Cummins Reports Sharply Higher Sales and Profits in the Third Quarter Led by Continued Strength in International Markets
-- Company Raises Full-Year Guidance to 12.5 Percent EBIT on $13 Billion in
Sales in 2010
COLUMBUS, Ind.--(BUSINESS WIRE)-- Cummins Inc. (NYSE: CMI) today reported that both third quarter sales and profits increased sharply from the same period a year ago. The Company's continued strong performance in international markets was a primary driver of the improved results.
Sales of $3.40 billion in the third quarter rose 34 percent from $2.53 billion in the same quarter in 2009. Net income attributable to Cummins Inc. in the third quarter tripled to $283 million, or $1.44 a share, compared to $95 million, or $0.48 a share, in the same period a year ago.
Earnings Before Interest and Taxes (EBIT) was $449 million, or 13.2 percent of sales, up from $177 million or 7.0 percent of sales, excluding restructuring charges, in the third quarter of 2009.
The Company's third quarter results include a pre-tax benefit of $32 million ($21 million after-tax, or $0.11 share) related to a favorable legal ruling in Brazil on the tax treatment of imports during the period 2004-2008.
The sales gains were led by the Company's Engine and Power Generation segments, which each reported 44 percent sales improvements compared to the same period in 2009. Distribution sales increased 36 percent, while Components sales rose 30 percent.
The Engine segment reported its best EBIT percentage in Company history at 10.8 percent of sales, despite continued weakness in the North American truck engine markets related to EPA emissions changes and slow economic recovery in the United States.
Power Generation matched its quarterly best EBIT percentage at 12.3 percent, while the $74 million in EBIT reported by the Distribution segment was a record for a single quarter. EBIT for the Components segment doubled from the same period last year.
"Our products continue to perform well in the market and our 2010 engine launch in North America has gone extremely well," said Cummins President and Chief Operating Officer Tom Linebarger. "We have sold nearly 37,000 medium- and heavy-duty engines in North America this year, and the customer feedback we have received indicates that the engines are delivering on our promise of reliability and improved fuel economy."
Based on the Company's performance so far this year and its forecast for the fourth quarter, Cummins raised its full-year financial guidance to an EBIT of 12.5 percent of sales on revenues of $13 billion.
"We continued to build on our strong performance this year with an outstanding third quarter," said Cummins Chairman and Chief Executive Officer Tim Solso. "Our strength in large international markets provided significant benefits to the Company and we continue to see productivity improvements in our manufacturing operations."
Sales in the Company's non- U.S. markets increased 56 percent from the third quarter 2009 and accounted for 63 percent of Cummins' consolidated revenues, consistent with the first two quarters of the year.
Cummins' operating performance enabled its cash position to remain strong in the quarter and allowed the Company to continue to invest in the business to meet the increasing demands for our products.
The Company also continued to return value to shareholders by repurchasing $79 million of its shares during the second quarter. The Company has now repurchased $389 million in stock under its current $500 million authorization.
In other highlights from the quarter:
-- Cummins increased the quarterly cash dividend on its common stock by 50
percent to 26.25 cents per share from 17.5 cents per share.
-- Standard & Poor's increased its long-term credit rating on Cummins to
BBB+ from BBB. In increasing its investment grade rating, S&P cited the
company's "improved performance" and "conservative financial policy."
-- Cummins was named to the Dow Jones World Sustainability Index for the
sixth consecutive year. The index recognizes the top 10 percent of the
world's largest public companies for their economic, environmental and
corporate responsibility leadership.
Third quarter details (all comparisons to same period in 2009)
Engine Segment
-- Sales - $2.1 billion, up 44 percent
-- Segment EBIT - $223 million, or 10.8 percent of sales, compared $61
million or 4.2 percent of sales.
-- Total on-highway sales increased 17 percent
o Medium-duty truck and bus sales increased 46 percent on strength of
Brazilian truck market.
o Light-duty auto and RV doubled from 2009 when Chrysler ceased truck
production for several weeks as part of its reorganization efforts.
o Global heavy-duty truck engine sales declined 20 percent as result of
transition to 2010 EPA-compliant engines in North America, where unit
sales declined 54 percent.
-- Industrial sales increased 72 percent
o International sales increased 96 percent, led by construction engine
demand in emerging markets.
o Mining sales doubled due to increased demand for coal and other
commodities.
