Cummins Announces Results for the First Quarter of 2014; Improving Demand in North America Drives Revenue Growth
First Quarter Revenues of $4.4 Billion, EBIT of 12.0 Percent of Sales; Full Year Revenue Expected to Grow Between 6 and 10 Percent and EBIT to Be in the Range of 12.75 to 13.25 Percent of Sales
COLUMBUS, IN -- (Marketwired) -- 04/29/14 -- Cummins Inc. (NYSE: CMI) today reported results for the first quarter of 2014.
First quarter revenue of $4.4 billion increased 12 percent from the same quarter in 2013. The increase year-over-year was driven by stronger demand in on-highway markets and distributor acquisitions in North America.
Revenues in North America increased 25 percent while international sales were flat compared to the first quarter a year ago. Within international markets, weakness in India, Australia, Mexico and Brazil offset higher revenues in China and Europe.
Earnings before interest and taxes (EBIT) were $528 million for the first quarter or 12.0 percent of sales. This compares to $437 million or 11.1 percent of sales a year ago.
Net income attributable to Cummins in the first quarter was $338 million ($1.83 per diluted share), compared to $282 million ($1.49 per diluted share) in the first quarter of 2013.
"We delivered good incremental margins in the first quarter as demand in on-highway markets in North America improved. We are also well on track to deliver the expected benefits from our North American distributor acquisitions as we execute our plans and end market demand improves. Conditions in a number of international markets remain very weak, particularly in India and Australia, leading to lower demand for power generation and mining equipment," said Chairman and CEO Tom Linebarger. "We continue to release exciting new products that will drive future profitable growth and we repurchased 3 million shares in the first quarter, consistent with our commitment to return 50 percent of full year operating cash flow to shareholders through a combination of dividends and share repurchase."
Based on the current forecast, Cummins expects full year 2014 revenues to grow between 6% and 10%, up from its previous forecast of growth of between 4% and 8%, due largely to improving demand in North America. EBIT is expected to be in the range of 12.75 to 13.25 percent of sales.
Other recent highlights:
- For the seventh consecutive year, Cummins has been named one of the world's most ethical companies by The Ethisphere Institute;
- FORTUNE magazine named Cummins one of America's Most Admired Companies; and
- Cummins became the first company to receive EPA Tier4 Final certification for high-horsepower generator sets.
First quarter 2014 detail (all comparisons to same period in 2013)
Engine Segment
- Sales - $2.6 billion, up 11 percent
- Segment EBIT - $269 million, or 10.5 percent of sales, compared to $195 million or 8.5 percent of sales
- Increased demand in on-highway markets in North America offset weakness in global mining and power generation markets
Components Segment
- Sales - $1.2 billion, up 21 percent
- Segment EBIT - $167 million, or 13.6 percent of sales, compared to $119 million or 11.7 percent of sales
- Higher demand in on-highway markets in North America, Europe and China more than offset weaker demand in Brazil
Power Generation Segment
- Sales - $639 million, down 14 percent
- Segment EBIT - $25 million, or 3.9 percent of sales, compared to $51 million or 6.8 percent of sales
- Lower revenues in most markets particularly India, North America and Asia Pacific
Distribution Segment
- Sales - $950 million, up 22 percent overall and up 1 percent excluding acquisitions
- Segment EBIT - $76 million, or 8.0 percent of sales, compared to $95 million or 12.2 percent of sales, with currency being the largest driver of the reduction in earnings
- Higher revenues were primarily driven by acquisitions and stronger demand for parts and service in the North American and Asia Pacific regions.
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 48,000 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 6,800 dealer locations. Cummins earned $1.48 billion on sales of $17.3 billion in 2013. 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 2014. 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 2013 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.
