UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549


FORM 8-K
 
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report:  October 29, 2013
 
  CUMMINS INC.
(Exact name of registrant as specified in its charter)
Indiana
(State or other Jurisdiction of
Incorporation)
1-4949
 (Commission File Number)
35-0257090
 (I.R.S. Employer Identification No.)

500 Jackson Street
P. O. Box 3005
Columbus, IN  47202-3005
(Principal Executive Office)  (Zip Code)

Registrant's telephone number, including area code:  (812) 377-5000
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
 
[ ]
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
[ ]
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
[ ]
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
[ ]
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
  
 



Item 2.02. Results of Operations and Financial Condition.
 
On October 29, 2013, Cummins Inc. (“Cummins,” “the Company,” “the registrant,” “we,” “our,” or “us”) issued the attached press release reporting its financial results for the third quarter of 2013.  A copy of Cummins' press release is attached hereto as Exhibit 99 and hereby incorporated by reference.

 Item 9.01. Financial Statements and Exhibits.
 
(d)
The following exhibit is furnished pursuant to Item 2.02 herewith: 
99-Press Release dated October 29, 2013


SIGNATURE

 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
Date: October 29, 2013
 
CUMMINS INC.
 
 /s/ Marsha L. Hunt
 
Marsha L. Hunt
Vice President - Corporate Controller
(Principal Accounting Officer)
 

 



CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) (a)
 
 
Three months ended
In millions, except per share amounts
 
September 29,
2013
 
June 30,
2013
 
September 30,
2012
NET SALES 
 
$
4,266

 
$
4,525

 
4,118

Cost of sales
 
3,157

 
3,372

 
3,076

GROSS MARGIN
 
1,109

 
1,153

 
1,042

 
 
 
 
 
 
 
OPERATING EXPENSES AND INCOME
 
 
 
 
 
 
Selling, general and administrative expenses
 
492

 
484

 
456

Research, development and engineering expenses
 
173

 
177

 
186

Equity, royalty and interest income from investees (Note 1)
 
91

 
108

 
94

Other operating income (expense), net
 
(11
)
 
10

 
(1
)
OPERATING INCOME
 
524

 
610


493

 
 
 
 
 
 
 
Interest income
 
6

 
10

 
5

Interest expense
 
8

 
8

 
9

Other income (expense), net
 
6

 
1

 
(2
)
INCOME BEFORE INCOME TAXES
 
528

 
613

 
487

 
 
 
 
 
 
 
Income tax expense  (Note 2)
 
154

 
172

 
117

CONSOLIDATED NET INCOME
 
374

 
441

 
370

 
 
 
 
 
 
 
Less: Net income attributable to noncontrolling interests
 
19

 
27

 
18

NET INCOME ATTRIBUTABLE TO CUMMINS INC.
 
$
355

 
$
414

 
$
352

 
 
 
 
 
 
 
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
 
 
 
 
 
 
Basic
 
$
1.91

 
$
2.20

 
$
1.87

Diluted
 
$
1.90

 
$
2.20

 
$
1.86

 
 
 
 
 
 
 
WEIGHTED AVERAGE SHARES OUTSTANDING
 
 

 
 
 
 
Basic
 
186.0

 
187.8

 
188.6

Diluted
 
186.5

 
188.2

 
189.0

 
 
 
 
 
 
 
CASH DIVIDENDS DECLARED PER COMMON SHARE
 
$
0.625

 
$
0.50

 
$
0.50

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







CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) (a)

 
 
Nine months ended
In millions, except per share amounts
 
September 29,
2013
 
September 30,
2012
NET SALES
 
$
12,713

 
$
13,042

Cost of sales
 
9,494

 
9,592

GROSS MARGIN
 
3,219

 
3,450

 
 
 
 
 
OPERATING EXPENSES AND INCOME
 
 
 
 
Selling, general and administrative expenses
 
1,420

 
1,418

Research, development and engineering expenses
 
532

 
554

Equity, royalty and interest income from investees  (Note 1)
 
281

 
302

Gain on sale of businesses
 
—

 
6

Other operating income (expense), net
 
—

 
3

OPERATING INCOME
 
1,548

 
1,789

 
 
 
 
 
Interest income
 
21

 
20

Interest expense
 
22

 
25

Other income (expense), net
 
25

 
14

INCOME BEFORE INCOME TAXES
 
1,572

 
1,798

 
 
 
 
 
Income tax expense  (Note 2)
 
445

 
458

CONSOLIDATED NET INCOME
 
1,127

 
1,340

 
 
 
 
 
Less: Net income attributable to noncontrolling interests
 
76

 
64

NET INCOME ATTRIBUTABLE TO CUMMINS INC.
 