-- Stationary power engine sales increased by 144 percent, primarily due to
increased power generation demand, especially for high horsepower
engines.
Power Generation
-- Sales - $791 million, up 44 percent
-- Segment EBIT - $97 million, or 12.3 percent of sales, compared to $23
million or 4.2 percent of sales. Third quarter of 2009 represented the
low point of the current economic cycle for Power Generation segment.
-- Commercial Products sales rose 64 percent; Commercial Projects up 26
percent; Consumer sales increased 32 percent; Generator Technologies
rose 13 percent; and Power Electronics increased 3 percent.
-- Sales outside of North American increased 69 percent, led by the India,
Latin America, South Pacific and the U.K. North American sales declined
3 percent.
Components
-- Sales - $769 million up 30 percent
-- Segment EBIT - $63 million, or 8.2 percent of sales, compared to $31
million, or 5.2 percent of sales
-- Emission Solutions sales increased by 47 percent; Turbo Technologies
rose 38 percent; Filtration up 18 percent; Fuel Systems increased 17
percent.
-- Increased aftertreatment content on 2010 North American truck engines
led Emission Solutions sales gains; Filtration sales increased in all
regions; Turbo Technologies and Fuel Systems benefited from improved
aftermarket sales and stronger sales in China.
Distribution
-- Sales - $573 million, an increase of 36 percent
-- Segment EBIT - $74 million, or 12.9 percent of sales, compared to $55
million, or 13.0 percent of sales
-- Consolidation of Western Canada distributor in first quarter 2010
accounted for $68 million in sales and $5 million in EBIT during
quarter.
-- Sales increased in all regions and product/service segments (engines,
power generation, parts, and service) compared to 2009.
Presentation of Non-GAAP Financial Information
EBIT is a non-GAAP measures used in this release. EBIT 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. EDT. This teleconference will be webcast and available on the Investor Relations section of the Cummins website at www.cummins.com. Participants wishing to view the visuals available with the audio are encouraged to sign-in a few minutes prior to the start of the teleconference.
About Cummins
Cummins Inc., a global power leader, is a corporation of complementary business units that design, manufacture, distribute and service engines and related technologies, including fuel systems, controls, air handling, filtration, emission solutions and electrical power generation systems. Headquartered in Columbus, Indiana, (USA) Cummins serves customers in approximately 190 countries and territories through a network of more than 500 company-owned and independent distributor locations and approximately 5,200 dealer locations. The Company reported net income attributable to Cummins Inc. of $428 million on sales of $10.8 billion in 2009. Press releases can be found on the Web at www.cummins.com. Follow Cummins on Twitter at http://twitter.com/cummins.
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 the company's expectations, hopes, beliefs and intentions on strategies regarding the future. It is important to note that the company's 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, general economic, business and financing conditions, labor relations, governmental action, competitor pricing activity, expense volatility and other risks detailed from time to time in Cummins Securities and Exchange Commission filings.
CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) (a)
Three months ended
September 26, June 27, September 27,
In millions, except per share amounts 2010 2010 2009
NET SALES $ 3,401 $ 3,208 $ 2,530
Cost of sales 2,571 2,455 2,027
GROSS MARGIN 830 753 503
OPERATING EXPENSES AND INCOME
Selling, general and administrative 375 354 304
expenses
Research, development and engineering 103 96 90
expenses
Equity, royalty and interest income 88 97 57
from investees (Note 1)
Restructuring and other charges 22
Other operating (expense) income, net (5 ) (4 ) 3
OPERATING INCOME 435 396 147
Interest income 6 5 2
Interest expense 11 9 9
Other income (expense), net (Note 2) 8 6
INCOME BEFORE INCOME TAXES 438 392 146
Income tax expense (Note 3) 129 122 36
CONSOLIDATED NET INCOME 309 270 110
Less: Net income attributable to 26 24 15
noncontrolling interests
NET INCOME ATTRIBUTABLE TO CUMMINS INC. $ 283 $ 246 $ 95
EARNINGS PER COMMON SHARE ATTRIBUTABLE
TO CUMMINS INC.
