Cummins Reports Results for the Second Quarter of 2014
COLUMBUS, IN -- (Marketwired) -- 07/28/14 -- Cummins Inc. (NYSE: CMI)
- Second quarter revenues of $4.8 billion, EBIT of 13.6 percent of sales on stronger North American truck markets
- Full year revenue expected to grow between 8 and 11 percent and EBIT to be in the range of 12.75 to 13.25 percent of sales
Cummins Inc. (NYSE: CMI) today reported results for the second quarter of 2014.
Second quarter revenue of $4.8 billion increased 7 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 14 percent while international sales decreased 1 percent compared to the second quarter a year ago. Within international markets, lower revenues in Mexico, Brazil and India offset stronger demand in China.
Earnings before interest and taxes (EBIT) were $657 million for the second quarter or 13.6 percent of sales. This compares to $621 million or 13.7 percent of sales a year ago.
Net income attributable to Cummins in the second quarter was $446 million ($2.43 per diluted share), compared to $414 million ($2.20 per diluted share) in the second quarter of 2013.
"Demand is growing in on-highway markets in North America this year as the economy improves and we have gained market share in medium duty truck and bus markets. Our Components business delivered very strong results in the second quarter generating record sales and profits," said Chairman and CEO Tom Linebarger. "Earlier this month we raised the quarterly dividend by 25 percent and the Board of Directors also approved a new $1 billion share repurchase program, consistent with our commitment to return 50 percent of operating cash flow to shareholders and reflecting our confidence in the Company's future."
Based on the current forecast, Cummins expects full year 2014 revenues to grow between 8% and 11%, up from its previous forecast of growth of between 6% and 10%, 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:
- The Company named Rich Freeland as President and Chief Operating Officer
- Cummins was named 2013 Powertrain Supplier of the Year by Chrysler Group
- The Company was ranked among the World's Best in Newsweek's 2014 Green Rankings for our continuous efforts to reduce our environmental footprint and make a positive impact on the environment
- For the ninth straight year Cummins was awarded a perfect score by the Human Rights Campaign Foundation (HRC) in the 2014 Corporate Quality Index as part of HRC's Best Place to Work Initiative
Second quarter 2014 detail (all comparisons to same period in 2013)
Engine Segment
- Sales - $2.7 billion, up 3 percent
- Segment EBIT - $311 million, or 11.3 percent of sales, compared to $339 million or 12.8 percent of sales
- Increased demand in on-highway markets in North America offset weakness in global power generation and the Brazilian truck market
Components Segment
- Sales - $1.3 billion, up 15 percent
- Segment EBIT - $185 million, or 14.5 percent of sales, compared to $136 million or 12.2 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 - $743 million, down 9 percent
- Segment EBIT - $61 million, or 8.2 percent of sales, compared to $76 million or 9.3 percent of sales
- Lower revenues in most markets particularly North America, Asia Pacific and Middle East offset stronger demand in China and Africa
Distribution Segment
- Sales - $1.2 billion, up 30 percent overall and up 2 percent excluding acquisitions
- Segment EBIT - $126 million, or 10.2 percent of sales, compared to $100 million or 10.5 percent of sales
- Higher revenues were primarily driven by acquisitions and stronger demand in North America and Africa.
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. 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.
CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) (a)
Three months ended
--------------------------------------
June 29, March 30, June 30,
In millions, except per share amounts 2014 2014 2013
------------------------------------- ------------ ------------ ------------
NET SALES $ 4,835 $ 4,406 $ 4,525
Cost of sales 3,608 3,290 3,372
------------ ------------ ------------
GROSS MARGIN 1,227 1,116 1,153
OPERATING EXPENSES AND INCOME
Selling, general and administrative
expenses 535 502 484
Research, development and
engineering expenses 179 190 177
Equity, royalty and interest income
from investees (Note 1) 105 90 108
Other operating income (expense),
net (6) (1) 10
------------ ------------ ------------
OPERATING INCOME 612 513 610
Interest income 6 5 10
Interest expense 15 17 8
Other income, net 39 10 1
------------ ------------ ------------
INCOME BEFORE INCOME TAXES 642 511 613
Income tax expense (Note 2) 170 153 172
------------ ------------ ------------
CONSOLIDATED NET INCOME 472 358 441
Less: Net income attributable to
noncontrolling interests 26 20 27
------------ ------------ ------------
NET INCOME ATTRIBUTABLE TO CUMMINS
INC. $ 446 $ 338 $ 414
============ ============ ============
EARNINGS PER COMMON SHARE
ATTRIBUTABLE TO CUMMINS INC.