The following files are available for download:
| CUMMINS INC. AND SUBSIDIARIES | ||||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF INCOME | ||||||||||||
| (Unaudited) (a) | ||||||||||||
| Three months ended | ||||||||||||
| In millions, except per share amounts | March 30, 2014 | December 31, 2013 | March 31, 2013 | |||||||||
| NET SALES | $ | 4,406 | $ | 4,588 | $ | 3,922 | ||||||
| Cost of sales | 3,290 | 3,424 | 2,965 | |||||||||
| GROSS MARGIN | 1,116 | 1,164 | 957 | |||||||||
| OPERATING EXPENSES AND INCOME | ||||||||||||
| Selling, general and administrative expenses | 502 | 500 | 444 | |||||||||
| Research, development and engineering expenses | 190 | 181 | 182 | |||||||||
| Equity, royalty and interest income from investees (Note 1) | 90 | 80 | 82 | |||||||||
| Other operating income (expense), net | (1 | ) | (10 | ) | 1 | |||||||
| OPERATING INCOME | 513 | 553 | 414 | |||||||||
| Interest income | 5 | 6 | 5 | |||||||||
| Interest expense | 17 | 19 | 6 | |||||||||
| Other income, net | 10 | 7 | 18 | |||||||||
| INCOME BEFORE INCOME TAXES | 511 | 547 | 431 | |||||||||
| Income tax expense (Note 2) | 153 | 86 | 119 | |||||||||
| CONSOLIDATED NET INCOME | 358 | 461 | 312 | |||||||||
| Less: Net income attributable to noncontrolling interests | 20 | 29 | 30 | |||||||||
| NET INCOME ATTRIBUTABLE TO CUMMINS INC. | $ | 338 | $ | 432 | $ | 282 | ||||||
| EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC. | ||||||||||||
| Basic | $ | 1.83 | $ | 2.33 | $ | 1.50 | ||||||
| Diluted | $ | 1.83 | $ | 2.32 | $ | 1.49 | ||||||
| WEIGHTED AVERAGE SHARES OUTSTANDING | ||||||||||||
| Basic | 184.3 | 185.7 | 188.4 | |||||||||
| Diluted | 184.7 | 186.3 | 188.8 | |||||||||
| CASH DIVIDENDS DECLARED PER COMMON SHARE | $ | 0.625 | $ | 0.625 | $ | 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 BALANCE SHEETS | |||||||||||||
| (Unaudited) (a) | |||||||||||||
| In millions, except par value | March 30, 2014 | December 31, 2013 | |||||||||||
| ASSETS | |||||||||||||
| Current assets | |||||||||||||
| Cash and cash equivalents | $ | 2,178 | $ | 2,699 | |||||||||
| Marketable securities | 129 | 150 | |||||||||||
| Total cash, cash equivalents and marketable securities | 2,307 | 2,849 | |||||||||||
| Accounts and notes receivable, net | 2,949 | 2,649 | |||||||||||
| Inventories | 2,580 | 2,381 | |||||||||||
| Prepaid expenses and other current assets | 663 | 760 | |||||||||||
| Total current assets | 8,499 | 8,639 | |||||||||||
| Long-term assets | |||||||||||||
| Property, plant and equipment | 6,563 | 6,410 | |||||||||||
| Accumulated depreciation | (3,331 | ) | (3,254 | ) | |||||||||
| Property, plant and equipment, net | 3,232 | 3,156 | |||||||||||
| Investments and advances related to equity method investees | 966 | 931 | |||||||||||
| Goodwill | 464 | 461 | |||||||||||
| Other intangible assets, net | 357 | 357 | |||||||||||
| Other assets | 1,233 | 1,184 | |||||||||||
| Total assets | $ | 14,751 | $ | 14,728 | |||||||||
| LIABILITIES | |||||||||||||
| Current liabilities | |||||||||||||
| Loans payable | $ | 24 | $ | 17 | |||||||||
| Accounts payable (principally trade) | 1,887 | 1,557 | |||||||||||
| Current maturities of long-term debt | 37 | 51 | |||||||||||
| Current portion of accrued product warranty | 345 | 360 | |||||||||||
| Accrued compensation, benefits and retirement costs | 323 | 433 | |||||||||||
| Deferred revenue | 295 | 285 | |||||||||||
| Taxes payable (including taxes on income) | 69 | 99 | |||||||||||
| Other accrued expenses | 575 | 566 | |||||||||||
| Total current liabilities | 3,555 | 3,368 | |||||||||||
| Long-term liabilities | |||||||||||||
| Long-term debt | 1,632 | 1,672 | |||||||||||
