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:  February 6, 2014
 
  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 February 6, 2014, Cummins Inc. (“Cummins,” “the Company,” “the registrant,” “we,” “our,” or “us”) issued the attached press release reporting its financial results for the fourth quarter and full year of 2013, which is furnished herewith as Exhibit 99. The information furnished pursuant to this Item 2.02, including Exhibit 99, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities under that Section and shall not be deemed to be incorporated by reference into any filing of the Company under the Securities Act of 1933 or the Exchange Act.


 Item 9.01. Financial Statements and Exhibits.
 
(d)
The following exhibit is furnished pursuant to Item 2.02 herewith: 
99-Press Release dated February 6, 2014


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: February 6, 2014
 
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
 
December 31,
2013
 
September 29,
2013
 
December 31,
2012
NET SALES 
 
$
4,588

 
$
4,266

 
$
4,292

Cost of sales
 
3,424

 
3,157

 
3,234

GROSS MARGIN
 
1,164

 
1,109

 
1,058

 
 
 
 
 
 
 
OPERATING EXPENSES AND INCOME
 
 
 
 
 
 
Selling, general and administrative expenses
 
500

 
492

 
482

Research, development and engineering expenses
 
181

 
173

 
174

Equity, royalty and interest income from investees (Note 1)
 
80

 
91

 
82

Other operating expense, net
 
(10
)
 
(11
)
 
(19
)
OPERATING INCOME
 
553

 
524


465

 
 
 
 
 
 
 
Interest income
 
6

 
6

 
5

Interest expense
 
19

 
8

 
7

Other income, net
 
7

 
6

 
10

INCOME BEFORE INCOME TAXES
 
547

 
528

 
473

 
 
 
 
 
 
 
Income tax expense  (Note 2)
 
86

 
154

 
75

CONSOLIDATED NET INCOME
 
461

 
374

 
398

 
 
 
 
 
 
 
Less: Net income attributable to noncontrolling interests
 
29

 
19

 
29

NET INCOME ATTRIBUTABLE TO CUMMINS INC.
 
$
432

 
$
355

 
$
369

 
 
 
 
 
 
 
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
 
 
 
 
 
 
Basic
 
$
2.33

 
$
1.91

 
$
1.96

Diluted
 
$
2.32

 
$
1.90

 
$
1.95

 
 
 
 
 
 
 
WEIGHTED AVERAGE SHARES OUTSTANDING
 
 

 
 
 
 
Basic
 
185.7

 
186.0

 
188.4

Diluted
 
186.3

 
186.5

 
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 STATEMENTS OF INCOME
(Unaudited) (a)


 
 
Years ended December 31,
In millions, except per share amounts
 
2013
 
2012
NET SALES
 
$
17,301

 
$
17,334

Cost of sales
 
12,918

 
12,826

GROSS MARGIN
 
4,383

 
4,508

 
 
 
 
 
OPERATING EXPENSES AND INCOME
 
 
 
 
Selling, general and administrative expenses
 
1,920

 
1,900

Research, development and engineering expenses
 
713

 
728

Equity, royalty and interest income from investees  (Note 1)
 
361

 
384

Gain on sale of businesses
 
—

 
6

Other operating expense, net
 
(10
)
 
(16
)
OPERATING INCOME
 
2,101

 
2,254

 
 
 
 
 
Interest income
 
27

 
25

Interest expense
 
41

 
32

Other income, net
 
32

 
24

INCOME BEFORE INCOME TAXES
 
2,119

 
2,271

 
 
 
 
 
Income tax expense  (Note 2)
 
531

 
533

CONSOLIDATED NET INCOME
 
1,588

 
1,738

 
 
 
 
 
Less: Net income attributable to noncontrolling interests
 
105

 
93

NET INCOME ATTRIBUTABLE TO CUMMINS INC.
 
$
1,483

 
$
1,645

 
 
 
 
 
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
 
 
 
 
Basic
 
$
7.93

 
$
8.69

Diluted
 
$
7.91

 
$
8.67

 
 
 
 
 
WEIGHTED AVERAGE SHARES OUTSTANDING
 
 
 
 
Basic
 
187.0

 
189.3

Diluted
 
187.4

 
189.7

 
 
 
 
 
CASH DIVIDENDS DECLARED PER COMMON SHARE
 
$
2.25

 
$
1.80


(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
 
December 31,
2013
 
December 31,
2012
ASSETS
 
 
 
 
Current assets
 
 
 