Basic $ 2.44 $ 1.83 $ 2.20
Diluted $ 2.43 $ 1.83 $ 2.20
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 182.8 184.3 187.8
Diluted 183.2 184.7 188.2
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 STATEMENTS OF INCOME
(Unaudited) (a)
Six months ended
---------------------------------
In millions, except per share amounts June 29, 2014 June 30, 2013
------------------------------------------ ---------------- ----------------
NET SALES $ 9,241 $ 8,447
Cost of sales 6,898 6,337
---------------- ----------------
GROSS MARGIN 2,343 2,110
OPERATING EXPENSES AND INCOME
Selling, general and administrative
expenses 1,037 928
Research, development and engineering
expenses 369 359
Equity, royalty and interest income from
investees (Note 1) 195 190
Other operating income (expense), net (7) 11
---------------- ----------------
OPERATING INCOME 1,125 1,024
Interest income 11 15
Interest expense 32 14
Other income, net 49 19
---------------- ----------------
INCOME BEFORE INCOME TAXES 1,153 1,044
Income tax expense (Note 2) 323 291
---------------- ----------------
CONSOLIDATED NET INCOME 830 753
Less: Net income attributable to
noncontrolling interests 46 57
---------------- ----------------
NET INCOME ATTRIBUTABLE TO CUMMINS INC. $ 784 $ 696
================ ================
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO
CUMMINS INC.
Basic $ 4.27 $ 3.70
Diluted $ 4.26 $ 3.69
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 183.5 188.1
Diluted 183.9 188.5
CASH DIVIDENDS DECLARED PER COMMON SHARE $ 1.25 $ 1.00
(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)
December 31,
In millions, except par value June 29, 2014 2013
------------------------------------------ ---------------- ----------------
ASSETS
Current assets
Cash and cash equivalents $ 2,219 $ 2,699
Marketable securities 158 150
---------------- ----------------
Total cash, cash equivalents and
marketable securities 2,377 2,849
Accounts and notes receivable, net 3,188 2,649
Inventories 2,745 2,381
Prepaid expenses and other current
assets 770 760
---------------- ----------------
Total current assets 9,080 8,639
---------------- ----------------
Long-term assets
Property, plant and equipment 6,739 6,410
Accumulated depreciation (3,410) (3,254)
---------------- ----------------
Property, plant and equipment, net 3,329 3,156
Investments and advances related to
equity method investees 934 931
Goodwill 465 461
Other intangible assets, net 353 357
Other assets 1,339 1,184
---------------- ----------------
Total assets $ 15,500 $ 14,728
================ ================
LIABILITIES
Current liabilities
Loans payable $ 30 $ 17
Accounts payable (principally trade) 1,905 1,557
Current maturities of long-term debt 33 51
Current portion of accrued product
warranty 353 360
Accrued compensation, benefits and
retirement costs 401 433
Deferred revenue 316 285
Taxes payable (including taxes on
income) 125 99
Other accrued expenses 646 566
---------------- ----------------
Total current liabilities 3,809 3,368
---------------- ----------------
Long-term liabilities
Long-term debt 1,627 1,672
Pensions 233 232
Postretirement benefits other than
pensions 341 356
Other liabilities and deferred revenue 1,332 1,230
---------------- ----------------
Total liabilities 7,342 6,858
---------------- ----------------
EQUITY
Cummins Inc. shareholders' equity
Common stock, $2.50 par value, 500
shares authorized, 222.3 and 222.3
shares issued 2,113 2,099
Retained earnings 8,961 8,406
Treasury stock, at cost, 38.4 and 35.6
shares (2,604) (2,195)
Common stock held by employee benefits
trust, at cost, 1.2 and 1.3 shares (14) (16)
Accumulated other comprehensive loss
Defined benefit postretirement plans (597) (611)
Other (72) (173)
---------------- ----------------
Total accumulated other comprehensive
loss (669) (784)
---------------- ----------------
Total Cummins Inc. shareholders'
equity 7,787 7,510
Noncontrolling interests 371 360
---------------- ----------------
Total equity 8,158 7,870
---------------- ----------------
Total liabilities and equity $ 15,500 $ 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)
Six months ended
---------------------------------
In millions June 29, 2014 June 30, 2013
------------------------------------------ ---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net income $ 830 $ 753
Adjustments to reconcile consolidated
net income to net cash provided by
operating activities
Depreciation and amortization 217 200
Gain on fair value adjustment for
consolidated investees (20) (12)
Deferred income taxes (88) 20
Equity in income of investees, net of
dividends (108) (57)
Pension contributions in excess of
expense (127) (78)
Other post-retirement benefits
payments in excess of expense (14) (15)
Stock-based compensation expense 21 19
