SOURCE: Cummins Inc.

Cummins Inc.

July 28, 2014 07:30 ET

Cummins Reports Results for the Second Quarter of 2014

COLUMBUS, IN--(Marketwired - July 28, 2014) - Cummins Inc. (NYSE: CMI)

  • Second quarter revenues of $4.8 billion, EBIT of 13.6 percent of sales on stronger North American truck markets
  • Full year revenue expected to grow between 8 and 11 percent and EBIT to be in the range of 12.75 to 13.25 percent of sales

Cummins Inc. (NYSE: CMI) today reported results for the second quarter of 2014.

Second quarter revenue of $4.8 billion increased 7 percent from the same quarter in 2013. The increase year-over-year was driven by stronger demand in on-highway markets and distributor acquisitions in North America.

Revenues in North America increased 14 percent while international sales decreased 1 percent compared to the second quarter a year ago. Within international markets, lower revenues in Mexico, Brazil and India offset stronger demand in China.

Earnings before interest and taxes (EBIT) were $657 million for the second quarter or 13.6 percent of sales. This compares to $621 million or 13.7 percent of sales a year ago.

Net income attributable to Cummins in the second quarter was $446 million ($2.43 per diluted share), compared to $414 million ($2.20 per diluted share) in the second quarter of 2013.

"Demand is growing in on-highway markets in North America this year as the economy improves and we have gained market share in medium duty truck and bus markets. Our Components business delivered very strong results in the second quarter generating record sales and profits," said Chairman and CEO Tom Linebarger. "Earlier this month we raised the quarterly dividend by 25 percent and the Board of Directors also approved a new $1 billion share repurchase program, consistent with our commitment to return 50 percent of operating cash flow to shareholders and reflecting our confidence in the Company's future."

Based on the current forecast, Cummins expects full year 2014 revenues to grow between 8% and 11%, up from its previous forecast of growth of between 6% and 10%, due largely to improving demand in North America. EBIT is expected to be in the range of 12.75 to 13.25 percent of sales.

Other recent highlights:

  • The Company named Rich Freeland as President and Chief Operating Officer
  • Cummins was named 2013 Powertrain Supplier of the Year by Chrysler Group
  • The Company was ranked among the World's Best in Newsweek's 2014 Green Rankings for our continuous efforts to reduce our environmental footprint and make a positive impact on the environment
  • For the ninth straight year Cummins was awarded a perfect score by the Human Rights Campaign Foundation (HRC) in the 2014 Corporate Quality Index as part of HRC's Best Place to Work Initiative

Second quarter 2014 detail (all comparisons to same period in 2013)

Engine Segment

  • Sales - $2.7 billion, up 3 percent
  • Segment EBIT - $311 million, or 11.3 percent of sales, compared to $339 million or 12.8 percent of sales
  • Increased demand in on-highway markets in North America offset weakness in global power generation and the Brazilian truck market

Components Segment

  • Sales - $1.3 billion, up 15 percent
  • Segment EBIT - $185 million, or 14.5 percent of sales, compared to $136 million or 12.2 percent of sales
  • Higher demand in on-highway markets in North America, Europe and China more than offset weaker demand in Brazil

Power Generation Segment

  • Sales - $743 million, down 9 percent
  • Segment EBIT - $61 million, or 8.2 percent of sales, compared to $76 million or 9.3 percent of sales
  • Lower revenues in most markets particularly North America, Asia Pacific and Middle East offset stronger demand in China and Africa

Distribution Segment

  • Sales - $1.2 billion, up 30 percent overall and up 2 percent excluding acquisitions
  • Segment EBIT - $126 million, or 10.2 percent of sales, compared to $100 million or 10.5 percent of sales
  • Higher revenues were primarily driven by acquisitions and stronger demand in North America and Africa.

About Cummins

Cummins Inc., a global power leader, is a corporation of complementary business units that design, manufacture, distribute and service diesel and natural gas engines and related technologies, including fuel systems, controls, air handling, filtration, emission solutions and electrical power generation systems. Headquartered in Columbus, Indiana, (USA) Cummins currently employs approximately 48,000 people worldwide and serves customers in approximately 190 countries and territories through a network of approximately 600 company-owned and independent distributor locations and approximately 6,800 dealer locations. Cummins earned $1.48 billion on sales of $17.3 billion in 2013. Press releases can be found on the Web at www.cummins.com. Follow Cummins on Twitter at @Cummins and on YouTube at CumminsInc.

