Cummins Inc. (NYSE: CMI) today reported third quarter sales of $2.53 billion and net income of $95 million, or $0.48 a share, down considerably from last year’s record third quarter results. However, the Company significantly improved its profitability and cash position from the second quarter despite the global recession that continues to affect demand in most markets.
Sales fell 31 percent and net income attributable to Cummins Inc. fell 59 percent compared to the same period last year. Third quarter Earnings Before Interest and Taxes (EBIT) of $155 million, or 6.1 percent of sales, decreased 59 percent from a year ago.
The third quarter results include $22 million of restructuring and other charges associated with the cost of job-reduction actions. Excluding the charges, EBIT was $177 million, or 7.0 percent of sales, and net income attributable to Cummins Inc. was $110 million, or $0.56 a share.
Compared to the second quarter, sales increased 4 percent on the strength of improving demand in China, India and Brazil and a short-term increase in on-highway engine and components sales in the United States. Those increases more than offset quarter-to-quarter sales declines in the Company’s Power Generation and Distribution businesses.
Despite the modest increase in sales, net income attributable to Cummins rose 70 percent, EBIT increased 42 percent and the Company improved its cash position by $152 million from the second quarter. The significantly improved profitability and cash position from the second quarter are largely the result of lower spending, better utilization of manufacturing capacity and reduced inventory.
“Given the continued weakness in many of our markets, the Company performed extremely well in the third quarter,” said Cummins Chairman and Chief Executive Officer Tim Solso. “The decisive actions we have taken over the past several months have allowed us to remain profitable, generate cash and invest in the Company’s future in the face of the worst recession in decades.”
Compared to the same period a year ago, sales fell by at least 25 percent in all four of the Company’s operating segments, with the largest declines coming in the Power Generation and Engine segments. Despite the continued weakness in demand, all four segments were profitable in the third quarter.
The recent economic improvement in China, India and Brazil benefitted Cummins during the quarter, due to the Company’s longstanding strong position in all three countries. In addition, the Company saw an increase in engine and components sales to the medium- and heavy-duty truck engines markets in the U.S. compared to the second quarter in advance of new emissions standards that take effect in January 2010. However, based on current orders and market intelligence, Cummins expects very low demand in these markets during the first half of 2010.
“While we saw improvement in some markets in the third quarter, we expect the economic climate to remain challenging until late 2010 – especially in the United States and Europe,” Solso said. “As we look ahead to the recovery, however, Cummins continues to be extremely well positioned to take advantage of a number of opportunities and market trends that offer the potential for significant long-term growth.”
The Company’s work to reduce costs and working capital, most notably inventory, has allowed it to significantly improve its cash position throughout 2009. Cummins also continues to invest in its most critical projects, especially those associated with the launch of new emission-compliant products in 2010 and with fuel economy improvements.
The Company remains on track to launch its new EPA-compliant products in North America in January 2010. Cummins has tested its 2010 heavy-duty truck engines with approximately 50 major customers across all duty cycles and in a wide variety of weather conditions. By the time production begins, Cummins' new heavy-duty and mid-range engines will have logged approximately 5 million test miles.
Recent field test results have exceeded the Company’s expectations and customer feedback on the new engines has been positive. Those tests indicate that heavy-duty truck engine customers can expect up a 5 percent improvement over Cummins' current industry-leading fuel economy, while mid-range engine customers can expect to see up to a 3 percent improvement.
At the end of the third quarter, the Company had $686 million in cash and cash equivalents on hand, compared to $534 million at the end of the second quarter and $426 million at the end of 2008.
“We remain very focused on our priorities of generating positive cash flow while at the same time investing in those projects that are critical to our success in 2010 and beyond,” said Tom Linebarger, President and Chief Operating Officer. “We will continue to manage the Company very conservatively over the next few quarters as we work to position ourselves to emerge from the recession an even stronger company.”