Excess tax benefits on stock-based
awards (5) (8)
Translation and hedging activities (9) 3
Changes in current assets and
liabilities, net of acquisitions
Accounts and notes receivable (321) (265)
Inventories (223) (184)
Other current assets 4 214
Accounts payable 289 310
Accrued expenses 120 (87)
Changes in other liabilities and
deferred revenue 116 100
Other, net 19 47
---------------- ----------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 701 960
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (245) (275)
Investments in internal use software (26) (24)
Investments in and advances to equity
investees (11) (4)
Acquisitions of businesses, net of cash
acquired (193) (134)
Investments in marketable securities-
acquisitions (179) (243)
Investments in marketable securities-
liquidations 179 280
Cash flows from derivatives not
designated as hedges 4 (23)
Other, net 8 12
---------------- ----------------
Net cash used in investing activities (463) (411)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 17 2
Payments on borrowings and capital lease
obligations (39) (51)
Net borrowings (payments) under short-
term credit agreements (48) 56
Distributions to noncontrolling
interests (32) (28)
Dividend payments on common stock (229) (189)
Repurchases of common stock (430) (289)
Excess tax benefits on stock-based
awards 5 8
Other, net - 18
---------------- ----------------
Net cash used in financing activities (756) (473)
---------------- ----------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS 38 (63)
---------------- ----------------
Net increase (decrease) in cash and cash
equivalents (480) 13
Cash and cash equivalents at beginning of
year 2,699 1,369
---------------- ----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,219 $ 1,382
================ ================
(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)
Non-
Power segment
In millions Engine Components Generation Distribution Items(1) Total
------- ---------- ---------- ------------ --------- -------
Three months
ended June
29, 2014
External
sales $2,178 $ 953 $ 475 $ 1,229 $ - $4,835
Intersegment
sales 566 327 268 9 (1,170) -
------- ---------- ---------- ------------ --------- -------
Total sales 2,744 1,280 743 1,238 (1,170) 4,835
Depreciation
and
amortization
(2) 52 26 13 20 - 111
Research,
development
and
engineering
expenses 105 53 18 3 - 179
Equity,
royalty and
interest
income from
investees 45 9 9 42 - 105
Interest
income 4 1 1 - - 6
Segment EBIT 311 185 61 126 (3) (26) 657
Segment EBIT
as a
percentage
of total
sales 11.3% 14.5% 8.2% 10.2% 13.6%
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 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 339 136 76 100 (3) (30) 621
Segment EBIT
as a
percentage
of total
sales 12.8% 12.2% 9.3% 10.5% 13.7%
(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 June 29, 2014, March 30,
2014 and June 30, 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 June 29, 2014,
March 30, 2014 and June 30, 2013 included gains of $14 million, $6
million and $5 million on the fair value adjustments resulting from the
acquisitions of controlling interests in North American distributors in
each period, respectively.
CUMMINS INC. AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)
Non-
Power segment
In millions Engine Components Generation Distribution Items(1) Total
------- ---------- ---------- ------------ -------- -------
Six months
ended June
29, 2014
External sales $4,268 $ 1,875 $ 927 $ 2,171 $ - $9,241
Intersegment
sales 1,039 635 455 17 (2,146) -
------- ---------- ---------- ------------ -------- -------
Total sales 5,307 2,510 1,382 2,188 (2,146) 9,241
Depreciation
and
amortization
(2) 103 52 25 36 - 216
Research,
development
and
engineering
expenses 221 106 37 5 - 369
Equity,
royalty and
interest
income from
investees 77 18 17 83 - 195
Interest
income 6 2 2 1 - 11
Segment EBIT 580 352 86 202 (3) (35) 1,185
Segment EBIT
as a
percentage of
total sales 10.9% 14.0% 6.2% 9.2% 12.8%
Six months
ended June
30, 2013
External sales $4,094 $ 1,508 $ 1,122 $ 1,723 $ - $8,447
Intersegment
sales 865 627 438 9 (1,939) -
------- ---------- ---------- ------------ -------- -------
Total sales 4,959 2,135 1,560 1,732 (1,939) 8,447
Depreciation
and
amortization
(2) 103 47 24 25 - 199
Research,
development
and
engineering
expenses 207 114 35 3 - 359
Equity,
royalty and
interest
income from
investees 75 16 17 82 - 190
Interest
income 9 1 4 1 - 15
Segment EBIT 534 255 127 195 (3) (53) 1,058
Segment EBIT
as a
percentage of
total sales 10.8% 11.9% 8.1% 11.3% 12.5%
(1) Includes intersegment sales and profit in inventory eliminations and
unallocated corporate expenses. There were no significant unallocated
corporate expenses for the six months ended June 29, 2014 and June 30,
2013.