Forward-looking disclosure statement

Information provided in this release that is not purely historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our forecasts, guidance, preliminary results, expectations, hopes, beliefs and intentions on strategies regarding the future. These forward looking statements include, without limitation, statements relating to our plans and expectations for our revenues for the full year of 2014. Our actual future results could differ materially from those projected in such forward-looking statements because of a number of factors, including, but not limited to: the adoption and implementation of global emission standards; the price and availability of energy; the pace of infrastructure development; increasing global competition among our customers; general economic, business and financing conditions; governmental action; changes in our customers' business strategies; competitor pricing activity; expense volatility; labor relations; and other risks detailed from time to time in our Securities and Exchange Commission filings, including particularly in the Risk Factors section of our 2013 Annual Report on Form 10-K. Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are made only as of the date of this press release and we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. More detailed information about factors that may affect our performance may be found in our filings with the Securities and Exchange Commission, which are available at http://www.sec.gov or at http://www.cummins.com in the Investor Relations section of our website.

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

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

 
CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) (a)
   
   
    Three months ended
In millions, except per share amounts   June 29, 2014   March 30, 2014   June 30, 2013
NET SALES   $ 4,835     $ 4,406     $ 4,525  
 Cost of sales    3,608      3,290      3,372  
GROSS MARGIN    1,227      1,116      1,153  
                      
OPERATING EXPENSES AND INCOME                     
 Selling, general and administrative expenses    535      502      484  
 Research, development and engineering expenses    179      190      177  
 Equity, royalty and interest income from investees (Note 1)    105      90      108  
 Other operating income (expense), net    (6 )    (1 )    10  
OPERATING INCOME    612      513      610  
                      
 Interest income    6      5      10  
 Interest expense    15      17      8  
 Other income, net    39      10      1  
INCOME BEFORE INCOME TAXES    642      511      613  
                      
 Income tax expense (Note 2)    170      153      172  
CONSOLIDATED NET INCOME    472      358      441  
                      
 Less: Net income attributable to noncontrolling interests    26      20      27  
NET INCOME ATTRIBUTABLE TO CUMMINS INC.   $ 446     $ 338     $ 414  
                      
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.                     
 Basic   $ 2.44     $ 1.83     $ 2.20  
 Diluted   $ 2.43     $ 1.83     $ 2.20  
                      
WEIGHTED AVERAGE SHARES OUTSTANDING                     
 Basic    182.8      184.3      187.8  
 Diluted    183.2      184.7      188.2  
                      
CASH DIVIDENDS DECLARED PER COMMON SHARE   $ 0.625     $ 0.625     $ 0.50  

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

 
CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) (a)
   
   
    Six months ended
In millions, except per share amounts   June 29, 2014   June 30, 2013
NET SALES   $ 9,241     $ 8,447  
 Cost of sales    6,898      6,337  
GROSS MARGIN    2,343      2,110  
               
OPERATING EXPENSES AND INCOME              
 Selling, general and administrative expenses    1,037      928  
 Research, development and engineering expenses    369      359  
 Equity, royalty and interest income from investees (Note 1)    195      190  
 Other operating income (expense), net    (7 )    11  
OPERATING INCOME    1,125      1,024  
               
 Interest income    11      15  
 Interest expense    32      14  
 Other income, net    49      19  
INCOME BEFORE INCOME TAXES    1,153      1,044  
               
 Income tax expense (Note 2)    323      291  
CONSOLIDATED NET INCOME    830      753  
               
 Less: Net income attributable to noncontrolling interests    46      57  
NET INCOME ATTRIBUTABLE TO CUMMINS INC.   $ 784     $ 696  
               
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.              
 Basic   $ 4.27     $ 3.70  
 Diluted   $ 4.26     $ 3.69  
               
WEIGHTED AVERAGE SHARES OUTSTANDING              
 Basic    183.5      188.1  
 Diluted    183.9      188.5  
               
CASH DIVIDENDS DECLARED PER COMMON SHARE   $ 1.25     $ 1.00  

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

 
CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (a)
     
