Cummins Announces Results for 2012, Revenues of $17.3 Billion and EBIT of 13.7 Percent Excluding Special Items
Cummins Announces Results for 2012, Revenues of $17.3 Billion and EBIT of
13.7 Percent Excluding Special Items
* Fourth quarter revenues of $4.3 billion, EBIT of 12.9 percent of sales
excluding restructuring costs
* Expects 2013 revenue to be flat to down 5 percent and EBIT to be in the
range of 13 to 14 percent of sales
Business Wire
COLUMBUS, Ind. -- February 6, 2013
Cummins Inc. (NYSE: CMI) today reported results for the fourth quarter and
full year of 2012.
Fourth quarter revenue of $4.3 billion decreased 13 percent from the same
quarter in 2011 reflecting weakness in most major markets and geographies. The
decrease year-over-year was driven by weaker demand in truck, construction,
and oil and gas markets in North America. The Company also experienced lower
demand in international markets for power generation equipment and
construction, truck and mining engines.
Earnings before interest and taxes (EBIT) were $552 million for the fourth
quarter or 12.9 percent of sales, excluding $52 million of restructuring
costs. This compares to $677 million or 13.8 percent of sales a year ago,
excluding special items.
Net income attributable to Cummins in the fourth quarter was $381 million
($2.02 per diluted share). Results included restructuring costs of $0.19 per
diluted share and one-time tax benefits of $0.21 per diluted share.
Revenues for the full year were $17.3 billion, down 4 percent from 2011, with
revenues in North America up 9 percent offset by international sales which
declined by 15 percent, with the most significant declines in Brazil, China
and Europe.
EBIT for the year, excluding special items, was $2.37 billion or 13.7% of
sales, compared to $2.6 billion or 14.2% of sales in 2011.
Net income attributable to Cummins for the full year was $1.66 billion ($8.74
per diluted share), down from $1.85 billion ($9.55 per diluted share) in 2011.
Excluding the costs of restructuring actions ($0.18 per diluted share), and
the gain on the sale of the exhaust business ($0.02 per diluted share), the
Company reported full year net income of $1.69 billion ($8.90 per diluted
share).
“After a strong start to the year, demand declined across most geographies and
end markets in the second half of 2012 as the global economy slowed,” said Tom
Linebarger, Chairman and Chief Executive Officer. “I am pleased that we were
able to deliver improved gross margins in the fourth quarter and record gross
margins for the full year despite the weakness in demand. The work we have
undertaken to reduce costs and lower inventory should benefit the Company when
the global economy improves, however there is uncertainty surrounding the
timing and pace of improvement in end markets in 2013.”
Based on the current forecast, Cummins expects full year 2013 revenues to be
flat to down 5%, with EBIT in the range of 13 - 14 percent of sales.
2012 highlights:
* The Company increased its dividend by 25% in the third quarter;
* Fitch Rating Services raised its Long-term Issuer Default Rating and
long-term debt ratings for Cummins to “A”;
* For the sixth consecutive year, Cummins was named one of the world's most
ethical companies by The Ethisphere Institute;
* Cummins was awarded a perfect score in the 2013 Corporate Equality Index
by the Human Rights Campaign as part of its Best Places to Work
initiative;
* In December Cummins delivered its 2 millionth engine to Chrysler for the
Ram pickup;
* Cummins was the first to receive certification from the EPA meeting both
the 2013 regulations and the new greenhouse gas and fuel-efficiency rules
for 2014;
* Cummins Power Generation received EPA Tier 4 interim certification for the
North American market three years ahead of deadline;
* Cummins was ranked No. 1 among industrial companies in Newsweek’s 2012
Green Rankings of business; and
* Cummins was named one of the Top 50 Companies for Diversity by Diversity
Inc. for the sixth consecutive year.
Fourth quarter 2012 detail (all comparisons to same period in 2011)
Segment results below exclude special items in 2012 and 2011
Engine Segment
* Sales – $2.5 billion, down 18 percent.
* Segment EBIT – $272 million, or 10.9 percent of sales, compared to $368
million or 12.0 percent of sales.
* Strong demand for bus and light-duty engines in North America was more
than offset by reduced demand in the truck market in Brazil, the North
American heavy-duty truck, global construction, as well as North American
oil and gas and international mining markets.
Components Segment
* Sales - $939 million, down 14 percent.
* Segment EBIT - $84 million, or 8.9 percent of sales, compared to $132
million or 12.1 percent of sales.