| Pensions | 232 | 232 | |||||||||||
| Postretirement benefits other than pensions | 347 | 356 | |||||||||||
| Other liabilities and deferred revenue | 1,251 | 1,230 | |||||||||||
| Total liabilities | 7,017 | 6,858 | |||||||||||
| EQUITY | |||||||||||||
| Cummins Inc. shareholders' equity | |||||||||||||
| Common stock, $2.50 par value, 500 shares authorized, 222.3 and 222.3 shares issued | 2,101 | 2,099 | |||||||||||
| Retained earnings | 8,629 | 8,406 | |||||||||||
| Treasury stock, at cost, 38.4 and 35.6 shares | (2,600 | ) | (2,195 | ) | |||||||||
| Common stock held by employee benefits trust, at cost, 1.2 and 1.3 shares | (15 | ) | (16 | ) | |||||||||
| Accumulated other comprehensive loss | |||||||||||||
| Defined benefit postretirement plans | (607 | ) | (611 | ) | |||||||||
| Other | (148 | ) | (173 | ) | |||||||||
| Total accumulated other comprehensive loss | (755 | ) | (784 | ) | |||||||||
| Total Cummins Inc. shareholders' equity | 7,360 | 7,510 | |||||||||||
| Noncontrolling interests | 374 | 360 | |||||||||||
| Total equity | 7,734 | 7,870 | |||||||||||
| Total liabilities and equity | $ | 14,751 | $ | 14,728 | |||||||||
| (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) | ||||||||||
| Three months ended | ||||||||||
| In millions | March 30, 2014 | March 31, 2013 | ||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||
| Consolidated net income | $ | 358 | $ | 312 | ||||||
| Adjustments to reconcile consolidated net income to net cash provided by operating activities | ||||||||||
| Depreciation and amortization | 105 | 98 | ||||||||
| Gain on fair value adjustment for consolidated investees | (6 | ) | (7 | ) | ||||||
| Deferred income taxes | 22 | 5 | ||||||||
| Equity in income of investees, net of dividends | (52 | ) | (36 | ) | ||||||
| Pension contributions in excess of expense | (100 | ) | (54 | ) | ||||||
| Other post-retirement benefits payments in excess of expense | (8 | ) | (8 | ) | ||||||
| Stock-based compensation expense | 10 | 7 | ||||||||
| Excess tax benefits on stock-based awards | (5 | ) | (7 | ) | ||||||
| Translation and hedging activities | (3 | ) | (5 | ) | ||||||
| Changes in current assets and liabilities, net of acquisitions | ||||||||||
| Accounts and notes receivable | (232 | ) | (29 | ) | ||||||
| Inventories | (135 | ) | (177 | ) | ||||||
| Other current assets | 2 | 158 | ||||||||
| Accounts payable | 302 | 204 | ||||||||
| Accrued expenses | (95 | ) | (142 | ) | ||||||
| Changes in other liabilities and deferred revenue | 50 | 47 | ||||||||
| Other, net | 50 | 62 | ||||||||
| NET CASH PROVIDED BY OPERATING ACTIVITIES | 263 | 428 | ||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||
| Capital expenditures | (107 | ) | (114 | ) | ||||||
| Investments in internal use software | (14 | ) | (12 | ) | ||||||
| Investments in and advances to equity investees | (6 | ) | (24 | ) | ||||||
| Acquisitions of businesses, net of cash acquired | (90 | ) | (17 | ) | ||||||
| Investments in marketable securities -- acquisitions | (84 | ) | (133 | ) | ||||||
| Investments in marketable securities -- liquidations | 108 | 187 | ||||||||
| Cash flows from derivatives not designated as hedges | 5 | (30 | ) | |||||||
| Other, net | 1 | - | ||||||||
| Net cash used in investing activities | (187 | ) | (143 | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||
| Proceeds from borrowings | 7 | - | ||||||||
| Payments on borrowings and capital lease obligations | (25 | ) | (27 | ) | ||||||
| Net borrowings (payments) under short-term credit agreements | (39 | ) | 15 | |||||||
| Distributions to noncontrolling interests | (13 | ) | (19 | ) | ||||||
| Dividend payments on common stock | (115 | ) | (95 | ) | ||||||