     
In millions, except par value   June 29, 2014   December 31, 2013
ASSETS              
Current assets              
 Cash and cash equivalents   $ 2,219     $ 2,699  
 Marketable securities    158      150  
  Total cash, cash equivalents and marketable securities    2,377      2,849  
 Accounts and notes receivable, net    3,188      2,649  
 Inventories    2,745      2,381  
 Prepaid expenses and other current assets    770      760  
   Total current assets    9,080      8,639  
Long-term assets              
 Property, plant and equipment    6,739      6,410  
 Accumulated depreciation    (3,410 )    (3,254 )
  Property, plant and equipment, net    3,329      3,156  
 Investments and advances related to equity method investees    934      931  
 Goodwill    465      461  
 Other intangible assets, net    353      357  
 Other assets    1,339      1,184  
    Total assets   $ 15,500     $ 14,728  
               
LIABILITIES              
Current liabilities              
 Loans payable   $ 30     $ 17  
 Accounts payable (principally trade)    1,905      1,557  
 Current maturities of long-term debt    33      51  
 Current portion of accrued product warranty    353      360  
 Accrued compensation, benefits and retirement costs    401      433  
 Deferred revenue    316      285  
 Taxes payable (including taxes on income)    125      99  
 Other accrued expenses    646      566  
  Total current liabilities    3,809      3,368  
Long-term liabilities              
 Long-term debt    1,627      1,672  
 Pensions    233      232  
 Postretirement benefits other than pensions    341      356  
 Other liabilities and deferred revenue    1,332      1,230  
    Total liabilities    7,342      6,858  
               
EQUITY              
Cummins Inc. shareholders' equity              
 Common stock, $2.50 par value, 500 shares authorized, 222.3 and 222.3 shares issued    2,113      2,099  
 Retained earnings    8,961      8,406  
 Treasury stock, at cost, 38.4 and 35.6 shares    (2,604 )    (2,195 )
 Common stock held by employee benefits trust, at cost, 1.2 and 1.3 shares    (14 )    (16 )
 Accumulated other comprehensive loss              
  Defined benefit postretirement plans    (597 )    (611 )
  Other    (72 )    (173 )
  Total accumulated other comprehensive loss    (669 )    (784 )
   Total Cummins Inc. shareholders' equity    7,787      7,510  
Noncontrolling interests    371      360  
    Total equity    8,158      7,870  
     Total liabilities and equity   $ 15,500     $ 14,728  

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

 
CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (a)
   
   
    Six months ended
In millions   June 29, 2014   June 30, 2013
CASH FLOWS FROM OPERATING ACTIVITIES              
 Consolidated net income   $ 830     $ 753  
 Adjustments to reconcile consolidated net income to net cash provided by operating activities              
  Depreciation and amortization    217      200  
  Gain on fair value adjustment for consolidated investees    (20 )    (12 )
  Deferred income taxes    (88 )    20  
  Equity in income of investees, net of dividends    (108 )    (57 )
  Pension contributions in excess of expense    (127 )    (78 )
  Other post-retirement benefits payments in excess of expense    (14 )    (15 )
  Stock-based compensation expense    21      19  
  Excess tax benefits on stock-based awards    (5 )    (8 )
  Translation and hedging activities    (9 )    3  
 Changes in current assets and liabilities, net of acquisitions              
  Accounts and notes receivable    (321 )    (265 )
  Inventories    (223 )    (184 )
  Other current assets    4      214  
  Accounts payable    289      310  
  Accrued expenses    120      (87 )
 Changes in other liabilities and deferred revenue    116      100  
 Other, net    19      47  
NET CASH PROVIDED BY OPERATING ACTIVITIES    701      960  
               
CASH FLOWS FROM INVESTING ACTIVITIES              
 Capital expenditures    (245 )    (275 )
 Investments in internal use software    (26 )    (24 )
 Investments in and advances to equity investees    (11 )    (4 )
 Acquisitions of businesses, net of cash acquired    (193 )    (134 )
 Investments in marketable securities-acquisitions    (179 )    (243 )
 Investments in marketable securities-liquidations    179      280  
 Cash flows from derivatives not designated as hedges    4      (23 )
 Other, net    8      12  
Net cash used in investing activities    (463 )    (411 )
               