$
1,051

 
$
1,276

 
 
 
 
 
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
 
 
 
 
Basic
 
$
5.61

 
$
6.73

Diluted
 
$
5.60

 
$
6.72

 
 
 
 
 
WEIGHTED AVERAGE SHARES OUTSTANDING
 
 
 
 
Basic
 
187.4

 
189.6

Diluted
 
187.8

 
190.0

 
 
 
 
 
CASH DIVIDENDS DECLARED PER COMMON SHARE
 
$
1.625

 
$
1.30


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




CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (a)
In millions, except par value
 
September 29,
2013
 
December 31,
2012
ASSETS
 
 
 
 
Current assets
 
 
 
 
Cash and cash equivalents
 
$
2,499

 
$
1,369

Marketable securities
 
162

 
247

Total cash, cash equivalents and marketable securities
 
2,661

 
1,616

Accounts and notes receivable, net
 
2,709

 
2,475

Inventories
 
2,513

 
2,221

Prepaid expenses and other current assets
 
643

 
855

Total current assets
 
8,526

 
7,167

Long-term assets
 
 
 
 
Property, plant and equipment
 
6,182

 
5,876

Accumulated depreciation
 
(3,234
)
 
(3,152
)
Property, plant and equipment, net
 
2,948

 
2,724

Investments and advances related to equity method investees
 
966

 
897

Goodwill
 
457

 
445

Other intangible assets, net
 
362

 
369

Other assets
 
1,077

 
946

Total assets
 
$
14,336

 
$
12,548

 
 
 
 
 
LIABILITIES
 
 
 
 
Current liabilities
 
 
 
 
Loans payable
 
$
15

 
$
16

Accounts payable (principally trade)
 
1,613

 
1,339

Current maturities of long-term debt
 
47

 
61

Current portion of accrued product warranty
 
374

 
386

Accrued compensation, benefits and retirement costs
 
413

 
400

Deferred revenue
 
269

 
215

Taxes payable (including taxes on income)
 
112

 
173

Other accrued expenses
 
547

 
546

Total current liabilities
 
3,390

 
3,136

Long-term liabilities
 
 
 
 
Long-term debt (Note 3)
 
1,731

 
698

Postretirement benefits other than pensions
 
407

 
432

Other liabilities and deferred revenue
 
1,344

 
1,308

Total liabilities
 
6,872

 
5,574

 
 
 
 
 
EQUITY
 
 
 
 
Cummins Inc. shareholders’ equity
 
 
 
 
Common stock, $2.50 par value, 500 shares authorized, 222.3 and 222.4 shares issued
 
2,095

 
2,058

Retained earnings
 
8,089

 
7,343

Treasury stock, at cost, 34.9 and 32.6 shares
 
(2,104
)
 
(1,830
)
Common stock held by employee benefits trust, at cost, 1.3 and 1.5 shares
 
(16
)
 
(18
)
Accumulated other comprehensive loss
 
 
 
 
Defined benefit postretirement plans
 
(738
)
 
(794
)
Other
 
(230
)
 
(156
)
Total accumulated other comprehensive loss
 
(968
)
 
(950
)
Total Cummins Inc. shareholders’ equity
 
7,096

 
6,603

Noncontrolling interests
 
368

 
371

Total equity
 
7,464

 
6,974

Total liabilities and equity
 
$
14,336

 
$
12,548


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


CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (a)
 
 
Nine months ended
In millions
 
September 29, 2013
 
September 30, 2012
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
 
Consolidated net income
 
$
1,127

 
$
1,340

Adjustments to reconcile consolidated net income to net cash provided by operating activities
 
 
 