* Reduced demand in the North American heavy-duty truck market and lower
demand in Europe was partially offset by increased demand for
aftertreatment systems in Brazil.
Power Generation Segment
* Sales – $765 million, down 17 percent.
* Segment EBIT – $54 million, or 7.1 percent of sales, compared to $87
million or 9.5 percent of sales.
* Lower revenues in several international markets including Europe, Middle
East, Latin America and China were partially offset by increased demand in
North America.
Distribution Segment
* Sales – $907 million, up 9 percent, flat excluding acquisitions.
* Segment EBIT – $98 million, or 10.8 percent of sales, compared to $87
million or 10.4 percent of sales.
* Higher revenues were primarily driven by acquisitions. Stronger demand for
power generation equipment in the U.S. and Africa was largely offset by
weaker demand in North American oil and gas markets and Europe.
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 44,000 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 $1.66 billion on sales of
$17.3 billion in 2012. 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 2013. 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 2011 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
December 31, September 30, December 31,
In millions, except per share 2012 2012 2011
amounts
NET SALES $ 4,292 $ 4,118 $ 4,921
Cost of sales 3,234 3,076 3,680
GROSS MARGIN 1,058 1,042 1,241
OPERATING EXPENSES AND INCOME
Selling, general and 482 456 496
administrative expenses
Research, development and 174 186 179
engineering expenses
Equity, royalty and interest 82 94 101
income from investees (Note 1)
Gain on sale of businesses - - 53
Other operating income 1 (1) 25
(expense), net
OPERATING INCOME 485 493 745
Interest income 5 5 9
Interest expense 7 9 10
Other income (expense), net 10 (2) 14
INCOME BEFORE INCOME TAXES 493 487 758
Income tax expense (Note 3) 83 117 186
CONSOLIDATED NET INCOME 410 370 572
Less: Net income attributable 29 18 24
to noncontrolling interests
NET INCOME ATTRIBUTABLE TO $ 381 $ 352 $ 548
CUMMINS INC.
EARNINGS PER COMMON SHARE
ATTRIBUTABLE
TO CUMMINS INC.
Basic $ 2.02 $ 1.87 $ 2.87
Diluted $ 2.02 $ 1.86 $ 2.86
WEIGHTED AVERAGE SHARES
OUTSTANDING
Basic 188.4 188.6 190.9
Diluted 188.8 189.0 191.5
CASH DIVIDENDS DECLARED PER $ 0.50 $ 0.50 $ 0.40
COMMON SHARE
(a) Prepared on an unaudited basis in accordance with accounting principles
generally accepted in the United States of America (GAAP).
CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Unaudited (a)
For the years ended
December 31, December 31,
In millions, except per share amounts 2012 2011
NET SALES $ 17,334 $ 18,048
Cost of sales 12,826 13,459
GROSS MARGIN 4,508 4,589
OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses 1,900 1,837
Research, development and engineering expenses 728 629
Equity, royalty and interest income from 384 416
investees (Note 1)
Gain on sale of businesses 6 121
Other operating income, net 4 21
OPERATING INCOME 2,274 2,681
Interest income 25 34
Interest expense 32 44
Other income, net 24 -
INCOME BEFORE INCOME TAXES 2,291 2,671
Income tax expense (Note 3) 541 725
CONSOLIDATED NET INCOME 1,750 1,946
Less: Net income attributable to 93 98
noncontrolling interests
NET INCOME ATTRIBUTABLE TO CUMMINS INC. $ 1,657 $ 1,848
EARNINGS PER COMMON SHARE ATTRIBUTABLE
TO CUMMINS INC.
Basic $ 8.75 $ 9.58
Diluted $ 8.74 $ 9.55
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 189.3 193.0
Diluted 189.7 193.6
CASH DIVIDENDS DECLARED PER COMMON SHARE $ 1.80 $ 1.325
(a) Prepared on an unaudited basis in accordance with accounting principles
generally accepted in the United States of America (GAAP).
CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (a)
December 31, December 31,
In millions, except par value 2012 2011
ASSETS
Current assets
Cash and cash equivalents $ 1,369 $ 1,484
Marketable securities 247 277
Total cash, cash equivalents and 1,616 1,761
marketable securities
Accounts and notes receivable, net 2,475 2,526
Inventories 2,221 2,141
Prepaid expenses and other current assets 855 663
Total current assets 7,167 7,091
Long-term assets
Property, plant and equipment, net 2,724 2,288
Investments and advances related to equity 897 838
method investees
Goodwill and other intangibles, net 814 566
Other assets 939 885
Total assets $ 12,541 $ 11,668
LIABILITIES
Current liabilities
Loans payable $ 16 $ 28
Accounts payable (principally trade) 1,339 1,546
Accrued expenses 1,761 2,083
Total current liabilities 3,116 3,657
Long-term liabilities
Long-term debt 698 658
Other liabilities 1,741 1,522
Total liabilities 5,555 5,837
EQUITY
Cummins Inc. shareholders’ equity
Common stock, $2.50 par value, 500 shares 2,058 2,001
authorized, 222.4 and 222.2 shares issued
Retained earnings 7,355 6,038
Treasury stock, at cost, 32.6 and 30.2 shares (1,830) (1,587)
Common stock held by employee benefits trust, (18) (22)
at cost, 1.5 and 1.8 shares
Accumulated other comprehensive loss (950) (938)
Total Cummins Inc. shareholders’ 6,615 5,492
equity
Noncontrolling interests 371 339
Total equity 6,986 5,831
Total liabilities and $ 12,541 $ 11,668
equity
(a) Prepared on an unaudited basis in accordance with accounting principles
generally accepted in the United States of America (GAAP).
CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (a)
For the years ended
December 31, December 31,
In millions 2012 2011
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 1,532 $ 2,073
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (690) (622)
Investments in internal use software (87) (60)
Proceeds from disposals of property, plant 11 8
and equipment
Investments in and advances to equity (70) (81)
investees
Acquisition of businesses, net of cash (215) -
acquired
Proceeds from sale of businesses, net of cash 10 199
sold
Investments in marketable (561) (729)
securities-acquisitions
Investments in marketable 585 750
securities-liquidations
Proceeds from sale of equity investment 23 -
Cash flows from derivatives not designated as 12 (18)
hedges
Other, net - 1
Net cash used in investing activities (982) (552)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 64 127
Payments on borrowings and capital lease (145) (237)
obligations
Net borrowings under short-term credit 11 6
agreements
Distributions to noncontrolling interests (62) (56)
Dividend payments on common stock (340) (255)
Repurchases of common stock (256) (629)
Excess tax benefits on stock-based awards 14 5
Other, net 20 14
Net cash used in financing activities (694) (1,025)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH 29 (35)
EQUIVALENTS
Net increase (decrease) in cash and cash (115) 461
equivalents
Cash and cash equivalents at beginning of year 1,484 1,023
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,369 $ 1,484
(a) Prepared on an unaudited basis in accordance with accounting principles
generally accepted in the United States of America (GAAP).
CUMMINS INC. AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)
In millions Engine Components Power Distribution Non-segment Total
Generation Items^(1)
Three months
ended December
31, 2012
External sales $ 2,177 $ 662 $ 549 $ 904 $ - $ 4,292
Intersegment 329 277 216 3 (825) -
sales
Total sales 2,506 939 765 907 (825) 4,292
Depreciation and 50 23 13 11 - 97
amortization^(2)
Research,
development and 92 60 20 2 - 174
engineering
expenses
Equity, royalty
and interest 27 6 8 41 - 82
income from
investees
Interest income 2 - 2 1 - 5
Segment EBIT 252 78 42 84 44 500
Add back
restructuring 20 6 12 14 - 52
charges^(3)
Segment EBIT
excluding 272 84 54 98 44 552
restructuring
charges
Segment EBIT as
a percentage of 10.1% 8.3% 5.5% 9.3% 11.6%
total sales
Segment EBIT
excluding
restrucutring
charges
as a
percentage of 10.9% 8.9% 7.1% 10.8% 12.9%
total sales
Three months
ended September
30, 2012
External sales $ 2,131 $ 663 $ 526 $ 798 $ - $ 4,118
Intersegment 396 275 288 3 (962) -
sales
Total sales 2,527 938 814 801 (962) 4,118
Depreciation and 48 21 12 8 - 89
amortization^(2)
Research,
development and 115 51 19 1 - 186
engineering
expenses
Equity, royalty
and interest 25 7 12 50 - 94
income from
investees
Interest income 2 1 2 - - 5
Segment EBIT 239 89 73 99 (4) 496
Segment EBIT as
a percentage of 9.5% 9.5% 9.0% 12.4% 12.0%
total sales
Three months
ended December
31, 2011
External sales $ 2,628 $ 781 $ 682 $ 830 $ - $ 4,921
Intersegment 433 311 238 4 (986) -
sales
Total sales 3,061 1,092 920 834 (986) 4,921
Depreciation and
amortization ^ 46 18 10 8 - 82
(2)
Research,
development and 112 49 17 1 - 179
engineering
expenses
Equity, royalty
and interest 40 7 10 44 - 101
income from
investees
Interest income 4 2 2 1 - 9
Segment EBIT 368 132 87 87 94 768
Segment EBIT as
a percentage of 12.0% 12.1% 9.5% 10.4% 15.6%
total sales
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, 2012 and
September 30, 2012. The three months ended December 31, 2011 includes a
$53 million gain ($33 million after-tax) recorded for the sale of
^(1) certain assets and liabilities of our light-duty filtration business
from the Components segment and a $38 million gain ($24 million
after-tax) related to flood damage recoveries from the insurance
settlement regarding a June 2008 flood in Southern Indiana. The gains
have been 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.