CASH FLOWS FROM FINANCING ACTIVITIES              
 Proceeds from borrowings    17      2  
 Payments on borrowings and capital lease obligations    (39 )    (51 )
 Net borrowings (payments) under short-term credit agreements    (48 )    56  
 Distributions to noncontrolling interests    (32 )    (28 )
 Dividend payments on common stock    (229 )    (189 )
 Repurchases of common stock    (430 )    (289 )
 Excess tax benefits on stock-based awards    5      8  
 Other, net    -      18  
Net cash used in financing activities    (756 )    (473 )
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS    38      (63 )
Net increase (decrease) in cash and cash equivalents    (480 )    13  
Cash and cash equivalents at beginning of year    2,699      1,369  
CASH AND CASH EQUIVALENTS AT END OF PERIOD   $ 2,219     $ 1,382  

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

 
CUMMINS INC. AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)
             
             
In millions   Engine   Components   Power Generation   Distribution   Non-segment
Items
(1)
  Total
Three months ended June 29, 2014                                          
External sales   $ 2,178     $ 953     $ 475     $ 1,229     $ -     $ 4,835  
Intersegment sales    566      327      268      9      (1,170 )    -  
 Total sales    2,744      1,280      743      1,238      (1,170 )    4,835  
Depreciation and amortization(2)    52      26      13      20      -      111  
Research, development and engineering expenses    105      53      18      3      -      179  
Equity, royalty and interest income from investees    45      9      9      42      -      105  
Interest income    4      1      1      -      -      6  
Segment EBIT    311      185      61      126   (3)  (26 )    657  
                                           
Segment EBIT as a percentage of total sales    11.3 %    14.5 %    8.2 %    10.2 %           13.6 %
                                           
Three months ended March 30, 2014                                          
External sales   $ 2,090     $ 922     $ 452     $ 942     $ -     $ 4,406  
Intersegment sales    473      308      187      8      (976 )    -  
 Total sales    2,563      1,230      639      950      (976 )    4,406  
Depreciation and amortization(2)    51      26      12      16      -      105  
Research, development and engineering expenses    116      53      19      2      -      190  
Equity, royalty and interest income from investees    32      9      8      41      -      90  
Interest income    2      1      1      1      -      5  
Segment EBIT    269      167      25      76   (3)  (9 )    528  
                                           
Segment EBIT as a percentage of total sales    10.5 %    13.6 %    3.9 %    8.0 %           12.0 %
                                           
Three months ended June 30, 2013                                          
External sales   $ 2,209     $ 786     $ 583     $ 947     $ -     $ 4,525  
Intersegment sales    447      331      231      7      (1,016 )    -  
 Total sales    2,656      1,117      814      954      (1,016 )    4,525  
Depreciation and amortization(2)    51      23      12      15      -      101  
Research, development and engineering expenses    102      57      17      1      -      177  
Equity, royalty and interest income from investees    52      9      10      37      -      108  
Interest income    7      -      2      1      -      10  
Segment EBIT    339      136      76      100   (3)  (30 )    621  
                                           
Segment EBIT as a percentage of total sales    12.8 %    12.2 %    9.3 %    10.5 %           13.7 %
                         
(1)Includes intersegment sales and profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the three months ended June 29, 2014, March 30, 2014 and June 30, 2013.
(2)Depreciation and amortization as shown on a segment basis excludes the amortization of debt discount and deferred costs included in the Condensed Consolidated Statements of Income as "Interest expense."
(3)Distribution segment EBIT for the three months ended June 29, 2014, March 30, 2014 and June 30, 2013 included gains of $14 million, $6 million and $5 million on the fair value adjustments resulting from the acquisitions of controlling interests in North American distributors in each period, respectively.
 