 
Depreciation and amortization
 
305

 
262

Restructuring payments, net
 
(25
)
 
—

Gain on sale of businesses
 
—

 
(6
)
Gain on fair value adjustment for consolidated investees
 
(12
)
 
(7
)
Deferred income taxes
 
78

 
91

Equity in income of investees, net of dividends
 
(98
)
 
(51
)
Pension contributions in excess of expense
 
(96
)
 
(74
)
Other post-retirement benefits payments in excess of expense
 
(20
)
 
(16
)
Stock-based compensation expense
 
29

 
29

Excess tax benefits on stock-based awards
 
(13
)
 
(12
)
Translation and hedging activities
 
26

 
16

Changes in current assets and liabilities, net of acquisitions:
 
 
 
 
Accounts and notes receivable
 
(216
)
 
66

Inventories
 
(206
)
 
(367
)
Other current assets
 
182

 
(54
)
Accounts payable
 
252

 
(145
)
Accrued expenses
 
(146
)
 
(398
)
Changes in other liabilities and deferred revenue
 
147

 
154

Other, net
 
19

 
(41
)
Net cash provided by operating activities
 
1,333

 
787

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
 
Capital expenditures
 
(417
)
 
(424
)
Investments in internal use software
 
(43
)
 
(62
)
Investments in and advances to equity investees
 
(12
)
 
(92
)
Acquisition of businesses, net of cash acquired
 
(145
)
 
(215
)
Proceeds from sale of business, net of cash sold
 
—

 
10

Investments in marketable securities—acquisitions
 
(360
)
 
(433
)
Investments in marketable securities—liquidations
 
433

 
475

Cash flows from derivatives not designated as hedges
 
(15
)
 
13

Other, net
 
14

 
9

Net cash used in investing activities
 
(545
)
 
(719
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
 
Proceeds from borrowings (Note 3)
 
987

 
64

Payments on borrowings and capital lease obligations
 
(62
)
 
(120
)
Net borrowings under short-term credit agreements
 
34

 
5

Distributions to noncontrolling interests
 
(53
)
 
(50
)
Dividend payments on common stock
 
(305
)
 
(246
)
Repurchases of common stock
 
(289
)
 
(231
)
Excess tax benefits on stock-based awards
 
13

 
12

Other, net
 
19

 
16

Net cash provided by (used in) financing activities
 
344

 
(550
)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
 
(2
)
 
31

Net increase (decrease) in cash and cash equivalents
 
1,130

 
(451
)
Cash and cash equivalents at beginning of year
 
1,369

 
1,484

CASH AND CASH EQUIVALENTS AT END OF PERIOD
 
$
2,499

 
$
1,033


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


CUMMINS INC. AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)

 
In millions
 
Engine
 
Components
 
Power Generation
 
Distribution
 
Non-segment
Items(1)
 
Total
 
Three months ended September 29, 2013
 
 
 
 
 
 
 
  
 
  
 
 
 
External sales
 
$
2,045

 
$
784

 
$
499

 
$
938

 
$
—

 
$
4,266

 
Intersegment sales
 
447

 
288

 
213

 
6

 
(954
)
 
—

 
Total sales
 
2,492

 
1,072

 
712

 
944

 
(954
)
 
4,266

 
Depreciation and amortization(2)
 
53

 
24

 
13

 
15

 
—

 
105

 
Research, development and engineering expenses
 
103

 
51

 
18

 
1

 
—

 
173

 
Equity, royalty and interest income from investees
 
31

 
5

 
13

 
42

 
—

 
91

 
Interest income
 
4

 
1

 
1

 
—

 
—

 
6

 
Segment EBIT
 
272

 
132

 
45

 
86

 
1

 
536

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Segment EBIT as a percentage of total sales
 
10.9
%
 
12.3
%
 
6.3
%
 
9.1
%
 
 
 
12.6
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended June 30, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
External sales
 
$
2,209

 
$
786

 
$
583

 
$
947

 
$
—

 
$
4,525

 
Intersegment sales
 
447

 
331

 
231

 
7

 
(1,016
)
 
—

 
Total sales
 
2,656
 
1,117

 
814

 
954

 
(1,016
)
 