Depreciation and amortization as shown on a segment basis excludes the
^(2) amortization of debt discount that is included in the Condensed
Consolidated Statements of Income as "Interest expense."
^(3) See Note 2, "RESTRUCTURING CHARGES," for more details.
CUMMINS INC. AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)
In millions Engine Components Power Distribution Non-segment Total
Generation Items^(1)
For the year
ended December
31, 2012
External sales $ 9,101 $ 2,809 $ 2,163 $ 3,261 $ - $ 17,334
Intersegment 1,632 1,203 1,105 16 (3,956) -
sales
Total sales 10,733 4,012 3,268 3,277 (3,956) 17,334
Depreciation and 192 82 47 34 - 355
amortization^(2)
Research,
development and 433 213 76 6 - 728
engineering
expenses
Equity, royalty
and interest 127 29 40 188 - 384
income from
investees
Interest income 11 3 9 2 - 25
Segment EBIT 1,248 426 285 369 (5) 2,323
Add back
restructuring 20 6 12 14 - 52
charges^(3)
Segment EBIT
excluding 1,268 432 297 383 (5) 2,375
restructuring
charges
Segment EBIT as
a percentage of 11.6% 10.6% 8.7% 11.3% 13.4%
total sales
Segment EBIT
excluding
restrucutring
charges
as a
percentage of 11.8% 10.8% 9.1% 11.7% 13.7%
total sales
For the year
ended December
31, 2011
External sales $ 9,649 $ 2,886 $ 2,492 $ 3,021 $ - $ 18,048
Intersegment 1,658 1,177 1,006 23 (3,864) -
sales
Total sales 11,307 4,063 3,498 3,044 (3,864) 18,048
Depreciation and
amortization ^ 181 73 42 25 - 321
(2)
Research,
development and 397 175 54 3 - 629
engineering
expenses
Equity, royalty
and interest 166 31 47 172 - 416
income from
investees
Interest income 18 5 8 3 - 34
Segment EBIT 1,384 470 373 386 102 2,715
Segment EBIT as
a percentage of 12.2% 11.6% 10.7% 12.7% 15.0%
total sales
Includes intersegment sales and profit in inventory eliminations and
unallocated corporate expenses. The year ended December 31, 2012
includes a $6 million gain ($4 million after-tax) related to
adjustments from our 2011 divestitures. The year ended December 31,
2011, includes a $121 million gain ($70 million after-tax) related to
the sale of certain assets and liabilities of our exhaust business and
^(1) light-duty filtration business, both from the Components segment, and a
$38 million gain ($24 million after-tax) related to flood damage
recoveries from the insurance settlement regarding a June 2008 flood in
Southern Indiana. The gains have been 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.
Depreciation and amortization as shown on a segment basis excludes the
^(2) amortization of debt discount that is included in the Condensed
Consolidated Statements of Income as "Interest expense."
^(3) See Note 2, "RESTRUCTURING CHARGES," for more details.