CUMMINS INC. AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)
             
             
In millions   Engine   Components   Power Generation   Distribution   Non-segment Items(1)   Total
Six months ended June 29, 2014                                          
External sales   $ 4,268     $ 1,875     $ 927     $ 2,171     $ -     $ 9,241  
Intersegment sales    1,039      635      455      17      (2,146 )    -  
 Total sales    5,307      2,510      1,382      2,188      (2,146 )    9,241  
Depreciation and amortization
(2)
   103      52      25      36      -      216  
Research, development and engineering expenses    221      106      37      5      -      369  
Equity, royalty and interest income from investees    77      18      17      83      -      195  
Interest income    6      2      2      1      -      11  
Segment EBIT    580      352      86      202   (3)  (35 )    1,185  
                                           
Segment EBIT as a percentage of total sales    10.9 %    14.0 %    6.2 %    9.2 %           12.8 %
                                           
Six months ended June 30, 2013                                          
External sales   $ 4,094     $ 1,508     $ 1,122     $ 1,723     $ -     $ 8,447  
Intersegment sales    865      627      438      9      (1,939 )    -  
 Total sales    4,959      2,135      1,560      1,732      (1,939 )    8,447  
Depreciation and amortization
(2)
   103      47      24      25      -      199  
Research, development and engineering expenses    207      114      35      3      -      359  
Equity, royalty and interest income from investees    75      16      17      82      -      190  
Interest income    9      1      4      1      -      15  
Segment EBIT    534      255      127      195   (3)  (53 )    1,058  
                                           
Segment EBIT as a percentage of total sales    10.8 %    11.9 %    8.1 %    11.3 %           12.5 %
                         
(1)Includes intersegment sales and profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the six months ended June 29, 2014 and June 30, 2013.
(2)Depreciation and amortization as shown on a segment basis excludes the amortization of debt discount and deferred costs included in theCondensed Consolidated Statements of Income as "Interest expense." The amortization of debt discount and deferred costs were $1 million and $5 million for the six months ended June 29, 2014 and June 30, 2013, respectively.
(3)Distribution segment EBIT for the six months ended June 29, 2014 and June 30, 2013 included gains of $20 million and $12 million on the fair value adjustments resulting from the acquisitions of controlling interests in North American distributors in each period, respectively.
  

A reconciliation of our segment information to the corresponding amounts in the Condensed Consolidated Statements of Income is shown in the table below:

     
     
    Three months ended   Six months ended
In millions   June 29, 2014   March 30, 2014   June 30, 2013   June 29, 2014   June 30, 2013
Total EBIT   $ 657     $ 528     $ 621     $ 1,185     $ 1,058  
Less: Interest expense    15      17      8      32      14  
 Income before income taxes   $ 642     $ 511     $ 613     $ 1,153     $ 1,044  
 
CUMMINS INC. AND SUBSIDIARIES
SELECTED FOOTNOTE DATA
(Unaudited)
 
NOTE 1. EQUITY, ROYALTY AND INTEREST INCOME FROM INVESTEES 
 
Equity, royalty and interest income from investees included in our Condensed Consolidated Statements of Income for the reporting periods was as follows: 
     
     
    Three months ended   Six months ended
In millions   June 29, 2014   March 30, 2014   June 30, 2013   June 29, 2014   June 30, 2013
Distribution Entities                                   
North American distributors   $ 30     $ 32     $ 29     $ 62     $ 64  
Komatsu Cummins Chile, Ltda.    8      6      6      14      11  
All other distributors    1      1      -      2      -  
Manufacturing Entities                                   
Dongfeng Cummins Engine Company, Ltd.    22      14      20      36      32  
Chongqing Cummins Engine Company, Ltd.    15      11      17      26      29  
Beijing Foton Cummins Engine Co., Ltd. (Light-duty)    8      6      9      14      10  
Shanghai Fleetguard Filter Co., Ltd.    3      3      4      6      7  
Tata Cummins, Ltd.    2      2      2      4      3  
Cummins Westport, Inc.    -      1      3      1      3  
Beijing Foton Cummins Engine Co., Ltd. (Heavy-duty)    (7 )    (6 )    (7 )    (13 )    (10 )
All other manufacturers    14      9      15      23      22  
 Cummins share of net income    96      79      98      175      171  
Royalty and interest income    9      11      10      20      19  
  Equity, royalty and interest income from investees   $ 105     $ 90     $ 108     $ 195     $ 190  

NOTE 2. INCOME TAXES

Our effective tax rate for the year is expected to approximate 28 percent, excluding any one-time items that may arise and the research tax credit which expired December 31, 2013 and has not yet been renewed by Congress. Our tax rate is generally less than the 35 percent U.S. statutory income tax rate primarily due to lower tax rates on foreign income. The effective tax rates for the three and six month periods ended June 29, 2014, were 26.5 percent and 28 percent, respectively. The tax rate for the three months ended June 29, 2014, included a $2 million discrete tax benefit for the release of reserves for uncertain tax positions related to multiple state audit settlements. Additionally, the tax rate for the six month period included a $12 million discrete tax expense attributable primarily to state deferred tax adjustments, as well as a $6 million discrete net tax benefit resulting from a $70 million dividend paid from China earnings generated prior to 2012.