| Repurchases of common stock | (419 | ) | - | |||||||
| Excess tax benefits on stock-based awards | 5 | 7 | ||||||||
| Other, net | (3 | ) | 16 | |||||||
| Net cash used in financing activities | (602 | ) | (103 | ) | ||||||
| EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS | 5 | (68 | ) | |||||||
| Net increase (decrease) in cash and cash equivalents | (521 | ) | 114 | |||||||
| Cash and cash equivalents at beginning of year | 2,699 | 1,369 | ||||||||
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 2,178 | $ | 1,483 | ||||||
| (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 March 30, 2014 | |||||||||||||||||||||||||
| External sales | $ | 2,090 | $ | 922 | $ | 452 | $ | 942 | $ | - | $ | 4,406 | |||||||||||||
| Intersegment sales | 473 | 308 | 187 | 8 | (976 | ) | - | ||||||||||||||||||
| Total sales | 2,563 | 1,230 | 639 | 950 | (976 | ) | 4,406 | ||||||||||||||||||
| Depreciation and amortization (2) | 51 | 26 | 12 | 16 | - | 105 | |||||||||||||||||||
| Research, development and engineering expenses | 116 | 53 | 19 | 2 | - | 190 | |||||||||||||||||||
| Equity, royalty and interest income from investees | 32 | 9 | 8 | 41 | - | 90 | |||||||||||||||||||
| Interest income | 2 | 1 | 1 | 1 | - | 5 | |||||||||||||||||||
| Segment EBIT | 269 | 167 | 25 | 76 | (3) | (9 | ) | 528 | |||||||||||||||||
| Segment EBIT as a percentage of total sales | 10.5 | % | 13.6 | % | 3.9 | % | 8.0 | % | 12.0 | % | |||||||||||||||
| Three months ended December 31, 2013 | |||||||||||||||||||||||||
| External sales | $ | 2,131 | $ | 859 | $ | 533 | $ | 1,065 | $ | - | $ | 4,588 | |||||||||||||
| Intersegment sales | 431 | 276 | 226 | 8 | (941 | ) | - | ||||||||||||||||||
| Total sales | 2,562 | 1,135 | 759 | 1,073 | (941 | ) | 4,588 | ||||||||||||||||||
| Depreciation and amortization (2) | 49 | 25 | 13 | 14 | - | 101 | |||||||||||||||||||
| Research, development and engineering expenses | 106 | 53 | 20 | 2 | - | 181 | |||||||||||||||||||
| Equity, royalty and interest income from investees | 30 | 7 | 2 | 41 | - | 80 | |||||||||||||||||||
| Interest income | 3 | 1 | 1 | 1 | - | 6 | |||||||||||||||||||
| Segment EBIT | 235 | 140 | 46 | 107 | 38 | 566 | |||||||||||||||||||
| Segment EBIT as a percentage of total sales | 9.2 | % | 12.3 | % | 6.1 | % | 10.0 | % | 12.3 | % | |||||||||||||||
| Three months ended March 31, 2013 | |||||||||||||||||||||||||
| External sales | $ | 1,885 | $ | 722 | $ | 539 | $ | 776 | $ | - | $ | 3,922 | |||||||||||||
| Intersegment sales | 418 | 296 | 207 | 2 | (923 | ) | - | ||||||||||||||||||
| Total sales | 2,303 | 1,018 | 746 | 778 | (923 | ) | 3,922 | ||||||||||||||||||
| Depreciation and amortization (2) | 52 | 24 | 12 | 10 | - | 98 | |||||||||||||||||||
| Research, development and engineering expenses | 105 | 57 | 18 | 2 | - | 182 | |||||||||||||||||||
| Equity, royalty and interest income from investees | 23 | 7 | 7 | 45 | - | 82 | |||||||||||||||||||
| Interest income | 2 | 1 | 2 | - | - | 5 | |||||||||||||||||||
| Segment EBIT | 195 | 119 | 51 | 95 | (3) | (23 | ) | 437 | |||||||||||||||||
| Segment EBIT as a percentage of total sales | 8.5 | % | 11.7 | % | 6.8 | % | 12.2 | % | 11.1 | % | |||||||||||||||
| (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 March 30, 2014, December 31, 2013 and March 31, 2013. |
| (2) | Depreciation and amortization as shown on a segment basis excludes the amortization of debt discount and deferred costs included in the Condensed Consolidated Statements of Income as "Interest expense." |