4,525

 
Depreciation and amortization(2)
 
51

 
23

 
12

 
15

 
—

 
101

 
Research, development and engineering expenses
 
102

 
57

 
17

 
1

 
—

 
177

 
Equity, royalty and interest income from investees
 
52

 
9

 
10

 
37

 
—

 
108

 
Interest income
 
7

 
—

 
2

 
1

 
—

 
10

 
Segment EBIT(3)
 
339

 
136

 
76

 
100


(30
)
 
621

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Segment EBIT as a percentage of total sales
 
12.8
%
 
12.2
%
 
9.3
%
 
10.5
%
 
 
 
13.7
%
 
 
 

 
 
 
 
 
 
 
 
 
 
 
Three months ended September 30, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
External sales
 
$
2,131

 
$
663

 
$
526

 
$
798

 
$
—

 
$
4,118

 
Intersegment sales
 
396

 
275

 
288

 
3

 
(962
)
 
—

 
Total sales
 
2,527

 
938

 
814

 
801

 
(962
)
 
4,118

 
Depreciation and amortization(2)
 
48

 
21

 
12

 
8

 
—

 
89

 
Research, development and engineering expenses
 
115

 
51

 
19

 
1

 
—

 
186

 
Equity, royalty and interest income from investees
 
25

 
7

 
12

 
50

 
—

 
94

 
Interest income
 
2

 
1

 
2

 
—

 
—

 
5

 
Segment EBIT(3)
 
239

 
89

 
73

 
99

 
(4
)
 
496

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Segment EBIT as a percentage of total sales
 
9.5
%
 
9.5
%
 
9.0
%
 
12.4
%
 
 
 
12.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1
)
Includes intersegment sales and profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the three months ended September 29, 2013, June 30, 2013, and September 30, 2012.
(2
)
Depreciation and amortization as shown on a segment basis excludes the amortization of debt discount that is included in the Condensed Consolidated Statements of Income as “Interest expense.”
(3
)
Distribution segment EBIT for the three months ended June 30, 2013, included a $5 million gain on the fair value adjustment resulting from the acquisition of a controlling interest in Cummins Rocky Mountain LLC. Distribution segment EBIT for the three months ended September 30, 2012, included a $7 million gain on the fair value adjustment resulting from the acquisition of a controlling interest in Cummins Central Power.
 





CUMMINS INC. AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)

 
In millions
 
Engine
 
Components
 
Power Generation
 
Distribution
 
Non-segment Items(1)
 
Total
 
Nine months ended September 29, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
External sales
 
$
6,139

 
$
2,292

 
$
1,621

 
$
2,661

 
$
—

 
$
12,713

 
Intersegment sales
 
1,312

 
915

 
651

 
15

 
(2,893
)
 
—

 
Total sales
 
7,451

 
3,207

 
2,272

 
2,676

 
(2,893
)
 
12,713

 
Depreciation and amortization(2)
 
156

 
71

 
37

 
40

 
—

 
304

 
Research, development and engineering expenses
 
310

 
165

 
53

 
4

 
—

 
532

 
Equity, royalty and interest income from investees
 
106

 
21

 
30

 
124

 
—

 
281

 
Interest income
 
13

 
2

 
5

 
1

 
—

 
21

 
Segment EBIT(3)
 
806

 
387

 
172

 
281

 
(52
)
 
1,594

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Segment EBIT as a percentage of total sales
 
10.8
%
 
12.1
%
 
7.6
%
 
10.5
%
 
 
 
12.5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine months ended September 30, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
External sales
 
$
6,924

 
$
2,147

 
$
1,614

 
$
2,357

 
$
—

 
$
13,042

 
Intersegment sales
 
1,303

 
926

 
889

 
13

 
(3,131
)
 
—

 
Total sales
 
8,227

 
3,073

 
2,503

 
2,370

 
(3,131
)
 
13,042

 
Depreciation and amortization(2)
 
142

 
59

 
34

 
23

 
—

 
258

 
Research, development and engineering expenses
 
341

 
153

 
56

 
4

 
—

 
554

 
Equity, royalty and interest income from investees
 
100

 
23

 
32

 
147

 
—

 
302

 
Interest income
 
9

 
3

 
7

 
1

 
—

 
20

 
Segment EBIT(3)
 