 
Cash and cash equivalents
 
$
2,699

 
$
1,369

Marketable securities
 
150

 
247

Total cash, cash equivalents and marketable securities
 
2,849

 
1,616

Accounts and notes receivable, net
 
2,649

 
2,475

Inventories
 
2,381

 
2,221

Prepaid expenses and other current assets
 
760

 
855

Total current assets
 
8,639

 
7,167

Long-term assets
 
 
 
 
Property, plant and equipment, net
 
3,156

 
2,724

Investments and advances related to equity method investees
 
931

 
897

Goodwill and other intangibles, net
 
818

 
814

Other assets
 
1,184

 
946

Total assets
 
$
14,728

 
$
12,548

 
 
 
 
 
LIABILITIES
 
 
 
 
Current liabilities
 
 
 
 
Loans payable
 
$
17

 
$
16

Accounts payable (principally trade)
 
1,557

 
1,339

Accrued expenses
 
1,794

 
1,781

Total current liabilities
 
3,368

 
3,136

Long-term liabilities
 
 
 
 
Long-term debt
 
1,672

 
698

Other liabilities
 
1,818

 
1,740

Total liabilities
 
6,858

 
5,574

 
 
 
 
 
EQUITY
 
 
 
 
Cummins Inc. shareholders’ equity
 
 
 
 
Common stock, $2.50 par value, 500 shares authorized, 222.3 and 222.4 shares issued
 
2,099

 
2,058

Retained earnings
 
8,406

 
7,343

Treasury stock, at cost, 35.6 and 32.6 shares
 
(2,195
)
 
(1,830
)
Common stock held by employee benefits trust, at cost, 1.3 and 1.5 shares
 
(16
)
 
(18
)
Accumulated other comprehensive loss
 
(784
)
 
(950
)
Total Cummins Inc. shareholders’ equity
 
7,510

 
6,603

Noncontrolling interests
 
360

 
371

Total equity
 
7,870

 
6,974

Total liabilities and equity
 
$
14,728

 
$
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)



 
 
Years ended December 31,
In millions
 
2013
 
2012
 
 
 
 
 
NET CASH PROVIDED BY OPERATING ACTIVITIES
 
$
2,089

 
$
1,532

 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
 
Capital expenditures
 
(676
)
 
(690
)
Investments in internal use software
 
(64
)
 
(87
)
Investments in and advances to equity investees
 
(42
)
 
(70
)
Acquisition of businesses, net of cash acquired
 
(147
)
 
(215
)
Proceeds from sale of businesses, net of cash sold
 
—

 
10

Investments in marketable securities—acquisitions
 
(418
)
 
(561
)
Investments in marketable securities—liquidations
 
525

 
585

Proceeds from sale of equity investment
 
—

 
23

Purchases of other investments
 
(40
)
 
—

Cash flows from derivatives not designated as hedges
 
1

 
12

Other, net
 
15

 
11

Net cash used in investing activities
 
(846
)
 
(982
)
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
 
Proceeds from borrowings
 
1,004

 
64

Payments on borrowings and capital lease obligations
 
(90
)
 
(145
)
Net borrowings under short-term credit agreements
 
(3
)
 
11

Distributions to noncontrolling interests
 
(75
)
 
(62
)
Dividend payments on common stock
 
(420
)
 
(340
)
Repurchases of common stock
 
(381
)
 
(256
)
Excess tax benefits on stock-based awards
 
13

 
14

Other, net
 
4

 
20

Net cash provided by (used in) financing activities
 
52

 
(694
)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
 
35

 
29

Net increase (decrease) in cash and cash equivalents
 
1,330

 
(115
)
Cash and cash equivalents at beginning of year
 
1,369

 
1,484

CASH AND CASH EQUIVALENTS AT END OF PERIOD
 
$
2,699

 
$
1,369


(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 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 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 December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
External sales
 
$
2,177

 
$
662

 
$
549

 
$
904

 
$
—

 
$
4,292

 
Intersegment sales
 
329

 
277

 
216

 
3

 
(825
)
 
—

 
Total sales
 
2,506

 
939

 
765

 
907

 
(825
)
 
4,292

 
Depreciation and amortization(2)
 
50

 
23

 
13

 
11

 
—

 
97

 
Research, development and engineering expenses
 
92

 
60

 
20

 
2

 
—

 
174

 
Equity, royalty and interest income from investees
 
27

 
6

 
8

 
41

 
—

 
82

 
Interest income
 
2

 
—

 
2

 
1

 
—

 
5

 
Segment EBIT
 
252

 
78

 
42

 
84

 
24

 
480

 
Add back restructuring charges
 
20

 
6

 
12

 
14

 
—

 
52

 
Segment EBIT excluding restructuring charges
 
272

 
84

 
54

 
98

 
24

 
532

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Segment EBIT as a percentage of total sales
 
10.1
%
 
8.3
%
 
5.5
%
 
9.3
%
 
 
 
11.2
%
 
Segment EBIT excluding restructuring charges as a percentage of sales
 
10.9
%
 
8.9
%
 
7.1
%
 
10.8
%
 

 
12.4
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(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 December 31, 2013 and September 29, 2013. The three months ended December 31, 2012, included a $20 million charge ($12 million after-tax) related to legal matters. The charge was excluded from segment results as it was not considered in our evaluation of operating results for the corresponding period. There were no other significant unallocated corporate expenses.
(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.”
 