| (3) | Distribution segment EBIT for the three months ended March 30, 2014, included a $6 million gain on the fair value adjustment resulting from the acquisition of a controlling interest in Cummins Mid-South LLC. Distribution segment EBIT for the three months ended March 31, 2013, included a $7 million gain on the fair value adjustment resulting from the acquisition of a controlling interest in Cummins Northwest LLC. |
| CUMMINS INC. AND SUBSIDIARIES | ||||||||||
| 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 | ||||||||||
| In millions | March 30, 2014 | December 31, 2013 | March 31, 2013 | |||||||
| Total EBIT | $ | 528 | $ | 566 | $ | 437 | ||||
| Less: Interest expense | 17 | 19 | 6 | |||||||
| Income before income taxes | $ | 511 | $ | 547 | $ | 431 | ||||
| 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 reporting periods was as follows: |
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| Three months ended | ||||||||||||||
| In millions | March 30, 2014 | December 31, 2013 | March 31, 2013 | |||||||||||
| Distribution Entities | ||||||||||||||
| North American distributors | $ | 32 | $ | 31 | $ | 35 | ||||||||
| Komatsu Cummins Chile, Ltda. | 6 | 8 | 5 | |||||||||||
| All other distributors | 1 | - | - | |||||||||||
| Manufacturing Entities | ||||||||||||||
| Dongfeng Cummins Engine Company, Ltd. | 14 | 18 | 12 | |||||||||||
| Chongqing Cummins Engine Company, Ltd. | 11 | 14 | 12 | |||||||||||
| Beijing Foton Cummins Engine Co., Ltd. (Light-duty) | 6 | 3 | 1 | |||||||||||
| Shanghai Fleetguard Filter Co., Ltd. | 3 | 2 | 3 | |||||||||||
| Tata Cummins, Ltd. | 2 | 1 | 1 | |||||||||||
| Cummins Westport, Inc. | 1 | (1 | ) | - | ||||||||||
| Beijing Foton Cummins Engine Co., Ltd. (Heavy-duty) | (6 | ) | (7 | ) | (3 | ) | ||||||||
| All other manufacturers | 9 | 2 | 7 | |||||||||||
| Cummins share of net income | 79 | 71 | 73 | |||||||||||
| Royalty and interest income | 11 | 9 | 9 | |||||||||||
| Equity, royalty and interest income from investees | $ | 90 | $ | 80 | $ | 82 | ||||||||
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. The research tax credit expired December 31, 2013 and has not yet been renewed by Congress. 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. The effective tax rate for the three months ended March 30, 2014, was 29.9 percent. This tax rate includes a $12 million discrete tax expense primarily attributable to state deferred tax adjustments, as well as a $5 million discrete net tax benefit resulting from a $70 million dividend paid from China earnings generated prior to 2012.
Our tax rate for the three month period ended December 31, 2013 was 15.7 percent. We recorded $70 million or $0.38 per share of tax benefits in the fourth quarter of 2013. The income tax provision for the fourth quarter of 2013 was net of the following items:
| One-time impacts of foreign legal entity restructuring actions | $ | 16 | |
| One-time impacts of reconciliation of state income tax provision to tax return | 17 | ||
| Lower operating rate primarily resulting from recognition of state and federal research and development credits and the recurring impacts of foreign legal entity restructuring actions | 37 | ||
| Total | $ | 70 | |
Our effective tax rate for the three months ended March 31, 2013, was 27.6 percent. This tax rate included a discrete tax benefit of $28 million attributable to the 2012 research credit reinstated in January 2013 as well as a discrete tax expense of $17 million, which primarily related to the write-off of a deferred tax asset deemed unrecoverable. The increase in the three month effective tax rate from 2013 to 2014 is attributable primarily to one-time discrete tax benefits in 2013 that did not repeat in 2014 and changes in U.S. state tax legislation that unfavorably impacted our 2014 effective tax rate.