Basic $ 1.45 $ 1.25 $ 0.48
Diluted $ 1.44 $ 1.25 $ 0.48
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic $ 195.8 $ 196.9 $ 197.4
Diluted $ 196.3 $ 197.3 $ 197.8
CASH DIVIDENDS DECLARED PER COMMON $ 0.2625 $ 0.175 $ 0.175
SHARE
(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)
Nine months ended
September 26, September 27,
In millions, except per share amounts 2010 2009
NET SALES $ 9,087 $ 7,400
Cost of sales 6,903 6,004
GROSS MARGIN 2,184 1,396
OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses 1,064 891
Research, development and engineering expenses 291 254
Equity, royalty and interest income from 261 147
investees (Note 1)
Restructuring and other charges 95
Other operating (expense) income, net (13 ) (6 )
OPERATING INCOME 1,077 297
Interest income 14 5
Interest expense 29 26
Other income (expense), net (Note 2) 25 (10 )
INCOME BEFORE INCOME TAXES 1,087 266
Income tax expense (Note 3) 338 72
CONSOLIDATED NET INCOME 749 194
Less: Net income attributable to noncontrolling 71 36
interests
NET INCOME ATTRIBUTABLE TO CUMMINS INC. $ 678 $ 158
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO
CUMMINS INC.
Basic $ 3.44 $ 0.80
Diluted $ 3.43 $ 0.80
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic $ 197.0 $ 197.1
Diluted $ 197.4 $ 197.4
CASH DIVIDENDS DECLARED PER COMMON SHARE $ 0.6125 $ 0.525
(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)
September 26, December 31,
In millions, except par value 2010 2009
ASSETS
Current assets
Cash and cash equivalents $ 937 $ 930
Marketable securities 308 190
Accounts and notes receivable, net 2,235 2,004
Inventories 1,910 1,341
Deferred income taxes 328 295
Prepaid expenses and other current assets 260 243
Total current assets 5,978 5,003
Long-term assets
Property, plant and equipment 4,838 4,765
Accumulated depreciation (2,947 ) (2,879 )
Property, plant and equipment, net 1,891 1,886
Investments and advances related to equity method 689 574
investees
Goodwill 365 364
Other intangible assets, net 219 228
Deferred income taxes 313 436
Other assets 417 325
Total assets $ 9,872 $ 8,816
LIABILITIES
Current liabilities
Loans payable $ 98 $ 37
Accounts payable (principally trade) 1,339 957
Current portion of accrued product warranty 396 426
Accrued compensation, benefits and retirement costs 452 366
Deferred revenue 166 128
Other accrued expenses 620 518
Total current liabilities 3,071 2,432
Long-term liabilities
Long-term debt 732 637
Pensions 362 514
Postretirement benefits other than pensions 448 453
Other liabilities and deferred revenue 765 760
Total liabilities 5,378 4,796
EQUITY
Cummins Inc. shareholders' equity
Common stock, $2.50 par value, 500 shares 1,922 1,860
authorized, 221.8 and 222.0 shares issued
Retained earnings 4,135 3,575
Treasury stock, at cost, 24.0 and 20.7 shares (967 ) (731 )
Common stock held by employee benefits trust, at (27 ) (36 )
cost, 2.2 and 3.0 shares
Accumulated other comprehensive loss
Defined benefit postretirement plans (778 ) (788 )
Other (86 ) (107 )
Total accumulated other comprehensive loss (864 ) (895 )
Total Cummins Inc. shareholders' equity 4,199 3,773
Noncontrolling interests 295 247
Total equity 4,494 4,020
Total liabilities and equity $ 9,872 $ 8,816
(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 26, September 27,
In millions 2010 2009
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net income $ 749 $ 194
Adjustments to reconcile consolidated net
income to net cash provided by operating
activities:
Restructuring and other charges, net of cash 21
payments
Depreciation and amortization 239 238
Gain on fair value adjustment for consolidated (12 )
investee
Deferred income taxes 83 (11 )
Equity in income of investees, net of dividends (95 ) 56
Pension contributions in excess of expense (114 ) (49 )
Other post-retirement benefits payments in (22 ) (18 )
excess of expense
Stock-based compensation expense 17 16
Translation and hedging activities 10 33
Changes in current assets and liabilities, net
of acquisitions and divestitures:
Accounts and notes receivable (198 ) 89
Inventories (524 ) 360
Other current assets (16) 32
Accounts payable 336 (155 )
Accrued expenses 102 (185 )
Changes in long-term liabilities 97 103
Other, net (33 ) 6
Net cash provided by operating activities 619 730
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (170 ) (204 )
Investments in internal use software (28 ) (24 )
Proceeds from disposals of property, plant and 46 8
