 3.65% senior unsecured notes due in 2023 and $500 million aggregate principal amount of 4.875% senior unsecured notes due in 2043. We received net proceeds of $979 million. The senior notes pay interest semi-annually on April 1 and October 1, commencing on April 1, 2014. The indenture governing the senior notes contains covenants that, among other matters, limit (i) our ability to consolidate or merge into, or sell, assign, convey, lease, transfer or otherwise dispose of all or substantially all of our and our subsidiaries' assets to another person, (ii) our and certain of our subsidiaries' ability to create or assume liens and (iii) our and certain of our subsidiaries' ability to engage in sale and leaseback transactions. We currently anticipate using a portion of the net proceeds from the sale of the notes for the planned acquisitions of the equity that we do not already own in our partially-owned United States and Canadian distributors, as well as for general corporate purposes.

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 one-time tax adjustments and gain related to the sale of certain assets and liabilities. 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 September 29, 2013, June 30, 2013 and September 30, 2012:

                         
    Three months ended
    September 29, 2013     June 30, 2013   September 30, 2012
In millions   Net Income     Diluted EPS     Net Income   Diluted EPS   Net Income   Diluted EPS
Net income attributable to Cummins Inc.   $ 355     $ 1.90     $ 414   $ 2.20   $ 352   $ 1.86
Less                                        
  One-time tax items (1)     (7 )     (0.04 )     -     -     16     0.08
Net income attributable to Cummins Inc.excluding special items   $ 362     $ 1.94     $ 414   $ 2.20   $ 336   $ 1.78

 

 
    Nine months ended
    September 29, 2013   September 30, 2012
In millions   Net Income   Diluted EPS   Net Income   Diluted EPS
Net income attributable to Cummins Inc.   $ 1,051   $ 5.60   $ 1,276   $ 6.72
Less                        
  One-time tax items (1)     4     0.03     16     0.09
  Gain on sale of businesses (2)     -     -     4     0.02
Net income attributable to Cummins Inc.                        
excluding special items   $ 1,047   $ 5.57   $ 1,256   $ 6.61
                         
  • (1) The one-time tax items for the three and nine months ended September 29, 2013, included a $7 million discrete tax expense. In addition, the nine months ended September 29, 2013, included a discrete tax benefit of $28 million attributable to the 2012 research credit as well as discrete tax expense of $17 million, which relates to the write-off of a deferred tax asset deemed unrecoverable.
    The three and nine month periods ended September 30, 2012, included 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.
  • (2) The gain has been excluded from operating results as it was not considered in our evaluation of performance for the nine months ended September 30, 2012.

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  

In millions
  September 29,  2013     June 30, 2013     September 30,  2012     September 29,  2013     September 30,  2012  
Earnings before interest income, income taxes and special items   $ 536     $ 621     $ 496     $ 1,594     $ 1,817  
                                         
Earnings before interest expense, income taxes and special items as a percentage of net sales     12.6 %     13.7 %     12.0 %     12.5 %     13.9 %
                                         
Add                                        
  Gain on sale of businesses     -       -       -       -       6  
                                         
Earnings before interest expense and income taxes   $ 536     $ 621     $ 496     $ 1,594     $ 1,823  
                                         
EBIT as a percentage of net sales     12.6 %     13.7 %     12.0 %     12.5 %     14.0 %
                                         
Less                                        
  Interest expense     8       8       9       22       25  
  Income tax expense     154       172       117       445       458  
Consolidated net income     374       441       370       1,127       1,340  
                                         
Less                                        
  Net income attributable to noncontrolling interests     19       27       18       76       64  
    Net income attributable to Cummins Inc.   $ 355     $ 414     $ 352     $ 1,051     $ 1,276  
                                         
Net income attributable to Cummins Inc. as a percentage of net sales     8.3 %     9.1 %     8.5 %     8.3 %     9.8 %
 
 
 
CUMMINS INC. AND SUBSIDIARIES
BUSINESS UNIT SALES DATA
(Unaudited)
                     
Engine segment net sales by market                    
                     
2013                    
In millions   Q1   Q2   Q3   Q4   YTD
Heavy-duty truck   $ 654   $ 723   $ 690     -   $ 2,067
Medium-duty truck and bus     448     595     570     -     1,613
Light-duty automotive and RV     260     345     330     -     935
Industrial     714     762     709     -     2,185
Stationary power     227     231     193     -     651
  Total sales   $ 2,303   $ 2,656   $ 2,492     -   $ 7,451
                               
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
 
 
 
Unit shipments by engine classification (including unit shipments to Power Generation)
                     
2013                    
Units   Q1   Q2   Q3   Q4   YTD
Midrange   94,600   121,900   113,800   -   330,300
Heavy-duty   24,900   28,300   26,500   -   79,700
High-horsepower   4,200   3,600   3,500   -   11,300
  Total units   123,700   153,800   143,800   -   421,300
                     
2012                    
Units   Q1   Q2   Q3   Q4   YTD
Midrange   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
 
 
 
CUMMINS INC. AND SUBSIDIARIES
BUSINESS UNIT SALES DATA
(Unaudited)
 
Component segment sales by business                    
                     
2013                    
In millions   Q1   Q2   Q3   Q4   YTD
Emission solutions   $ 400   $ 444   $ 458     -   $ 1,302
Turbo technologies     266     294     263     -     823
Filtration     255     271     248     -     774
Fuel systems     97     108     103     -     308
  Total sales   $ 1,018   $ 1,117   $ 1,072     -   $ 3,207
                               
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
                               
Power Generation segment sales by business                              
2013                              
In millions     Q1     Q2     Q3     Q4     YTD
Power products   $ 409   $ 474   $ 421     -   $ 1,304
Generator technologies     126     125     126     -     377
Power systems     179     187     122     -     488
Power solutions     32     28     43     -     103
  Total sales   $ 746   $ 814   $ 712     -   $ 2,272
                               
2012                              
In millions     Q1     Q2     Q3     Q4     YTD
Power products   $ 375   $ 459   $ 425   $ 395   $ 1,654
Generator technologies     141     160     138     127     566
Power systems     188     217     174     178     757
Power solutions     76     73     77     65     291
  Total sales   $ 780   $ 909   $ 814   $ 765   $ 3,268
                               
Distribution segment sales by business                              
2013                              
In millions     Q1     Q2     Q3     Q4     YTD
Parts and filtration   $ 322   $ 369   $ 377     -   $ 1,068
Power generation     163     241     234     -     638
Engines     152     183     170     -     505
Service     141     161     163     -     465
  Total sales   $ 778   $ 954   $ 944     -   $ 2,676
                               
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
                                 

Contact information

Carole Casto
Executive Director - Corporate Communications
(317) 610-2480

Source: Cummins Inc.

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