CUMMINS INC. AND SUBSIDIARIES
RECONCILIATION OF SEGMENT INFORMATION
(Unaudited)
A reconciliation of our segment information to the corresponding amounts in
the Condensed Consolidated Statements of Income is shown in the table below:
Three months ended For the years ended
December September December December December
31, 30, 31, 31, 31,
In millions 2012 2012 2011 2012 2011
Segment EBIT excluding $ 552 $ 496 $ 768 $ 2,375 $ 2,715
restructuring charges
Add: Restructuring (52) - - (52) -
charges
Segment EBIT 500 496 768 2,323 2,715
Less: Interest 7 9 10 32 44
expense
Income before $ 493 $ 487 $ 758 $ 2,291 $ 2,671
income taxes
CUMMINS INC. AND SUBSIDIARIES
SELECTED FOOTNOTE DATA
(Unaudited)
NOTE 1. EQUITY, ROYALTY AND INTEREST INCOME FROM INVESTEES
Equity, royalty and interest income from investees included in our Condensed
Consolidated Statements of Income for the interim reporting periods was as
follows:
Three months ended For the years ended
December September December December December
31, 30, 31, 31, 31,
In millions 2012 2012 2011 2012 2011
Distribution Entities
North American $ 32 $ 37 $ 34 $ 147 $ 134
distributors
Komatsu Cummins 6 9 6 26 22
Chile, Ltda.
All other 1 - 1 4 4
distributors
Manufacturing
Entities
Chongqing Cummins 12 14 17 61 68
Engine Company, Ltd.
Dongfeng Cummins 10 9 16 52 80
Engine Company, Ltd.
Tata Cummins, Ltd. 4 - 5 11 14
Cummins Westport, 3 2 6 14 14
Inc.
Shanghai Fleetguard 3 3 3 13 15
Filter Co., Ltd.
Valvoline Cummins, 2 2 1 8 7
Ltd.
Beijing Foton Cummins 2 3 (2) 5 (7)
Engine Co., Ltd.
Komatsu manufacturing (2) (1) 2 (3) 3
alliances
All other 2 7 2 9 21
manufacturers
Cummins share of 75 85 91 347 375
net income
Royalty and interest 7 9 10 37 41
income
Equity, royalty
and interest $ 82 $ 94 $ 101 $ 384 $ 416
income from
investees
NOTE 2. RESTRUCTURING CHARGES
We have executed restructuring actions primarily in the form of involuntary
separation programs in the fourth quarter of 2012. These actions were in
response to deterioration in our U.S. businesses and most key markets around
the world in the second half of 2012, as well as a reduction in orders in most
U.S. and global markets for 2013. We reduced our worldwide professional
workforce by approximately 650 employees, or 3 percent. We also reduced our
hourly workforce by approximately 650 employees. During 2012, we incurred a
pre-tax charge related to the professional and hourly workforce reductions of
approximately $49 million.
Employee termination and severance costs were recorded based on approved plans
developed by the businesses and corporate management which specified positions
to be eliminated, benefits to be paid under existing severance plans or
statutory requirements and the expected timetable for completion of the plan.
Estimates of restructuring were made based on information available at the
time charges were recorded. Due to the inherent uncertainty involved, actual
amounts paid for such activities may differ from amounts initially recorded
and we may need to revise previous estimates.
We incurred $1 million of restructuring expenses for lease terminations and $2
million of restructuring expenses for asset impairments and other non-cash
charges. During 2012, we recorded a total pre-tax restructuring charge of $52
million. These restructuring actions included:
Year ended
In millions December 31, 2012
Workforce reductions $ 49
Exit activities 1
Other 2
Total restructuring charges $ 52
If the 2012 restructuring actions are successfully implemented, we expect the
annualized savings from the professional actions to be approximately $39
million.
At December 31, 2012, of the approximately 1,300 employees to be affected by
this plan, 1,130 had been terminated.
Restructuring charges were included in each segment in our operating results.
The table below summarizes where the restructuring costs are located in our
Condensed Consolidated Statements of Income for the year ended December 31,
2012.