(2) Depreciation and amortization as shown on a segment basis excludes the
amortization of debt discount and deferred costs included in
theCondensed Consolidated Statements of Income as "Interest expense."
The amortization of debt discount and deferred costs were $1 million and
$5 million for the six months ended June 29, 2014 and June 30, 2013,
respectively.
(3) Distribution segment EBIT for the six months ended June 29, 2014 and
June 30, 2013 included gains of $20 million and $12 million on the fair
value adjustments resulting from the acquisitions of controlling
interests in North American distributors in each period, respectively.
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 Six months ended
-------------------------------- ---------------------
June 29, March 30, June 30, June 29, June 30,
In millions 2014 2014 2013 2014 2013
---------- ---------- ---------- ---------------------
Total EBIT $ 657 $ 528 $ 621 $ 1,185 $ 1,058
Less: Interest
expense 15 17 8 32 14
---------- ---------- ---------- ---------------------
Income before
income taxes $ 642 $ 511 $ 613 $ 1,153 $ 1,044
========== ========== ========== =====================
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:
Three months ended Six months ended
----------------------------------- -----------------------
June 29, March 30, June 30, June 29, June 30,
In millions 2014 2014 2013 2014 2013
---------------- ----------- ----------- ----------- ----------- -----------
Distribution
Entities
North American
distributors $ 30 $ 32 $ 29 $ 62 $ 64
Komatsu Cummins
Chile, Ltda. 8 6 6 14 11
All other
distributors 1 1 - 2 -
Manufacturing
Entities
Dongfeng Cummins
Engine Company,
Ltd. 22 14 20 36 32
Chongqing
Cummins Engine
Company, Ltd. 15 11 17 26 29
Beijing Foton
Cummins Engine
Co., Ltd.
(Light-duty) 8 6 9 14 10
Shanghai
Fleetguard
Filter Co.,
Ltd. 3 3 4 6 7
Tata Cummins,
Ltd. 2 2 2 4 3
Cummins
Westport, Inc. - 1 3 1 3
Beijing Foton
Cummins Engine
Co., Ltd.
(Heavy-duty) (7) (6) (7) (13) (10)
All other
manufacturers 14 9 15 23 22
----------- ----------- ----------- ----------- -----------
Cummins share
of net income 96 79 98 175 171
Royalty and
interest income 9 11 10 20 19
----------- ----------- ----------- ----------- -----------
Equity,
royalty and
interest
income from
investees $ 105 $ 90 $ 108 $ 195 $ 190
=========== =========== =========== =========== ===========
NOTE 2. INCOME TAXES
Our effective tax rate for the year is expected to approximate 28 percent, excluding any one-time items that may arise and the research tax credit which 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 rates for the three and six month periods ended June 29, 2014, were 26.5 percent and 28 percent, respectively. The tax rate for the three months ended June 29, 2014, included a $2 million discrete tax benefit for the release of reserves for uncertain tax positions related to multiple state audit settlements. Additionally, the tax rate for the six month period included a $12 million discrete tax expense attributable primarily to state deferred tax adjustments, as well as a $6 million discrete net tax benefit resulting from a $70 million dividend paid from China earnings generated prior to 2012.
Our effective tax rate for the three month period ended March 30, 2014, was 29.9 percent, and included a $12 million discrete tax expense attributable primarily to state deferred tax adjustments, as well as a $6 million discrete net tax benefit resulting from a $70 million dividend paid from China earnings generated prior to 2012.