996

 
348

 
243

 
285

 
(49
)
 
1,823

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Segment EBIT as a percentage of total sales
 
12.1
%
 
11.3
%
 
9.7
%
 
12.0
%
 
 
 
14.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1
)
Includes intersegment sales and profit in inventory eliminations and unallocated corporate expenses. The nine months ended September 30, 2012, included a $6 million gain ($4 million after-tax) related to adjustments from our 2011 divestitures.  The gain has been excluded from segment results as it was not considered in our evaluation of operating results for the corresponding periods.  There were no other significant unallocated corporate expenses for the nine months ended September 29, 2013 and September 30, 2012.
(2
)
Depreciation and amortization as shown on a segment basis excludes the amortization of debt discount that is included in the Condensed Consolidated Statements of Income as “Interest expense.”
(3
)
Distribution segment EBIT for the nine months ended September 29, 2013, included a $7 million gain and $5 million gain on the fair value adjustment resulting from the acquisitions of a controlling interest in Cummins Northwest LLC and Cummins Rocky Mountain LLC, respectively. Distribution segment EBIT for the nine months ended September 30, 2012, included a $7 million gain on the fair value adjustment resulting from the acquisition of a controlling interest in Cummins Central Power.
 

CUMMINS INC. AND SUBSIDIARIES
RECONCILIATION OF SEGMENT INFORMATION
(Unaudited)
                                                                                                     
A reconciliation of our segment information to the corresponding amounts in the Condensed Consolidated Statements of Income is shown in the table below:
 
 
 
Three months ended
 
Nine months ended
In millions
 
September 29, 2013
 
June 30, 2013
 
September 30, 2012
 
September 29, 2013
 
September 30, 2012
Total EBIT
 
$
536

 
$
621

 
$
496

 
$
1,594

 
$
1,823

Less: Interest expense
 
8

 
8

 
9

 
22

 
25

Income before income taxes
 
$
528

 
$
613

 
$
487

 
$
1,572

 
$
1,798



CUMMINS INC. AND SUBSIDIARIES
SELECTED FOOTNOTE DATA
(Unaudited)

NOTE 1.  EQUITY, ROYALTY AND INTEREST INCOME FROM INVESTEES

Equity, royalty and interest income from investees included in our Condensed Consolidated Statements of Income for the interim reporting periods was as follows:
 
 
 
Three months ended
 
Nine months ended
In millions
 
September 29, 2013
 
June 30,
2013
 
September 30, 2012
 
September 29, 2013
 
September 30, 2012
Distribution Entities
 
 
 
 
 
 
 
 
 
 
North American distributors
 
$
34

 
$
29

 
$
37

 
$
98

 
$
115

Komatsu Cummins Chile, Ltda.
 
6

 
6

 
9

 
17

 
20

All other distributors
 
1

 
—

 
—

 
1

 
3

Manufacturing Entities
 
 

 
 

 
 
 
 

 
 

Chongqing Cummins Engine Company, Ltd.
 
15

 
17

 
14

 
44

 
49

Dongfeng Cummins Engine Company, Ltd.
 
13

 
20

 
9

 
45

 
42

Beijing Foton Cummins Engine Co., Ltd.
 
4

 
9

 
3

 
14

 
3

Shanghai Fleetguard Filter Co., Ltd.
 
4

 
4

 
3

 
11

 
10

Cummins Westport, Inc.
 
2

 
3

 
2

 
5

 
11

Tata Cummins, Ltd.
 
1

 
2

 
—

 
4

 
7

Komatsu manufacturing alliances
 
—

 
4

 
(1
)
 
3

 
(1
)
Valvoline Cummins, Ltd.
 
—

 
2

 
2

 
5

 
6

Xian Cummins Engine Company Ltd.
 