Based on the third quarter results and Company forecasts for the remainder of the year, Cummins today is raising its sales and profit guidance for 2009. The Company now expects 2009 sales to be slightly less than 30 percent lower than 2008 and anticipates EBIT of 6 percent of sales for the year, excluding the restructuring charges. Previously, the Company said it expected 2009 sales to be slightly more than 30 percent lower than last year and EBIT to be 5 percent of sales, excluding restructuring charges.
Third quarter details (all comparisons are to same period in 2008 unless otherwise noted)
Engine Segment
- Sales - $1.44 billion, down 37 percent
- Segment EBIT - $61 million (4.2 percent of sales), compared to $160 million (7.0 percent of sales)
- Revenues in heavy-duty truck down 22 percent; medium-duty truck and bus down 28 percent; light-duty/RV down 29 percent; industrial down 48 percent
- Compared to last year, sales declined sharply in nearly every geographic market due to the global recession, but the segment returned to profitability this quarter after reporting $4 million operating loss in second quarter.
Power Generation
- Sales - $549 million, down 38 percent
- Segment EBIT - $23 million (4.2 percent of sales), down 79 percent from $108 million (12.2 percent of sales)
- Commercial product sales down 43 percent; commercial projects down 38 percent; Consumer products down 35 percent; Alternators down 29 percent; Power Electronics down 6 percent
- Commercial markets most affected by economic slowdown in the United Kingdom, Middle East, North and Latin America; Consumer decline led by continued weakness in portable generator, marine and commercial mobile generator markets.
Components
- Sales - $591 million, down 26 percent
- Segment EBIT - $31 million (5.2 percent of sales), down 49 percent from $61 million (7.6 percent of sales)
- Turbocharger sales down 30 percent; Filtration down 31 percent; Emission Solutions down 7 percent; Fuel Systems down 30 percent
- Sales and profit decline driven primarily by large volume drop from OEM customers in North America and Europe. Segment sales and profitability increased significantly from second quarter 2009, as segment returned to profitability after reporting a $10 million operating loss in the previous quarter.
Distribution
- Sales - $422 million, down 27 percent
- Segment EBIT - $55 million (13.0 percent of sales), compared to $61 million (10.5 percent of sales)
- Sales were affected by decreased global demand and unfavorable foreign currency movements, which affected segment sales by 5 percentage points
- Improved Segment EBIT margin a result of lower discretionary spending and continued strength in joint venture earnings.
Joint Ventures
- Total income - $57 million, down 14 percent from $66 million during same period in 2008, but flat compared to second quarter 2009
- Distribution JV income of $32 million was flat compared to a year ago
- Engine JVs in China declined due to lower demand compared to year ago
Presentation of Non-GAAP Financial Information
EBIT and Net income and diluted earnings per share (EPS) attributable to Cummins Inc. excluding restructuring and other charges are non-GAAP measure used in this release. Each 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.
About Cummins
Cummins Inc., a global power leader, is a corporation of complementary business units that design, manufacture, distribute and service engines and related technologies, including fuel systems, controls, air handling, filtration, emission solutions and electrical power generation systems. Headquartered in Columbus, Indiana, (USA) Cummins serves customers in approximately 190 countries and territories through a network of more than 500 company-owned and independent distributor locations and approximately 5,200 dealer locations. Cummins reported net income of $755 million on sales of $14.3 billion in 2008. Press releases can be found on the Web at www.cummins.com.
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 the company’s expectations, hopes, beliefs and intentions on strategies regarding the future. It is important to note that the company’s 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, general economic, business and financing conditions, labor relations, governmental action, competitor pricing activity, expense volatility and other risks detailed from time to time in Cummins Securities and Exchange Commission filings.