CUMMINS INC. AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)


In millions
 
Engine
 
Components
 
Power Generation
 
Distribution
 
Non-segment Items(1)
 
Total
Year ended December 31, 2013
 
 
 
 
 
 
 
 
 
 
 
 
External sales
 
$
8,270

 
$
3,151

 
$
2,154

 
$
3,726

 
$
—

 
$
17,301

Intersegment sales
 
1,743

 
1,191

 
877

 
23

 
(3,834
)
 
—

Total sales
 
10,013

 
4,342

 
3,031

 
3,749

 
(3,834
)
 
17,301

Depreciation and amortization(2)
 
205

 
96

 
50

 
54

 
—

 
405

Research, development and engineering expenses
 
416

 
218

 
73

 
6

 
—

 
713

Equity, royalty and interest income from investees
 
136

 
28

 
32

 
165

 
—

 
361

Interest income
 
16

 
3

 
6

 
2

 
—

 
27

Segment EBIT
 
1,041

 
527

 
218

 
388

(3) 
(14
)
 
2,160

 
 
 
 
 
 
 
 
 
 
 
 
 
Segment EBIT as a percentage of total sales
 
10.4
%
 
12.1
%
 
7.2
%
 
10.3
%
 
 
 
12.5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Year ended December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
 
External sales
 
$
9,101

 
$
2,809

 
$
2,163

 
$
3,261

 
$
—

 
$
17,334

Intersegment sales
 
1,632

 
1,203

 
1,105

 
16

 
(3,956
)
 
—

Total sales
 
10,733

 
4,012

 
3,268

 
3,277

 
(3,956
)
 
17,334

Depreciation and amortization(2)
 
192

 
82

 
47

 
34

 
—

 
355

Research, development and engineering expenses
 
433

 
213

 
76

 
6

 
—

 
728

Equity, royalty and interest income from investees
 
127

 
29

 
40

 
188

 
—

 
384

Interest income
 
11

 
3

 
9

 
2

 
—

 
25

Segment EBIT
 
1,248

 
426

 
285

 
369

(3) 
(25
)
 
2,303

Add back restructuring charges
 
20

 
6

 
12

 
14

 
—

 
52

Segment EBIT excluding restructuring charges
 
1,268

 
432

 
297

 
383

 
(25
)
 
2,355

 
 
 
 
 
 
 
 
 
 
 
 
 
Segment EBIT as a percentage of total sales
 
11.6
%
 
10.6
%
 
8.7
%
 
11.3
%
 
 
 
13.3
%
Segment EBIT excluding restructuring charges as a percentage of sales
 
11.8
%
 
10.8
%
 
9.1
%
 
11.7
%
 
 
 
13.6
%
(1) Includes intersegment sales and profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the year ended December 31, 2013. The year ended December 31, 2012, included a $20 million charge ($12 million after-tax) related to legal matters and a $6 million gain ($4 million after-tax) related to adjustments from our 2011 divestitures.  The gain and the charge were excluded from segment results as they were not considered in our evaluation of operating results for the corresponding periods.  There were no other significant unallocated corporate expenses.
(2) Depreciation and amortization as shown on a segment basis excludes the amortization of debt discount of $2 million and $6 million at December 31, 2013 and 2012, respectively. These amounts were included in the Condensed Consolidated Statements of Income as "Interest expense."
(3) Distribution segment EBIT for the year ended December 31, 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 year ended December 31, 2012, included a $7 million gain on the fair value adjustment resulting from the acquisition of a controlling interest in Cummins Central Power.
                                                                                                    
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
 
Years ended
In millions
 
December 31, 2013
 
September 29,
2013
 
December 31, 2012
 
December 31, 2013
 
December 31, 2012
EBIT excluding restructuring charges
 
$
566

 
$
536

 
$
532

 
$
2,160

 
$
2,355

Add: Restructuring charges
 
—

 
—

 
(52
)
 
—

 
(52
)
Total EBIT
 
566

 
536

 
480

 
2,160

 
2,303

Less: Interest expense
 
19

 
8

 
7

 
41

 
32

Income before income taxes
 
$
547

 
$
528

 
$
473

 
$
2,119

 
$
2,271


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
 
Years ended
In millions
 
December 31, 2013
 
September 29,
2013
 
December 31, 2012
 
December 31, 2013
 
December 31, 2012
Distribution Entities
 
 
 
 
 
 
 
 
 
 
North American distributors
 
$
31

 
$
34

 
$
32

 
$
129

 
$
147

Komatsu Cummins Chile, Ltda.
 