equipment
Investments in and advances to equity investees (17 ) (5 )
Acquisition of businesses, net of cash acquired (77 ) (2 )
Investments in marketable (560 ) (234 )
securities--acquisitions
Investments in marketable 452 171
securities--liquidations
Purchases of other investments (54 ) (54 )
Cash flows from derivatives not designated as 2 (21 )
hedges
Other, net 1
Net cash used in investing activities (406 ) (364 )
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 163 11
Payments on borrowings and capital lease (64 ) (60 )
obligations
Net borrowings under short-term credit (4 ) (4 )
agreements
Distributions to noncontrolling interests (21 ) (16 )
Dividend payments on common stock (120 ) (106 )
Proceeds from sale of common stock held by 52 54
employee benefit trust
Repurchases of common stock (241 )
Other, net 25 1
Net cash used in financing activities (210 ) (120 )
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND 4 14
CASH EQUIVALENTS
Net increase in cash and cash equivalents 7 260
Cash and cash equivalents at beginning of year 930 426
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 937 $ 686
(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 Power Components Distribution Non-segment Total
Generation Items(1)
In millions
Three months
ended
September 26,
2010
External $ 1,727 $ 564 $ 540 $ 570 $ - $ 3,401
sales
Intersegment 342 227 229 3 (801 ) -
sales
Total sales 2,069 791 769 573 (801 ) 3,401
Depreciation
and 42 10 20 5 - 77
amortization
(2)
Research,
development
and 65 8 30 - - 103
engineering
expenses
Equity,
royalty and
interest 37 12 6 33 - 88
income from
investees
Interest 3 2 - 1 - 6
income
Segment EBIT 223 97 63 74 (8 ) 449
Three months
ended June
27, 2010
External $ 1,595 $ 518 $ 522 $ 573 $ - $ 3,208
sales
Intersegment 304 190 207 3 (704 ) -
sales
Total sales 1,899 708 729 576 (704 ) 3,208
Depreciation
and 42 11 21 7 - 81
amortization
(2)
Research,
development
and 62 8 26 - - 96
engineering
expenses
Equity,
royalty and
interest 52 9 6 30 - 97
income from
investees
Interest 2 1 1 1 - 5
income
Segment EBIT 197 76 75 69 (16 ) 401
Three months
ended
September 27,
2009
External $ 1,270 $ 444 $ 395 $ 421 $ - $ 2,530
sales
Intersegment 169 105 196 1 (471 ) -
sales
Total sales 1,439 549 591 422 (471 ) 2,530
Depreciation
and 49 13 18 5 - 85
amortization
(2)
Research,
development
and 59 9 22 - - 90
engineering
expenses
Equity,
royalty and
interest 16 5 4 32 - 57
income from
investees
Restructuring
and other - - - - 22 22
charges
Interest 1 - 1 - - 2
income
Segment EBIT 61 23 31 55 (15 ) 155
Nine months
ended
September 26,
2010
External $ 4,495 $ 1,460 $ 1,515 $ 1,617 $ - $ 9,087
sales
Intersegment 896 556 613 8 (2,073 ) -
sales
Total sales 5,391 2,016 2,128 1,625 (2,073 ) 9,087
Depreciation
and 125 31 61 19 - 236
amortization
(2)
Research,
development
and 187 23 81 - - 291
engineering
expenses
Equity,
royalty and
interest 124 27 17 93 - 261
income from
investees
Interest 7 4 1 2 - 14
income
Segment EBIT 553 207 195 215 (54 ) 1,116
Nine months
ended
September 27,
2009
External $ 3,608 $ 1,402 $ 1,096 $ 1,294 $ - $ 7,400
sales
Intersegment 629 414 527 4 (1,574 ) -
sales
Total sales 4,237 1,816 1,623 1,298 (1,574 ) 7,400
Depreciation
and 135 35 53 14 - 237
amortization
(2)
Research,
development
and 168 25 61 - - 254
engineering
expenses
Equity,
royalty and
interest 30 16 9 92 - 147
income from
investees
Restructuring
and other - - - - 95 95
charges
Interest 2 1 1 1 - 5
income
Segment EBIT 41 133 22 168 (72 ) 292
Includes intersegment sales and profit in inventory eliminations and
unallocated corporate expenses. For the three and nine months ended
September 26, 2010, unallocated corporate expenses included $32 million in
Brazil tax recoveries ($21 million after-tax) and $2 million in flood
damage expenses. In the third quarter of 2010, it was determined that we
overpaid a Brazilian revenue based tax during the period of 2004-2008. Our
(1) results include a pre-tax recovery related to tax credits on imported
products arising from this overpayment. This recovery has been excluded
from segment results as it was not considered by management in its
evaluation of operating results for the quarter. For the three and nine
months ended September 27, 2009, unallocated corporate expenses included
$22 million and $95 million of restructuring and other charges and an $8
million and $5 million gain related to flood damage expenses, respectively.