Our effective tax rate for the three month period ended March 30, 2014, was 29.9 percent, and included a $12 million discrete tax expense attributable primarily to state deferred tax adjustments, as well as a $6 million discrete net tax benefit resulting from a $70 million dividend paid from China earnings generated prior to 2012.

Our effective tax rates for the three and six month periods ended June 30, 2013, were 28.1 percent and 27.9 percent, respectively. These tax rates included a discrete tax benefit of $28 million attributable to the 2012 research credit reinstated in January 2013, as well as a discrete tax expense of $17 million, which primarily related to the write-off of a deferred tax asset deemed unrecoverable. The decrease in the three month effective tax rate from 2013 to 2014 is primarily due to favorable changes in the jurisdictional mix of pre-tax income and the 2014 favorable discrete tax item related to state audit settlements. 

NOTE 3. ACQUISITION  

Cummins Southern Plains LLC

On March 31, 2014, we acquired the remaining 50 percent interest in Cummins Southern Plains LLC (Southern Plains) from the former distributor principal. The purchase consideration was $92 million as presented below, which included $41 million in cash and an additional $48 million paid to eliminate outstanding debt. The remaining $3 million will be paid in future periods. The intangible assets are primarily customer related and are being amortized over periods ranging from one to five years. The acquisition was accounted for as a business combination and the results of the acquired entity were included in the Distribution operating segment subsequent to the acquisition date. As a result of this transaction, second quarter 2014 Distribution segment results included a $13 million gain, as we were required to re-measure our pre-existing 50 percent ownership interest in Southern Plains to fair value in accordance with GAAP. The transaction generated less than $1 million of goodwill based on the purchase price allocation. Net sales for Southern Plains were $433 million for the year ended December 31, 2013. This amount is not fully incremental to our consolidated sales as the amount would be reduced by the elimination of sales to the previously unconsolidated entity.

The final purchase price allocation as of June 29, 2014, was as follows:

   
   
In millions    
Accounts receivable $ 63  
Inventory  59  
Fixed assets  47  
Intangible assets  11  
Other current assets  9  
Current liabilities  (53 )
Total business valuation  136  
Fair value of pre-existing 50 percent interest  (44 )
Purchase price $ 92  
 
CUMMINS INC. AND SUBSIDIARIES
FINANCIAL MEASURES THAT SUPPLEMENT GAAP
(Unaudited)

Earnings before interest, taxes and noncontrolling interests

We define EBIT as earnings before interest expense, income tax expense and noncontrolling interests in income of consolidated subsidiaries (EBIT). We use EBIT to assess and measure the performance of our operating segments and also as a component in measuring our variable compensation programs. This measure is not in accordance with, or an alternative for, accounting principles generally accepted in the United States of America and may not be consistent with measures used by other companies. It should be considered supplemental data. Below is a reconciliation of EBIT to "Net income attributable to Cummins Inc.," for each of the applicable periods:

     
     
    Three months ended   Six months ended
In millions   June 29, 2014   March 30, 2014   June 30, 2013   June 29, 2014   June 30, 2013
Earnings before interest expense and income taxes   $ 657     $ 528     $ 621     $ 1,185     $ 1,058  
                                    
EBIT as a percentage of net sales    13.6 %    12.0 %    13.7 %    12.8 %    12.5 %
                                    
Less                                   
 Interest expense    15      17      8      32      14  
 Income tax expense    170      153      172      323      291  
Consolidated net income    472      358      441      830      753  
                                    
Less                                   
 Net income attributable to noncontrolling interests    26      20      27      46      57  
  Net income attributable to Cummins Inc.   $ 446     $ 338     $ 414     $ 784     $ 696  
                                    
Net income attributable to Cummins Inc. as a percentage of net sales    9.2 %    7.7 %    9.1 %    8.5 %    8.2 %
 