Year ended
In millions December 31, 2012
Cost of sales $ 29
Selling, general and administrative expenses 20
Research, development and engineering expenses 3
Total restructuring charges $ 52
NOTE 3. 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 2012
was 16.8 percent and 23.6 percent, respectively. The tax rate for the fourth
quarter and full year includes one-time tax items that total a benefit of $39
million ($0.21 per diluted share) and $55 million ($0.29 per diluted share),
respectively. The one-time tax items for the fourth quarter and full year
related primarily to benefits resulting from transactions entered into and
elections made with respect to our U.K. operations. Our effective tax rate for
the fourth quarter and full year of 2011 was 24.5 percent and 27.1 percent,
respectively. Excluding the gain on sale of certain assets and liabilities of
the businesses and the flood insurance recovery, our effective tax rate for
the fourth quarter and full year of 2011 was 22.8 percent and 26.3 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,
2012 2011
U.S. federal statutory rate 35.0 % 35.0 %
State income tax, net of federal effect 1.0 0.4
Research tax credits (0.4) (4.7)
Differences in rates and taxability of foreign (12.0) (4.6)
subsidiaries and joint ventures
Other, net - 1.0
Effective tax rate 23.6 % 27.1 %
On January 2, 2013, the American Taxpayer Relief Act of 2012 was enacted. This
legislation retroactively extended the U.S. federal research credit for two
years, from January 1, 2012 through December 31, 2013. We expect our 2013
effective tax rate, which will include an estimated 1 percent benefit for the
2013 research credit, to be 26 percent excluding any one-time tax items that
may arise. Additionally, we anticipate that our first quarter 2013 results
will include a one-time tax benefit of approximately $28 million representing
the net benefit attributable to the 2012 research credit.
NOTE 4. DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense included in operating activities of the
Condensed Consolidated Statements of Cash Flows for the years ended December
31, 2012 and 2011, was $361 million and $325 million, respectively.
CUMMINS INC. AND SUBSIDIARIES
FINANCIAL 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
period presented as it illustrates our operating performance without regard to
special items including the gains related to restructuring charges, one-time
income tax items, the sale of certain assets and liabilities and a flood
insurance recovery. This measure is not in accordance with, or an alternative
for, accounting principles generally accepted in the United States of America
and may not be consistent with measures used by other companies. It should be
considered supplemental data. The following table reconciles net income
attributable to Cummins Inc. to net income attributable to Cummins Inc.
excluding special items for the quarters ended December 31, 2012, September
30, 2012 and December 31, 2011 and for the years ended December 31, 2012 and
December 31, 2011.
Three months ended
December 31, 2012 September 30, December 31, 2011
2012
In millions Net Diluted Net Diluted Net Diluted
Income EPS Income EPS Income EPS
Net income
attributable to $ 381 $ 2.02 $ 352 $ 1.86 $ 548 $ 2.86
Cummins Inc.
Add
Restructuring 35 0.19 - - - -
charges
Less
One-time tax 39 0.21 16 0.08 - -
benefits^(1)
Gain on sale
of - - - - 33 0.17
business^(2)
Flood
insurance - - - - 24 0.13
recovery^(3)
Net income
attributable to
Cummins Inc.
excluding
special items $ 377 $ 2.00 $ 336 $ 1.78 $ 491 $ 2.56
For the years ended
December 31, 2012 December 31, 2011
In millions Net Diluted Net Diluted
Income EPS Income EPS
Net income
attributable to $ 1,657 $ 8.74 $ 1,848 $ 9.55
Cummins Inc.
Add
Restructuring 35 0.18 - -
charges
Less
One-time tax 55 0.29 - -
benefits^(1)
Gain on sale
of 4 0.02 70 0.36
business^(2)
Flood
insurance - - 24 0.12
recovery^(3)
Net income
attributable to
Cummins Inc.
excluding
special items $ 1,633 $ 8.61 $ 1,754 $ 9.07
The one-time tax benefits for the three months ended December 31, 2012,
and the 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 three month period ended September
30, 2012, included a $16 million one-time tax benefit for third quarter
^(1) 2012, $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.
In the second and fourth quarter of 2011 we sold certain assets and
liabilities of our exhaust business and our light-duty filtration
business. In the second quarter of 2011 we recognized a gain on the
^(2) sale of $68 million ($37 million after-tax). In the fourth quarter of
2011 we recognized a gain on the sale of $53 million ($33 million
after-tax). In the second quarter of 2012 we recognized a $6 million
gain ($4 million after-tax) related to adjustments from our 2011
divestitures.
In the fourth quarter of 2011 we recognized a gain of $38 million ($24
^(3) million after-tax) on a flood settlement with our insurance carriers to
settle 2008 flood claims.