—

 
1

 
1

 
1

 
(5
)
All other manufacturers
 
3

 
1

 
6

 
6

 
12

Cummins share of net income
 
83

 
98

 
85

 
254

 
272

Royalty and interest income
 
8

 
10

 
9

 
27

 
30

Equity, royalty and interest income from investees
 
$
91

 
$
108

 
$
94

 
$
281

 
$
302

 
NOTE 2.  INCOME TAXES

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

Our tax rates for the three and nine month periods ended September 30, 2012, were 24.1 percent and 25.5 percent, respectively. These tax rates include a $16 million tax benefit for third quarter discrete tax adjustments, $6 million of which related to a dividend distribution of accumulated foreign income earned in prior years. These discrete tax adjustments also included a discrete tax benefit of $13 million for prior year tax return true-up adjustments and a discrete tax charge of $3 million related to the third quarter enactment of U.K. tax law changes. The increase in the 2013 effective tax rates compared to 2012 is primarily due to unfavorable changes in the pre-tax mix of income taxed in higher rate jurisdictions and discrete tax items.





CUMMINS INC. AND SUBSIDIARIES
SELECTED FOOTNOTE DATA
(Unaudited)

NOTE 3.  DEBT

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




CUMMINS INC. AND SUBSIDIARIES
FINANICAL MEASURES THAT SUPPLEMENT GAAP
(Unaudited)

Net income and diluted earnings per share (EPS) attributable to Cummins Inc. excluding special items
 
We believe this is a useful measure of our operating performance for the periods presented as it illustrates our operating performance without regard to special items including the one-time tax adjustments and gain related to the sale of certain assets and liabilities.  This measure is not in accordance with, or an alternative for, accounting principles generally accepted in the United States of America and may not be consistent with measures used by other companies.  It should be considered supplemental data.  The following table reconciles net income attributable to Cummins Inc. to net income attributable to Cummins Inc. excluding special items for the quarters ended September 29, 2013, June 30, 2013 and September 30, 2012:

 
 
 
Three months ended
 
 
 
September 29, 2013
 
June 30, 2013
 
September 30, 2012
In millions
 
Net Income
 
Diluted EPS
 
Net Income
 
Diluted EPS
 
Net Income
 
Diluted EPS
Net income attributable to Cummins Inc.
 
$
355

 
$
1.90

 
$
414

 
$
2.20

 
$
352

 
$
1.86

Less
 
 

 
 

 
 

 
 

 
 

 
 

One-time tax items (1)
 
(7
)
 
(0.04
)
 
—

 
—

 
16

 
0.08

Net income attributable to Cummins Inc. excluding special items
 
$
362

 
$
1.94

 
$
414

 
$
2.20

 
$
336

 
$
1.78

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
Nine months ended
 
 

 
 
 
 

 
September 29, 2013
 
September 30, 2012
 
 

In millions
 
 

 
Net Income
 
Diluted EPS
 
Net Income
 
Diluted EPS
 
 

Net income attributable to Cummins Inc.
 
 

 
$
1,051

 
$
5.60

 
$
1,276

 
$
6.72

 
 

Less
 
 

 
 

 
 

 
 

 
 

 
 

One-time tax items (1)
 
 

 
4

 
0.03

 
16

 
0.09

 
 

Gain on sale of businesses (2)
 
 

 
—

 
—

 
4

 
0.02

 
 

Net income attributable to Cummins Inc. excluding special items
 
 

 
$
1,047

 
$
5.57

 
$
1,256

 
$
6.61

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1
)
The one-time tax items for the three and nine months ended September 29, 2013, included a $7 million discrete tax expense. In addition, the nine months ended September 29, 2013, included a discrete tax benefit of $28 million attributable to the 2012 research credit as well as discrete tax expense of $17 million, which relates to the write-off of a deferred tax asset deemed unrecoverable.
 
The three and nine month periods ended September 30, 2012, included a $16 million tax benefit for third quarter 2012 discrete tax adjustments, $6 million of which related to a dividend distribution of accumulated foreign income earned in prior years. These discrete tax adjustments also included a discrete tax benefit of $13 million for prior year tax return true-up adjustments and a discrete tax charge of $3 million related to the third quarter enactment of U.K. tax law changes.
(2
)
The gain has been excluded from operating results as it was not considered in our evaluation of performance for the nine months ended September 30, 2012.