CUMMINS INC. AND SUBSIDIARIES | ||||||||||||
| Three months ended | ||||||||||||
| September 27, | June 28, | September 28, | ||||||||||
| In millions (except per share amounts) | 2009 | 2009 | 2008 | |||||||||
| NET SALES | $ | 2,530 | $ | 2,431 | $ | 3,693 | ||||||
| Cost of sales | 2,027 | 1,983 | 2,873 | |||||||||
| GROSS MARGIN | 503 | 448 | 820 | |||||||||
| OPERATING EXPENSES AND INCOME | ||||||||||||
| Selling, general and administrative expenses | 304 | 287 | 388 | |||||||||
| Research, development and engineering expenses | 90 | 79 | 113 | |||||||||
| Equity, royalty and interest income from investees | 57 | 57 | 66 | |||||||||
| Restructuring and other charges | 22 | 7 | ― | |||||||||
| Other operating income (expense), net | 3 | (11 | ) | (2 | ) | |||||||
| OPERATING INCOME | 147 | 121 | 383 | |||||||||
| Interest income | 2 | 1 | 4 | |||||||||
| Interest expense | 9 | 10 | 10 | |||||||||
| Other income (expense), net | 6 | (13 | ) | (7 | ) | |||||||
| INCOME BEFORE INCOME TAXES | 146 | 99 | 370 | |||||||||
| Income tax expense | 36 | 29 | 123 | |||||||||
| NET INCOME | 110 | 70 | 247 | |||||||||
| Less: net income attributable to noncontrolling interests | 15 | 14 | 18 | |||||||||
| NET INCOME ATTRIBUTABLE TO CUMMINS INC. | $ | 95 | $ | 56 | $ | 229 | ||||||
| EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC. | ||||||||||||
| Basic | $ | 0.48 | $ | 0.28 | $ | 1.18 | ||||||
| Diluted | $ | 0.48 | $ | 0.28 | $ | 1.17 | ||||||
| WEIGHTED AVERAGE SHARES OUTSTANDING | ||||||||||||
| Basic | 197.4 | 197.1 | 194.9 | |||||||||
| Diluted | 197.8 | 197.4 | 196.5 | |||||||||
| CASH DIVIDENDS DECLARED PER COMMON SHARE | $ | 0.175 | $ | 0.175 | $ | 0.175 | ||||||
| (a) | Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America (GAAP). | |
CUMMINS INC. AND SUBSIDIARIES | ||||||||
| Nine months ended | ||||||||
| September 27, | September 28, | |||||||
| In millions (except per share amounts) | 2009 | 2008 | ||||||
| NET SALES | $ | 7,400 | $ | 11,054 | ||||
| Cost of sales | 6,004 | 8,648 | ||||||
| GROSS MARGIN | 1,396 | 2,406 | ||||||
| OPERATING EXPENSES AND INCOME | ||||||||
| Selling, general and administrative expenses | 891 | 1,109 | ||||||
| Research, development and engineering expenses | 254 | 320 | ||||||
| Equity, royalty and interest income from investees | 147 | 202 | ||||||
| Restructuring and other charges | 95 | ― | ||||||
| Other operating (expense) income, net | (6 | ) | (9 | ) | ||||
| OPERATING INCOME | 297 | 1,170 | ||||||
| Interest income | 5 | 14 | ||||||
| Interest expense | 26 | 33 | ||||||
| Other (expense) income, net | (10 | ) | (20 | ) | ||||
| INCOME BEFORE INCOME TAXES | 266 | 1,131 | ||||||
| Income tax expense | 72 | 372 | ||||||
| NET INCOME | 194 | 759 | ||||||
| Less: net income attributable to noncontrolling interests | 36 | 47 | ||||||
| NET INCOME ATTRIBUTABLE TO CUMMINS INC. | $ | 158 | $ | 712 | ||||
| EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC. | ||||||||
| Basic | $ | 0.80 | $ | 3.65 | ||||
| Diluted | $ | 0.80 | $ | 3.62 | ||||
| WEIGHTED AVERAGE SHARES OUTSTANDING | ||||||||
| Basic | 197.1 | 195.1 | ||||||
| Diluted | 197.4 | 196.5 | ||||||
| CASH DIVIDENDS DECLARED PER COMMON SHARE | $ | 0.525 | $ | 0.425 | ||||
| (a) | Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America. | |
CUMMINS INC. AND SUBSIDIARIES | ||||||||