CUMMINS INC. AND SUBSIDIARIES 
BUSINESS UNIT SALES DATA 
(Unaudited) 
  
Engine segment net sales by market 
                
                
2014                              
In millions   Q1   Q2   Q3   Q4   YTD
Heavy-duty truck   $ 722     $ 796     $ -     $ -     $ 1,518  
Medium-duty truck and bus    601      646      -      -      1,247  
Light-duty automotive and RV    361      336      -      -      697  
Industrial    700      757      -      -      1,457  
Stationary power    179      209      -      -      388  
 Total sales   $ 2,563     $ 2,744     $ -     $ -     $ 5,307  
                                    
2013                                   
In millions    Q1    Q2    Q3    Q4    YTD
Heavy-duty truck   $ 654     $ 723     $ 690     $ 638     $ 2,705  
Medium-duty truck and bus    448      595      570      572      2,185  
Light-duty automotive and RV    260      345      330      365      1,300  
Industrial    714      762      709      811      2,996  
Stationary power    227      231      193      176      827  
 Total sales   $ 2,303     $ 2,656     $ 2,492     $ 2,562     $ 10,013  
 
Unit shipments by engine classification (including unit shipments to Power Generation)
                
                
2014                              
Units   Q1   Q2   Q3   Q4   YTD
Midrange   118,900     118,700     -     -     237,600  
Heavy-duty   28,800     30,300     -     -     59,100  
High-horsepower   3,400     3,900     -     -     7,300  
 Total units   151,100     152,900     -     -     304,000  
                               
2013                              
Units   Q1   Q2   Q3   Q4   YTD
Midrange   94,600     121,900     113,800     115,700     446,000  
Heavy-duty   24,900     28,300     26,500     25,700     105,400  
High-horsepower   4,200     3,600     3,500     3,500     14,800  
 Total units   123,700     153,800     143,800     144,900     566,200  
 
Component segment sales by business
                
                
2014                              
In millions   Q1   Q2   Q3   Q4   YTD
Emission Solutions   $ 543     $ 582     $ -     $ -     $ 1,125  
Turbo Technologies    313      307      -      -      620  
Filtration    265      275      -      -      540  
Fuel systems    109      116      -      -      225  
 Total sales   $ 1,230     $ 1,280     $ -     $ -     $ 2,510  
                                    
2013                                   
In millions    Q1    Q2    Q3    Q4    YTD
Emission Solutions   $ 400     $ 444     $ 458     $ 489     $ 1,791  
Turbo Technologies    266      294      263      292      1,115  
Filtration    255      271      248      254      1,028  
Fuel systems    97      108      103      100      408  
 Total sales   $ 1,018     $ 1,117     $ 1,072     $ 1,135     $ 4,342  
 
Power Generation segment sales by business
                
                
2014                              
In millions   Q1   Q2   Q3   Q4   YTD
Power products   $ 373     $ 445     $ -     $ -     $ 818  
Power systems    137      141      -      -      278  
Alternators    105      126      -      -      231  
Power solutions    24      31      -      -      55  
 Total sales   $ 639     $ 743     $ -     $ -     $ 1,382  
                                    
2013                                   
In millions    Q1    Q2    Q3    Q4    YTD
Power products   $ 409     $ 474     $ 421     $ 421     $ 1,725  
Power systems    179      187      122      168      656  
Alternators    126      125      126      119      496  
Power solutions    32      28      43      51      154  
 Total sales   $ 746     $ 814     $ 712     $ 759     $ 3,031  
 
Distribution segment sales by business
                
                
2014                              
In millions   Q1   Q2   Q3   Q4   YTD
Parts and filtration   $ 382     $ 461     $ -     $ -     $ 843  
Power generation    193      278      -      -      471  
Engines    174      249      -      -      423  
Service    201      250      -      -      451  
 Total sales   $ 950     $ 1,238     $ -     $ -     $ 2,188  
                                    
2013                                   
In millions    Q1    Q2    Q3    Q4    YTD
Parts and filtration   $ 322     $ 369     $ 377     $ 397     $ 1,465  
Power generation    163      241      234      293      931  
Engines    152      183      170      208      713  
Service    141      161      163      175      640  
 Total sales   $ 778     $ 954     $ 944     $ 1,073     $ 3,749  

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