Depreciation and amortization as shown on a segment basis excludes the
(2) 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 26, June 27, September 27, September 26, September 27,
In 2010 2010 2009 2010 2009
millions
Segment $ 449 $ 401 $ 155 $ 1,116 $ 292
EBIT
Less:
Interest 11 9 9 29 26
expense
Income
before $ 438 $ 392 $ 146 $ 1,087 $ 266
income
taxes
FINANCIAL MEASURES THAT SUPPLEMENT GAAP
(Unaudited)
Earnings before interest, taxes, noncontrolling interests and restructuring and other charges
We define EBIT as earnings or loss before interest expense, income tax expense, noncontrolling interests in income of consolidated subsidiaries and restructuring and other charges (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 June 27, September September September 27,
26, 27, 26,
In millions 2010 2010 2009 2010 2009
Earnings
before
interest
expense,
income taxes $ 449 $ 401 $ 177 $ 1,116 $ 387
and
restructuring
and other
charges
Earnings
before
interest
expense,
income taxes
and 13.2 % 12.5 % 7.0 % 12.3 % 5.2 %
restructuring
and other
charges as a
percentage of
sales
Less:
Restructuring
and other 22 95
charges
Earnings
before $ 449 $ 401 $ 155 $ 1,116 $ 292
interest and
income taxes
EBIT as a
percentage of 13.2 % 12.5 % 6.1 % 12.3 % 3.9 %
net sales
Less:
Interest 11 9 9 29 26
expense
Income tax 129 122 36 338 72
expense
Consolidated 309 270 110 749 194
net income
Less:
Net income
attributable
to 26 24 15 71 36
noncontrolling
interests
Net income
attributable $ 283 $ 246 $ 95 $ 678 $ 158
to Cummins
Inc.
Net income
attributable
to Cummins 8.3 % 7.7 % 3.8 % 7.5 % 2.1 %
Inc. as a
percentage of
net sales
Net income and diluted earnings per share (EPS) attributable to Cummins Inc. excluding restructuring and other charges
We believe this is a useful measure of our operating performance for the periods presented as it illustrates our operating performance without regard to restructuring. 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. excluding restructuring and other charges to "Net income attributable to Cummins Inc." for the three and nine months ended September 27, 2009. There were no restructuring actions taken in the three or nine months ended September 26, 2010 or three months ended June 27, 2010.
Three months ended Nine months ended
September 27, 2009 September 27, 2009
In millions Net Diluted Net Diluted
Income EPS Income EPS
Net income attributable to Cummins Inc.
excluding restructuring and other $ 110 $ 0.56 $ 221 $ 1.12
charges
Less:
Restructuring and other charges, net(1) 15 0.08 63 0.32
Net income attributable to Cummins Inc. $ 95 $ 0.48 $ 158 $ 0.80
(1) During the three and nine months ended September 27, 2009, management approved and committed to undertake actions, which resulted in a pretax charge of $22 million and $95 million, respectively. These charges included employee-related liabilities for severance and benefits of approximately $10 million and $76 million, net of changes in estimate and exit costs of approximately zero and $7 million, and pension and other post retirement benefit curtailment charges of $12 million and $12 million, for the three and nine months ended, respectively.
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 June 27, September September September 27,
26, 27, 26,
In millions 2010 2010 2009 2010 2009
Distribution
Entities
North
American $ 26 $ 23 $ 25 $ 72 $ 74
distributors
All other 5 4 4 13 11
distributors
Manufacturing
Entities
Dongfeng
Cummins 24 34 11 76 18
Engine
Company, Ltd.