Our effective tax rates for the three and six month periods ended June 30, 2013, were 28.1 percent and 27.9 percent, respectively. These tax rates 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 decrease in the three month effective tax rate from 2013 to 2014 is primarily due to favorable changes in the jurisdictional mix of pre-tax income and the 2014 favorable discrete tax item related to state audit settlements.
NOTE 3. ACQUISITION
Cummins Southern Plains LLC
On March 31, 2014, we acquired the remaining 50 percent interest in Cummins Southern Plains LLC (Southern Plains) from the former distributor principal. The purchase consideration was $92 million as presented below, which included $41 million in cash and an additional $48 million paid to eliminate outstanding debt. The remaining $3 million will be paid in future periods. The intangible assets are primarily customer related and are being amortized over periods ranging from one to five years. 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, second quarter 2014 Distribution segment results included a $13 million gain, as we were required to re-measure our pre-existing 50 percent ownership interest in Southern Plains to fair value in accordance with GAAP. The transaction generated less than $1 million of goodwill based on the purchase price allocation. Net sales for Southern Plains were $433 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.
The final purchase price allocation as of June 29, 2014, was as follows:
In millions
------------------------------------------------------------
Accounts receivable $ 63
Inventory 59
Fixed assets 47
Intangible assets 11
Other current assets 9
Current liabilities (53)
----------
Total business valuation 136
Fair value of pre-existing 50 percent interest (44)
----------
Purchase price $ 92
==========
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. 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 Six months ended
-------------------------------- ---------------------
June 29, March 30, June 30, June 29, June 30,
In millions 2014 2014 2013 2014 2013
---------- ---------- ---------- ---------- ----------
Earnings before
interest expense and
income taxes $ 657 $ 528 $ 621 $ 1,185 $ 1,058
---------- ---------- ---------- ---------- ----------
EBIT as a percentage
of net sales 13.6 % 12.0 % 13.7 % 12.8 % 12.5 %
Less
Interest expense 15 17 8 32 14
Income tax expense 170 153 172 323 291
---------- ---------- ---------- ---------- ----------
Consolidated net
income 472 358 441 830 753
---------- ---------- ---------- ---------- ----------
Less
Net income
attributable to
noncontrolling
interests 26 20 27 46 57
---------- ---------- ---------- ---------- ----------
Net income
attributable to
Cummins Inc. $ 446 $ 338 $ 414 $ 784 $ 696
========== ========== ========== ========== ==========
Net income
attributable to
Cummins Inc. as a
percentage of net
sales 9.2 % 7.7 % 9.1 % 8.5 % 8.2 %
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 $ 796 $ - $ - $ 1,518
Medium-duty truck and bus 601 646 - - 1,247
Light-duty automotive and RV 361 336 - - 697
Industrial 700 757 - - 1,457
Stationary power 179 209 - - 388
-------- -------- -------- -------- --------
Total sales $ 2,563 $ 2,744 $ - $ - $ 5,307
======== ======== ======== ======== ========
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 118,900 118,700 - - 237,600
Heavy-duty 28,800 30,300 - - 59,100
High-horsepower 3,400 3,900 - - 7,300
-------- -------- -------- -------- --------
Total units 151,100 152,900 - - 304,000
======== ======== ======== ======== ========
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 $ 582 $ - $ - $ 1,125
Turbo Technologies 313 307 - - 620
Filtration 265 275 - - 540
Fuel systems 109 116 - - 225
-------- -------- -------- -------- --------
Total sales $ 1,230 $ 1,280 $ - $ - $ 2,510
======== ======== ======== ======== ========
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 $ 445 $ - $ - $ 818
Power systems 137 141 - - 278
Alternators 105 126 - - 231
Power solutions 24 31 - - 55
-------- -------- -------- -------- --------
Total sales $ 639 $ 743 $ - $ - $ 1,382
======== ======== ======== ======== ========
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 $ 461 $ - $ - $ 843
Power generation 193 278 - - 471
Engines 174 249 - - 423
Service 201 250 - - 451
-------- -------- -------- -------- --------
Total sales $ 950 $ 1,238 $ - $ - $ 2,188
======== ======== ======== ======== ========
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
======== ======== ======== ======== ========
Carole CastoExecutive Director - Corporate Communications(317) 610-2480carole.casto@cummins.com
Source: Cummins Inc.
Released July 28, 2014