NOTE 3. ACQUISITION
Cummins Mid-South LLC
On February 14, 2014, we acquired the remaining 62.2 percent interest in Cummins Mid-South LLC (Mid-South) from the former distributor principal. The preliminary purchase consideration was $116 million, which included $32 million in cash and an additional $61 million paid to eliminate outstanding debt. The remaining $23 million will be paid in future periods, subject to customary purchase price adjustments. The acquisition was accounted for as a business combination and the results of the acquired entity were included in the Distribution operating segment subsequent to the acquisition date. As a result of this transaction, first quarter 2014 Distribution segment results included a $6 million gain, as we were required to re-measure our pre-existing 37.8 percent ownership interest in Mid-South to fair value. The transaction generated $3 million of goodwill based on the preliminary purchase price allocation. Net sales for Mid-South were $368 million for the year ended December 31, 2013. This amount is not fully incremental to our consolidated sales as the amount would be reduced by the elimination of sales to the previously unconsolidated entity.
| CUMMINS INC. AND SUBSIDIARIES |
|
FINANICAL 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. 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. Below is a reconciliation of EBIT to "Net income attributable to Cummins Inc.," for each of the applicable periods:
| Three months ended | ||||||||||||||
| In millions | March 30, 2014 | December 31, 2013 | March 31, 2013 | |||||||||||
| Earnings before interest expense and income taxes | $ | 528 | $ | 566 | $ | 437 | ||||||||
| EBIT as a percentage of net sales | 12.0 | % | 12.3 | % | 11.1 | % | ||||||||
| Less | ||||||||||||||
| Interest expense | 17 | 19 | 6 | |||||||||||
| Income tax expense | 153 | 86 | 119 | |||||||||||
| Consolidated net income | 358 | 461 | 312 | |||||||||||
| Less | ||||||||||||||
| Net income attributable to noncontrolling interests | 20 | 29 | 30 | |||||||||||
| Net income attributable to Cummins Inc. | $ | 338 | $ | 432 | $ | 282 | ||||||||
| Net income attributable to Cummins Inc. as a percentage of net sales | 7.7 | % | 9.4 | % | 7.2 | % | ||||||||
| CUMMINS INC. AND SUBSIDIARIES |
| BUSINESS UNIT SALES DATA |
| (Unaudited) |
Engine segment net sales by market
| 2014 | ||||||||||||||||
| In millions | Q1 | Q2 | Q3 | Q4 | YTD | |||||||||||
| Heavy-duty truck | $ | 722 | $ | - | $ | - | $ | - | $ | 722 | ||||||
| Medium-duty truck and bus | 601 | - | - | - | 601 | |||||||||||
| Light-duty automotive and RV | 361 | - | - | - | 361 | |||||||||||
| Industrial | 700 | - | - | - | 700 | |||||||||||
| Stationary power | 179 | - | - | - | 179 | |||||||||||
| Total sales | $ | 2,563 | $ | - | $ | - | $ | - | $ | 2,563 | ||||||
| 2013 | ||||||||||||||||
| In millions | Q1 | Q2 | Q3 | Q4 | YTD | |||||||||||
| Heavy-duty truck | $ | 654 | $ | 723 | $ | 690 | $ | 638 | $ | 2,705 | ||||||
| Medium-duty truck and bus | 448 | 595 | 570 | 572 | 2,185 | |||||||||||
| Light-duty automotive and RV | 260 | 345 | 330 | 365 | 1,300 | |||||||||||
| Industrial | 714 | 762 | 709 | 811 | 2,996 | |||||||||||
| Stationary power | 227 | 231 | 193 | 176 | 827 | |||||||||||
| Total sales | $ | 2,303 | $ | 2,656 | $ | 2,492 | $ | 2,562 | $ | 10,013 | ||||||