| September 27, | December 31, | |||||||
| In millions (except par value) | 2009 | 2008 | ||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 686 | $ | 426 | ||||
| Marketable securities | 148 | 77 | ||||||
| Accounts and notes receivable, net | 1,731 | 1,782 | ||||||
| Inventories | 1,461 | 1,783 | ||||||
| Deferred income taxes | 363 | 347 | ||||||
| Prepaid expenses and other current assets | 254 | 298 | ||||||
| Total current assets | 4,643 | 4,713 | ||||||
| Long-term assets | ||||||||
| Property, plant and equipment | 4,736 | 4,539 | ||||||
| Accumulated depreciation | (2,877 | ) | (2,698 | ) | ||||
| Property, plant and equipment, net | 1,859 | 1,841 | ||||||
| Investments and advances related to equity method investees | 538 | 588 | ||||||
| Goodwill | 363 | 362 | ||||||
| Other intangible assets, net | 229 | 223 | ||||||
| Deferred income taxes | 400 | 491 | ||||||
| Other assets | 323 | 301 | ||||||
| Total assets | $ | 8,355 | $ | 8,519 | ||||
| LIABILITIES | ||||||||
| Current liabilities | ||||||||
| Current portion of long-term debt and loans payable | $ | 60 | $ | 69 | ||||
| Accounts payable (principally trade) | 875 | 1,009 | ||||||
| Current portion of accrued product warranty | 422 | 434 | ||||||
| Accrued compensation, benefits and retirement costs | 335 | 364 | ||||||
| Other accrued expenses | 619 | 763 | ||||||
| Total current liabilities | 2,311 | 2,639 | ||||||
| Long-term liabilities | ||||||||
| Long-term debt | 621 | 629 | ||||||
| Pensions | 425 | 574 | ||||||
| Postretirement benefits other than pensions | 455 | 452 | ||||||
| Other liabilities and deferred revenue | 740 | 745 | ||||||
| Total liabilities | 4,552 | 5,039 | ||||||
| EQUITY | ||||||||
| Cummins Inc. shareholders’ equity | ||||||||
| Common stock, $2.50 par value, 500 shares authorized, 222.1 and 221.7 shares issued | 1,842 | 1,793 | ||||||
| Retained earnings | 3,340 | 3,288 | ||||||
| Treasury stock, at cost, 20.3 and 20.4 shares | (713 | ) | (715 | ) | ||||
| Common stock held by employee benefits trust, at cost, 3.5 and 5.1 shares | (43 | ) | (61 | ) | ||||
| Unearned compensation | (1 | ) | (5 | ) | ||||
| Accumulated other comprehensive loss | ||||||||
| Defined benefit postretirement plans | (741 | ) | (798 | ) | ||||
| Other | (121 | ) | (268 | ) | ||||
| Total accumulated other comprehensive loss | (862 | ) | (1,066 | ) | ||||
| Total Cummins Inc. shareholders’ equity | 3,563 | 3,234 | ||||||
| Noncontrolling interests | 240 | 246 | ||||||
| Total equity | 3,803 | 3,480 | ||||||
| Total liabilities and equity | $ | 8,355 | $ | 8,519 | ||||
| (a) | Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America. | |
CUMMINS INC. AND SUBSIDIARIES | |||||||||
| Nine months ended | |||||||||
| September 27, | September 28, | ||||||||
| In millions | 2009 | 2008 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | |||||||||
| Net income | $ | 194 | $ | 759 | |||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||
| Restructuring and other charges, net of cash payments | 21 | ― | |||||||
| Depreciation and amortization | 238 | 233 | |||||||
| Deferred income taxes | (11 | ) | 38 | ||||||
| Equity in income of investees, net of dividends | 56 | (80 | ) | ||||||
| Pension expense, net of pension contributions | (49 | ) | (40 | ) | |||||
| Other post-retirement benefits expense, net of cash payments | (18 | ) | (11 | ) | |||||