8

 
6

 
6

 
25

 
26

All other distributors
 
—

 
1

 
1

 
1

 
4

Manufacturing Entities
 
 

 
 

 
 
 
 

 
 
Dongfeng Cummins Engine Company, Ltd.
 
18

 
13

 
10

 
63

 
52

Chongqing Cummins Engine Company, Ltd.
 
14

 
15

 
12

 
58

 
61

Beijing Foton Cummins Engine Co., Ltd. (Heavy-duty)
 
(7
)
 
(4
)
 
(4
)
 
(21
)
 
(13
)
Beijing Foton Cummins Engine Co., Ltd. (Light-duty)
 
3

 
4

 
2

 
17

 
5

Shanghai Fleetguard Filter Co., Ltd.
 
2

 
4

 
3

 
13

 
13

Tata Cummins, Ltd.
 
1

 
1

 
4

 
5

 
11

Cummins Westport, Inc.
 
(1
)
 
2

 
3

 
4

 
14

All other manufacturers
 
2

 
7

 
6

 
31

 
27

Cummins share of net income
 
71

 
83

 
75

 
325

 
347

Royalty and interest income
 
9

 
8

 
7

 
36

 
37

Equity, royalty and interest income from investees
 
$
80

 
$
91

 
$
82

 
$
361

 
$
384

 
NOTE 2.  INCOME TAXES

Our income tax rates are generally less than the 35 percent U.S. income tax rate primarily because of lower taxes on foreign earnings and research tax credits. Our effective tax rate for the fourth quarter and full year of 2013 was 15.7 percent and 25.1 percent, respectively. We recorded $70 million or $0.38 per share of tax benefits in the fourth quarter of 2013.

Fourth quarter 2013 income tax provision is net of the following items:
One-time impacts of foreign legal entity restructuring activities
 
$
16

One-time impact 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 activities
 
37

Total
 
$
70


The full year one-time tax items included these fourth quarter items, as well as a $7 million third quarter one-time net tax expense related primarily to adjustments to our income tax accounts based on our 2012 tax return filings, a first quarter one-time tax benefit of $28 million attributable to the reinstatement of the research credit back to 2012 and a one-time 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. Our effective tax rate for the fourth quarter and full year of 2012 was 16.1 percent and 23.5 percent, respectively.




A reconciliation of the U.S. federal income tax rate of 35 percent to the actual effective tax rate is as follows:
 
Years ended December 31,
 
2013
 
2012
U.S. federal statutory rate
35.0
 %
 
35.0
 %
State income tax, net of federal effect
0.2

 
1.0

Research tax credits
(3.7
)
 
(0.4
)
Differences in rates and taxability of foreign subsidiaries and joint ventures
(6.0
)
 
(12.1
)
Other, net
(0.4
)
 
—

Effective tax rate
25.1
 %

23.5
 %

We expect our 2014 effective tax rate to be 28.5 percent excluding any discrete items that may arise. The research tax credit expired December 31, 2013, and has not yet been renewed by Congress. If the research credit is reinstated during 2014, we would anticipate the 2014 effective tax rate to be reduced to 27 percent. The increase in the effective tax rate from 2013 to 2014 is attributable primarily to one-time tax benefits in 2013 that will not repeat in 2014 as well as changes in tax legislation in the U.S. and U.K. that will unfavorably impact our 2014 effective tax rate.



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 tax adjustments, restructuring charges and gain on sale of businesses.  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 following periods:
 
 
 
Three months ended
 
 
 
December 31, 2013
 
September 29, 2013
 
December 31, 2012
In millions
 
Net Income
 
Diluted EPS
 
Net Income
 
Diluted EPS
 
Net Income
 
Diluted EPS
Net income attributable to Cummins Inc.
 
$
432

 
$
2.32

 
$
355

 
$
1.90

 
$
369

 
$
1.95

Add
 
 
 
 
 
 
 
 
 
 
 
 
Restructuring charges (1)
 
—

 
—

 
—

 
—

 
35

 
0.19

Less
 
 

 
 

 
 

 
 

 
 

 
 

Tax items (2)
 
70

 
0.38

 
(7
)
 
(0.04
)
 
39

 
0.21

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

 
$
1.94

 
$
362

 
$
1.94

 
$
365

 
$
1.93

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
Years ended
 
 

 
 
 
 

 
December 31, 2013
 
December 31, 2012
 
 

In millions
 
 

 
Net Income
 
Diluted EPS
 
Net Income
 
Diluted EPS
 
 

Net income attributable to Cummins Inc.
 