Unit shipments by engine classification (including unit shipments to Power Generation)
| 2014 | |||||||||||
| Units | Q1 | Q2 | Q3 | Q4 | YTD | ||||||
| Midrange | 118,900 | - | - | - | 118,900 | ||||||
| Heavy-duty | 28,800 | - | - | - | 28,800 | ||||||
| High-horsepower | 3,400 | - | - | - | 3,400 | ||||||
| Total units | 151,100 | - | - | - | 151,100 | ||||||
| 2013 | |||||||||||
| Units | Q1 | Q2 | Q3 | Q4 | YTD | ||||||
| Midrange | 94,600 | 121,900 | 113,800 | 115,700 | 446,000 | ||||||
| Heavy-duty | 24,900 | 28,300 | 26,500 | 25,700 | 105,400 | ||||||
| High-horsepower | 4,200 | 3,600 | 3,500 | 3,500 | 14,800 | ||||||
| Total units | 123,700 | 153,800 | 143,800 | 144,900 | 566,200 | ||||||
Component segment sales by business
| 2014 | ||||||||||||||||
| In millions | Q1 | Q2 | Q3 | Q4 | YTD | |||||||||||
| Emission Solutions | $ | 543 | $ | - | $ | - | $ | - | $ | 543 | ||||||
| Turbo Technologies | 313 | - | - | - | 313 | |||||||||||
| Filtration | 265 | - | - | - | 265 | |||||||||||
| Fuel systems | 109 | - | - | - | 109 | |||||||||||
| Total sales | $ | 1,230 | $ | - | $ | - | $ | - | $ | 1,230 | ||||||
| 2013 | ||||||||||||||||
| In millions | Q1 | Q2 | Q3 | Q4 | YTD | |||||||||||
| Emission Solutions | $ | 400 | $ | 444 | $ | 458 | $ | 489 | $ | 1,791 | ||||||
| Turbo Technologies | 266 | 294 | 263 | 292 | 1,115 | |||||||||||
| Filtration | 255 | 271 | 248 | 254 | 1,028 | |||||||||||
| Fuel systems | 97 | 108 | 103 | 100 | 408 | |||||||||||
| Total sales | $ | 1,018 | $ | 1,117 | $ | 1,072 | $ | 1,135 | $ | 4,342 | ||||||
Power Generation segment sales by business
| 2014 | ||||||||||||||||
| In millions | Q1 | Q2 | Q3 | Q4 | YTD | |||||||||||
| Power products | $ | 373 | $ | - | $ | - | $ | - | $ | 373 | ||||||
| Power systems | 137 | - | - | - | 137 | |||||||||||
| Alternators | 105 | - | - | - | 105 | |||||||||||
| Power solutions | 24 | - | - | - | 24 | |||||||||||
| Total sales | $ | 639 | $ | - | $ | - | $ | - | $ | 639 | ||||||
| 2013 | ||||||||||||||||
| In millions | Q1 | Q2 | Q3 | Q4 | YTD | |||||||||||
| Power products | $ | 409 | $ | 474 | $ | 421 | $ | 421 | $ | 1,725 | ||||||
| Power systems | 179 | 187 | 122 | 168 | 656 | |||||||||||
| Alternators | 126 | 125 | 126 | 119 | 496 | |||||||||||
| Power solutions | 32 | 28 | 43 | 51 | 154 | |||||||||||
| Total sales | $ | 746 | $ | 814 | $ | 712 | $ | 759 | $ | 3,031 | ||||||
Distribution segment sales by business
| 2014 | ||||||||||||||||
| In millions | Q1 | Q2 | Q3 | Q4 | YTD | |||||||||||
| Parts and filtration | $ | 382 | $ | - | $ | - | $ | - | $ | 382 | ||||||
| Power generation | 193 | - | - | - | 193 | |||||||||||
| Engines | 174 | - | - | - | 174 | |||||||||||
| Service | 201 | - | - | - | 201 | |||||||||||
| Total sales | $ | 950 | $ | - | $ | - | $ | - | $ | 950 | ||||||
| 2013 | ||||||||||||||||
| In millions | Q1 | Q2 | Q3 | Q4 | YTD | |||||||||||
| Parts and filtration | $ | 322 | $ | 369 | $ | 377 | $ | 397 | $ | 1,465 | ||||||
| Power generation | 163 | 241 | 234 | 293 | 931 | |||||||||||
| Engines | 152 | 183 | 170 | 208 | 713 | |||||||||||
| Service | 141 | 161 | 163 | 175 | 640 | |||||||||||
| Total sales | $ | 778 | $ | 954 | $ | 944 | $ | 1,073 | $ | 3,749 | ||||||
Contact:
Carole Casto
Executive Director - Corporate Communications
(317) 610-2480
carole.casto@cummins.com
Source: Cummins Inc.
Released April 29, 2014