Chongqing
Cummins 12 13 8 35 28
Engine
Company, Ltd.
All other 14 15 5 43 5
manufacturers
Cummins
share of net 81 89 53 239 136
income
Royalty and
interest 7 8 4 22 11
income
Equity,
royalty and
interest $ 88 $ 97 $ 57 $ 261 $ 147
income from
investees
NOTE 2. OTHER INCOME (EXPENSE)
Other income (expense) included the following:
Three months ended Nine months ended
September June 27, September 27, September 26, September 27,
26,
In millions 2010 2010 2009 2010 2009
Change in
cash
surrender
value of $ 11 $ 1 $ 3 $ 11 $ 1
corporate
owned life
insurance
Dividend 2 2 1 5 3
income
Gain on
acquisition
of Cummins - - - 12 -
Western
Canada
(CWC)
Bank (4 ) (4 ) (3 ) (11 ) (10 )
charges
Foreign
currency (5 ) 2 (1 ) 4 (18 )
(losses)
gains, net
Other, net 4 (1 ) 6 4 14
Total other
income $ 8 $ - $ 6 $ 25 $ (10 )
(expense),
net
NOTE 3. INCOME TAXES
Our effective tax rate for the year is expected to approximate 30 percent, absent any additional 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 26, 2010, were 30 percent and 31 percent. In July 2010, the United Kingdom passed tax legislation which reduces our U.K. tax rate from 28 percent to 27 percent beginning in 2011. While the reduced tax rate will benefit future operations, we had an additional charge to our third quarter tax provision of approximately $2 million to reduce the value of our U.K. deferred tax assets. The tax rate for the nine month period includes a discrete tax charge of $7 million related to the enactment of the "Patient Protection and Affordable Care Act."
In August 2010, the U.S. passed the "Education Jobs and Medicaid Assistance Act" containing a number of international tax provisions which limit the foreign tax credits that can be claimed by U.S. corporations. In the third quarter, we also considered the unremitted earnings of certain German and Indian subsidiaries of our U.K. group to be permanently reinvested. Neither of these items had a material impact to our tax rate.
Our effective tax rates for the comparable prior year periods were 25 percent and 27 percent, respectively. These rates were less than the 35 percent U.S. income tax rate primarily due to lower tax rates on foreign income.
SUPPLEMENTAL INFORMATION Sales 2010 In millions Q1 Q2 Q3 Q4 YTD Engine business Heavy-duty truck $ 252 $ 340 $ 395 $ $ 987 Medium-duty bus and 217 352 430 999 truck Light-duty auto and RV 207 296 239 742 Industrial 577 656 700 1,933 Stationary power 170 255 305 730 Total Engine business 1,423 1,899 2,069 5,391 Power Generation 517 708 791 2,016 Components 630 729 769 2,128 Distribution 476 576 573 1,625 Eliminations (568 ) (704 ) (801 ) (2,073 ) Total $ 2,478 $ 3,208 $ 3,401 $ $ 9,087 2009 In millions Q1 Q2 Q3 Q4 YTD Engine business Heavy-duty truck $ 394 $ 395 $ 493 $ 714 $ 1,996 Medium-duty bus and 229 240 294 469 1,232 truck Light-duty auto and RV 156 94 120 318 688 Industrial 467 440 407 507 1,821 Stationary power 246 137 125 160 668 Total Engine business 1,492 1,306 1,439 2,168 6,405 Power Generation 657 610 549 601 2,417 Components 530 502 591 732 2,355 Distribution 413 463 422 486 1,784 Eliminations (653 ) (450 ) (471 ) (587 ) (2,161 ) Total $ 2,439 $ 2,431 $ 2,530 $ 3,400 $ 10,800
Engine Shipments 2010 Units Q1 Q2 Q3 Q4 YTD Mid-range 69,100 90,500 93,500 253,100 Heavy-duty 8,700 14,500 15,200 38,400 High horsepower 3,400 4,800 4,900 13,100 Total 81,200 109,800 113,600 304,600 2009 Units Q1 Q2 Q3 Q4 YTD Mid-range 60,600 49,200 58,800 100,600 269,200 Heavy-duty 16,600 16,400 20,600 32,300 85,900 High horsepower 3,900 3,200 2,600 3,700 13,400 Total 81,100 68,800 82,000 136,600 368,500
Source: Cummins Inc.
Released October 26, 2010