 

 
$
1,483

 
$
7.91

 
$
1,645

 
$
8.67

 
 

Add
 
 
 
 
 
 
 
 
 
 
 
 
Restructuring charges (1)
 
 
 
—

 
—

 
35

 
0.18

 
 
Less
 
 

 
 

 
 

 
 

 
 

 
 

Tax items (2)
 
 

 
74

 
0.39

 
55

 
0.29

 
 

Gain on sale of businesses (3)
 
 

 
—

 
—

 
4

 
0.02

 
 

Net income attributable to Cummins Inc. excluding special items
 
 

 
$
1,409

 
$
7.52

 
$
1,621

 
$
8.54

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1
)
In the fourth quarter of 2012, we recorded restructuring and other charges of $52 million ($35 million after tax).
(2
)
See Note 2, "INCOME TAXES."
 
The one-time tax benefits for the three months and full year ended December 31, 2012, related primarily to benefits resulting from transactions entered into and elections made with respect to our U.K. operations. The full year also included a $16 million one-time tax benefit from the third quarter, $6 million of which related to a dividend distribution of accumulated foreign income earned in prior years. These one-time tax adjustments also included a one-time tax benefit of $13 million for prior year tax return true-up adjustments and a one-time tax charge of $3 million related to the third quarter enactment of U.K. tax law changes.
(3
)
In the second quarter of 2012, we recognized a $6 million gain ($4 million after-tax) related to adjustments from our 2011 divestitures. The gains have been excluded from operating results as they were not considered in our evaluation of performance for the year ended December 31, 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
 
Years ended
In millions
 
December 31, 2013
 
September 29, 2013
 
December 31, 2012
 
December 31, 2013
 
December 31, 2012
Earnings before interest expense, income taxes and special items
 
$
566

 
$
536

 
$
532

 
$
2,160

 
$
2,349

 
 
 
 
 
 
 
 
 
 
 
Earnings before interest expense, income taxes and special items as a percentage of net sales
 
12.3
%
 
12.6
%
 
12.4
%
 
12.5
%
 
13.6
%
 
 
 
 
 
 
 
 
 
 
 
Less
 
 
 
 
 
 
 
 
 
 
Restructuring charges
 
—

 
—

 
52

 
—

 
52

Add
 
 
 
 
 
 
 
 
 
 
Gain on sale of businesses
 
—

 
—

 
—

 
—

 
6

Earnings before interest expense and income taxes
 
$
566

 
$
536

 
$
480

 
$
2,160

 
$
2,303

 
 
 
 
 
 
 
 
 
 
 
EBIT as a percentage of net sales
 
12.3
%
 
12.6
%
 
11.2
%
 
12.5
%
 
13.3
%
 
 
 
 
 
 
 
 
 
 
 
Less
 
 
 
 
 
 
 
 
 
 
Interest expense
 
19

 
8

 
7

 
41

 
32

Income tax expense
 
86

 
154

 
75

 
531

 
533

Consolidated net income
 
461

 
374

 
398

 
1,588

 
1,738

 
 
 
 
 
 
 
 
 
 
 
Less
 
 
 
 
 
 
 
 
 
 
Net income attributable to noncontrolling interests
 
29

 
19

 
29

 
105

 
93

Net income attributable to Cummins Inc.
 
$
432

 
$
355

 
$
369

 
$
1,483

 
$
1,645

 
 
 
 
 
 
 
 
 
 
 
Net income attributable to Cummins Inc. as a percentage of net sales
 
9.4
%
 
8.3
%
 
8.6
%
 
8.6
%
 
9.5
%



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

 
$
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

 
 
 
 
 
 
 
 
 
 
 
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

 
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

 
 
 
 
 
 
 
 
 
 
 
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


Component segment sales by business 
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

 
 
 
 
 
 
 
 
 
 
 
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



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


Our Power Generation segment changed the name of the generator technologies business to alternators in the fourth quarter of 2013. Power Generation segment sales by business were as follows:
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

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

 
$
459

 
$
425

 
$
395

 
$
1,654

Power systems
 
188

 
217

 
174

 
178

 
757

Alternators
 
141

 
160

 
138

 
127

 
566

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

 
$
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

 
 
 
 
 
 
 
 
 
 
 
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