CUMMINS INC. AND SUBSIDIARIES
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.  Below is a reconciliation of EBIT, a non-GAAP financial measure, to “Net income attributable to Cummins Inc.,” for each of the applicable periods:
 
 
 
Three months ended
 
Nine months ended
In millions
 
September 29, 2013
 
June 30, 2013
 
September 30, 2012
 
September 29, 2013
 
September 30, 2012
Earnings before interest income, income taxes and special items
 
$
536

 
$
621

 
$
496

 
$
1,594

 
$
1,817

 
 
 
 
 
 
 
 
 
 
 
Earnings before interest expense, income taxes and special items as a percentage of net sales
 
12.6
%
 
13.7
%
 
12.0
%
 
12.5
%
 
13.9
%
 
 
 
 
 
 
 
 
 
 
 
Add
 
 
 
 
 
 
 
 
 
 
Gain on sale of businesses
 
—

 
—

 
—

 
—

 
6

 
 
 
 
 
 
 
 
 
 
 
Earnings before interest expense and income taxes
 
$
536

 
$
621

 
$
496

 
$
1,594

 
$
1,823

 
 
 
 
 
 
 
 
 
 
 
EBIT as a percentage of net sales
 
12.6
%
 
13.7
%
 
12.0
%
 
12.5
%
 
14.0
%
 
 
 
 
 
 
 
 
 
 
 
Less
 
 
 
 
 
 
 
 
 
 
Interest expense
 
8

 
8

 
9

 
22

 
25

Income tax expense
 
154

 
172

 
117

 
445

 
458

Consolidated net income
 
374

 
441

 
370

 
1,127

 
1,340

 
 
 
 
 
 
 
 
 
 
 
Less
 
 
 
 
 
 
 
 
 
 
Net income attributable to noncontrolling interests
 
19

 
27

 
18

 
76

 
64

Net income attributable to Cummins Inc.
 
$
355

 
$
414

 
$
352

 
$
1,051

 
$
1,276

 
 
 
 
 
 
 
 
 
 
 
Net income attributable to Cummins Inc. as a percentage of net sales
 
8.3
%
 
9.1
%
 
8.5
%
 
8.3
%
 
9.8
%




CUMMINS INC. AND SUBSIDIARIES
BUSINESS UNIT SALES DATA
(Unaudited)

Engine segment net sales by market
2013
 
 
 
 
 
 
 
 
 
 
In millions
 
Q1
 
Q2
 
Q3
 
Q4
 
YTD
Heavy-duty truck
 
$
654

 
$
723

 
$
690

 
—

 
$
2,067

Medium-duty truck and bus
 
448

 
595

 
570

 
—

 
1,613

Light-duty automotive and RV
 
260

 
345

 
330

 
—

 
935

Industrial
 
714

 
762

 
709

 
—

 
2,185

Stationary power
 
227

 
231

 
193

 
—

 
651

Total sales
 
$
2,303

 
$
2,656

 
$
2,492

 
—

 
$
7,451

 
 
 
 
 
 
 
 
 
 
 
2012
 
 
 
 
 
 
 
 
 
 
In millions
 
Q1
 
Q2
 
Q3
 
Q4
 
YTD
Heavy-duty truck
 
$
892

 
$
807

 
$
656

 
$
609

 
$
2,964

Medium-duty truck and bus
 
526

 
512

 
478

 
575

 
2,091

Light-duty automotive and RV
 
286

 
297

 
353

 
343

 
1,279

Industrial
 
861

 
859

 
766

 
747

 
3,233

Stationary power
 
294

 
366

 
274

 
232

 
1,166

Total sales
 
$
2,859

 
$
2,841

 
$
2,527

 
$
2,506

 
$
10,733

 
Unit shipments by engine classification (including unit shipments to Power Generation)
2013
 
 
 
 
 
 
 
 
 
 
Units
 
Q1
 
Q2
 
Q3
 
Q4
 
YTD
Midrange
 
94,600

 
121,900

 
113,800

 
—

 
330,300

Heavy-duty
 
24,900

 
28,300

 
26,500

 
—

 
79,700

High-horsepower
 
4,200

 
3,600

 
3,500

 
—

 
11,300

Total units
 
123,700

 
153,800

 
143,800

 
—

 
421,300

 
 
