SOURCE: Cummins Inc.

Cummins Inc.

February 06, 2014 07:30 ET

Cummins Announces Results for 2013; Shares Expectations for Revenue and EBIT Growth in 2014 and Reaffirms Commitment to Increase Cash Returned to Shareholders

COLUMBUS, IN--(Marketwired - February 06, 2014) -

  • Fourth quarter revenues of $4.6 billion, EBIT of 12.3 percent of sales
  • 2013 revenues of $17.3 billion, EBIT of 12.5 percent of sales
  • Expects 2014 revenue to grow between 4 and 8 percent and EBIT to be in the range of 12.75 to 13.25 percent of sales
  • Plans to return 50 percent of Operating Cash Flow to shareholders in 2014

Cummins Inc. (NYSE: CMI) today reported results for the fourth quarter and full year 2013.

Fourth quarter revenue of $4.6 billion increased 7 percent from the same quarter in 2012. The increase year-over-year was driven by higher revenues in North America, China and Brazil partially offset by weaker sales in Mexico, India and Australia.

Earnings before interest and taxes (EBIT) were $566 million for the fourth quarter or 12.3 percent of sales. This compares to $532 million or 12.4 percent of sales a year ago, excluding restructuring costs.

Net income attributable to Cummins in the fourth quarter was $432 million ($2.32 per diluted share), compared to $404 million ($2.14 per diluted share) in the fourth quarter of 2012 excluding restructuring charges. The effective tax rate in the fourth quarter of 2013 was 15.7 percent and reflects one-time benefits of $0.18 per diluted share, and a lower than expected operating rate in the fourth quarter that contributed $0.20 per diluted share.

Revenues for the full year were $17.3 billion, flat with 2012. Revenues in North America increased 3 percent but were offset by international sales which declined by 4 percent. Within international markets declines in Mexico, India, Australia and Europe offset growth in China and Brazil.

EBIT for the year was $2.16 billion or 12.5 percent of sales, compared to $2.35 billion or 13.6 percent of sales in 2012, excluding special items.

Net income attributable to Cummins for the full year was $1.48 billion ($7.91 per diluted share), down from $1.68 billion ($8.83 per diluted share) in 2012, excluding special items.

"We faced weak demand in important regions and end markets in 2013," said Tom Linebarger, Chairman and CEO. "Revenues for the year ended flat with 2012 as strong growth in the Components business, market share gains in the North American medium-duty truck market and distributor acquisitions offset weakness in global mining markets, international power generation and the North American heavy-duty truck market. I am pleased that in this environment of weak global growth, we were able to generate record cash flow from operations that allowed us to continue to invest in the business and increase the cash returned to shareholders by 34 percent in 2013. We expect revenues to grow between 4 percent and 8 percent in 2014, with earnings projected to grow faster than revenues and we expect to return to shareholders an amount of at least 50 percent of cash from operations."

Based on the current forecast, Cummins expects full year 2014 revenues to grow between 4 percent and 8 percent, with EBIT in the range of 12.75 - 13.25 percent of sales.

2013 highlights:

  • The Company was named the 2013 Newsmaker of the Year award from Diesel Progress North American magazine for introducing a broad range of on- and off-highway engines and power systems
  • The Company increased its dividend by 25 percent in the third quarter
  • For the sixth consecutive year, Cummins has been named one of the world's most ethical companies by The Ethisphere Institute
  • The Company repurchased 3.3 million shares in 2013
  • Cummins was named one of the Top 50 companies for diversity by DiversityInc for the seventh consecutive year

Fourth quarter 2013 detail (all comparisons to same period in 2012)

Segment results and comparisons below exclude special items in 2012

Engine Segment

  • Sales -- $2.6 billion, up 2 percent
  • Segment EBIT -- $235 million, or 9.2 percent of sales, compared to $272 million or 10.9 percent of sales
  • Strong demand for construction equipment in international markets and increased demand for medium duty trucks in North America offset weakness in global mining markets and lower demand in the North American bus market

Components Segment

  • Sales -- $1.1 billion, up 21 percent
  • Segment EBIT -- $140 million, or 12.3 percent of sales, compared to $84 million or 8.9 percent of sales
  • Higher demand in on-highway markets in North America, Europe and China

Power Generation Segment

  • Sales -- $759 million, down 1 percent
  • Segment EBIT -- $46 million, or 6.1 percent of sales, compared to $54 million or 7.1 percent of sales
  • Lower revenues in Europe and India offset increased demand in North America and the Middle East

Distribution Segment

  • Sales -- $1.1 billion, up 18 percent, up 3 percent excluding acquisitions
  • Segment EBIT -- $107 million, or 10.0 percent of sales, compared to $98 million or 10.8 percent of sales
  • Higher revenues were primarily driven by acquisitions and stronger demand for power generation equipment and parts and service in the US

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 6,500 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 2012 Annual Report on Form 10-K. Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are made only as of the date of this press release and we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. More detailed information about factors that may affect our performance may be found in our filings with the Securities and Exchange Commission, which are available at http://www.sec.gov or at http://www.cummins.com in the Investor Relations section of our website.

Presentation of Non-GAAP Financial Information
EBIT is a non-GAAP measure used in this release, and is defined and reconciled to what management believes to be the most comparable GAAP measure in a schedule attached to this release. Cummins presents this information as it believes it is useful to understanding the Company's operating performance, and because EBIT is a measure used internally to assess the performance of the operating units.

Webcast information
Cummins management will host a teleconference to discuss these results today at 10 a.m. EST. This teleconference will be webcast and available on the Investor Relations section of the Cummins website at www.cummins.com. Participants wishing to view the visuals available with the audio are encouraged to sign-in a few minutes prior to the start of the teleconference.

 
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

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