CUMMINS INC. AND SUBSIDIARIES
FINANCIAL MEASURES THAT SUPPLEMENT GAAP
(Unaudited)
Earnings before interest expense, income taxes, noncontrolling interests and
restructuring charges
We define EBIT as earnings or loss 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 and EBIT excluding restructuring and other charges,
non-GAAP financial measures, to “Net income attributable to Cummins Inc.,” for
each of the applicable periods:
Three months ended For the years ended
December September December December December
31, 30, 31, 31, 31,
In millions 2012 2012 2011 2012 2011
Earnings before
interest expense,
income taxes and
special items $ 552 $ 496 $ 677 $ 2,369 $ 2,556
Earnings before
interest expense,
income taxes and
special items as a
percentage of net 12.9% 12.0% 13.8% 13.7% 14.2%
sales
Less
Restructuring 52 - - 52 -
charges
Add
Gain on sale of - - 53 6 121
businesses
Flood insurance - - 38 - 38
recovery
Earnings before
interest expense and $ 500 $ 496 $ 768 $ 2,323 $ 2,715
income taxes
EBIT as a percentage 11.6% 12.0% 15.6% 13.4% 15.0%
of net sales
Less
Interest expense 7 9 10 32 44
Income tax expense 83 117 186 541 725
Consolidated net 410 370 572 1,750 1,946
income
Less
Net income
attributable to 29 18 24 93 98
noncontrolling
interests
Net income
attributable to $ 381 $ 352 $ 548 $ 1,657 $ 1,848
Cummins Inc.
Net income
attributable to
Cummins Inc.
as a percentage of 8.9% 8.5% 11.1% 9.6% 10.2%
net sales
CUMMINS INC. AND SUBSIDIARIES
BUSINESS UNIT SALES DATA
(Unaudited)
Engine segment net sales by market
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 286 297 353 343 1,279
RV
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
2011
In millions Q1 Q2 Q3 Q4 YTD
Heavy-duty truck $ 485 $ 693 $ 748 $ 865 $ 2,791
Medium-duty truck and bus 474 608 640 598 2,320
Light-duty automotive and 296 310 271 299 1,176
RV
Industrial 855 988 977 1,030 3,850
Stationary power 281 301 319 269 1,170
Total sales $ 2,391 $ 2,900 $ 2,955 $ 3,061 $ 11,307
Unit shipments by engine classification (including unit shipments to Power
Generation)
2012
Units Q1 Q2 Q3 Q4 YTD
Mid-range 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
2011
Units Q1 Q2 Q3 Q4 YTD
Mid-range 109,400 131,300 130,600 138,100 509,400
Heavy-duty 20,000 29,900 31,100 35,300 116,300
High horsepower 4,900 5,700 5,600 5,400 21,600
Total units 134,300 166,900 167,300 178,800 647,300
CUMMINS INC. AND SUBSIDIARIES
BUSINESS UNIT SALES DATA
(Unaudited)
Component segment sales by business
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
2011
In millions Q1 Q2 Q3 Q4 YTD
Emission solutions $ 273 $ 311 $ 306 $ 372 $ 1,262
Turbo technologies 297 314 298 314 1,223
Filtration 255 287 288 283 1,113
Fuel systems 99 120 123 123 465
Total sales $ 924 $ 1,032 $ 1,015 $ 1,092 $ 4,063
In the first quarter of 2012, our Power Generation segment reorganized its
operating structure to include the following businesses: power products, power
systems, generator technologies and power solutions. Sales for our Power
Generation segment by business (including 2011 reorganized balances) were as
follows:
2012
In millions Q1 Q2 Q3 Q4 YTD
Power products $ 375 $ 459 $ 425 $ 395 $ 1,654
Power systems 188 217 174 178 757
Generator technologies 141 160 138 127 566
Power solutions 76 73 77 65 291
Total sales $ 780 $ 909 $ 814 $ 765 $ 3,268
2011
In millions Q1 Q2 Q3 Q4 YTD
Power products $ 377 $ 415 $ 433 $ 411 $ 1,636
Power systems 189 210 188 228 815
Generator technologies 154 189 166 164 673
Power solutions 75 95 87 117 374
Total sales $ 795 $ 909 $ 874 $ 920 $ 3,498
Distribution segment sales by business
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
2011
In millions Q1 Q2 Q3 Q4 YTD
Parts and filtration $ 235 $ 271 $ 283 $ 296 $ 1,085
Power generation 145 195 191 191 722
Engines 140 186 171 206 703
Service 122 133 138 141 534
Total sales $ 642 $ 785 $ 783 $ 834 $ 3,044
Contact:
Cummins Inc.
Carole Casto, 317-610-2480
Executive Director - Corporate Communications
carole.casto@cummins.com
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