 
 
 
 
 
 
 
 
 
2012
 
 
 
 
 
 
 
 
 
 
Units
 
Q1
 
Q2
 
Q3
 
Q4
 
YTD
Midrange
 
109,000

 
110,000

 
113,000

 
108,500

 
440,500

Heavy-duty
 
36,000

 
33,000

 
26,000

 
24,100

 
119,100

High-horsepower
 
5,500

 
5,800

 
4,600

 
3,900

 
19,800

Total units
 
150,500

 
148,800

 
143,600

 
136,500

 
579,400


 





CUMMINS INC. AND SUBSIDIARIES
BUSINESS UNIT SALES DATA
(Unaudited)

Component segment sales by business 
2013
 
 
 
 
 
 
 
 
 
 
In millions
 
Q1
 
Q2
 
Q3
 
Q4
 
YTD
Emission solutions
 
$
400

 
$
444

 
$
458

 
—

 
$
1,302

Turbo technologies
 
266

 
294

 
263

 
—

 
823

Filtration
 
255

 
271

 
248

 
—

 
774

Fuel systems
 
97

 
108

 
103

 
—

 
308

Total sales
 
$
1,018

 
$
1,117

 
$
1,072

 
—

 
$
3,207

 
 
 
 
 
 
 
 
 
 
 
2012
 
 
 
 
 
 
 
 
 
 
In millions
 
Q1
 
Q2
 
Q3
 
Q4
 
YTD
Emission solutions
 
$
404

 
$
349

 
$
325

 
$
337

 
$
1,415

Turbo technologies
 
298

 
297

 
257

 
254

 
1,106

Filtration
 
270

 
266

 
260

 
252

 
1,048

Fuel systems
 
127

 
124

 
96

 
96

 
443

Total sales
 
$
1,099

 
$
1,036

 
$
938

 
$
939

 
$
4,012

 
Power Generation segment sales by business
2013
 
 
 
 
 
 
 
 
 
 
In millions
 
Q1
 
Q2
 
Q3
 
Q4
 
YTD
Power products
 
$
409

 
$
474

 
$
421

 
—

 
$
1,304

Generator technologies
 
126

 
125

 
126

 
—

 
377

Power systems
 
179

 
187

 
122

 
—

 
488

Power solutions
 
32

 
28

 
43

 
—

 
103

Total sales
 
$
746

 
$
814

 
$
712

 
—

 
$
2,272

 
 
 
 
 
 
 
 
 
 
 
2012
 
 
 
 
 
 
 
 
 
 
In millions
 
Q1
 
Q2
 
Q3
 
Q4
 
YTD
Power products
 
$
375

 
$
459

 
$
425

 
$
395

 
$
1,654

Generator technologies
 
141

 
160

 
138

 
127

 
566

Power systems
 
188

 
217

 
174

 
178

 
757

Power solutions
 
76

 
73

 
77

 
65

 
291

Total sales
 
$
780

 
$
909

 
$
814

 
$
765

 
$
3,268

 
Distribution segment sales by business
2013
 
 
 
 
 
 
 
 
 
 
In millions
 
Q1
 
Q2
 
Q3
 
Q4
 
YTD
Parts and filtration
 
$
322

 
$
369

 
$
377

 
—

 
$
1,068

Power generation
 
163

 
241

 
234

 
—

 
638

Engines
 
152

 
183

 
170

 
—

 
505

Service
 
141

 
161

 
163

 
—

 
465

Total sales
 
$
778

 
$
954

 
$
944

 
—

 
$
2,676

 
 
 
 
 
 
 
 
 
 
 
2012
 
 
 
 
 
 
 
 
 
 
In millions
 
Q1
 
Q2
 
Q3
 
Q4
 
YTD
Parts and filtration
 
$
288

 
$
302

 
$
326

 
$
319

 
$
1,235

Power generation
 
186

 
201

 
178

 
242

 
807

Engines
 
166

 
147

 
157

 
195

 
665

Service
 
135

 
144

 
140

 
151

 
570

Total sales
 
$
775

 
$
794

 
$
801

 
$
907

 
$
3,277