| Stock-based compensation expense | 16 | 27 | |||||||
| Excess tax deficiencies (benefits) on stock-based awards | 2 | (12 | ) | ||||||
| Translation and hedging activities | 33 | 15 | |||||||
| Changes in current assets and liabilities, net of acquisitions and dispositions: | |||||||||
| Accounts and notes receivable | 89 | (310 | ) | ||||||
| Inventories | 360 | (334 | ) | ||||||
| Other current assets | 32 | (35 | ) | ||||||
| Accounts payable | (155 | ) | 198 | ||||||
| Accrued expenses | (185 | ) | 206 | ||||||
| Changes in long-term liabilities | 103 | 78 | |||||||
| Other, net | 4 | (7 | ) | ||||||
| Net cash provided by operating activities | 730 | 725 | |||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | |||||||||
| Capital expenditures | (204 | ) | (330 | ) | |||||
| Investments in internal use software | (24 | ) | (53 | ) | |||||
| Proceeds from disposals of property, plant and equipment | 8 | 20 | |||||||
| Investments in and advances to equity investees | (5 | ) | (51 | ) | |||||
| Acquisition of businesses, net of cash acquired | (2 | ) | (142 | ) | |||||
| Proceeds from the sale of an equity investee | ― | 64 | |||||||
| Investments in marketable securities—acquisitions | (234 | ) | (264 | ) | |||||
| Investments in marketable securities—liquidations | 171 | 281 | |||||||
| Purchases of other investments | (54 | ) | (54 | ) | |||||
| Cash flows from derivatives not designated as hedges | (21 | ) | (24 | ) | |||||
| Other, net | 1 | 1 | |||||||
| Net cash used in investing activities | (364 | ) | (552 | ) | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES | |||||||||
| Proceeds from borrowings | 11 | 91 | |||||||
| Payments on borrowings and capital lease obligations | (60 | ) | (111 | ) | |||||
| Net borrowings under short-term credit agreements | (4 | ) | 5 | ||||||
| Distributions to noncontrolling interests | (16 | ) | (14 | ) | |||||
| Dividend payments on common stock | (106 | ) | (86 | ) | |||||
| Proceeds from sale of common stock held by employee benefit trust | 54 | 52 | |||||||
| Repurchases of common stock | ― | (123 | ) | ||||||
| Excess tax (deficiencies) benefits on stock-based awards | (2 | ) | 12 | ||||||
| Other, net | 3 | 3 | |||||||
| Net cash used in financing activities | (120 | ) | (171 | ) | |||||
| EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS | 14 | (7 | ) | ||||||
| Net increase (decrease) in cash and cash equivalents | 260 | (5 | ) | ||||||
| Cash and cash equivalents at beginning of year | 426 | 577 | |||||||
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 686 | $ | 572 | |||||
| (a) | Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America. | |
CUMMINS INC. AND SUBSIDIARIES | |||||||||||||||||||||||
| In millions | Engine | Power | Components | Distribution | Non-segment | Total | |||||||||||||||||
| Three months ended September 27, 2009 | |||||||||||||||||||||||
| External sales | $ | 1,270 | $ | 444 | $ | 395 | $ | 421 | $ | — | $ | 2,530 | |||||||||||
| Intersegment sales | 169 | 105 | 196 | 1 | (471 | ) | ― | ||||||||||||||||
| Total sales | 1,439 | 549 | 591 | 422 | (471 | ) | 2,530 | ||||||||||||||||
| Depreciation and amortization(2) | 49 | 13 | 18 | 5 | ― | 85 | |||||||||||||||||
| Research, development and engineering expense | 59 | 9 | 22 | ― | ― | 90 | |||||||||||||||||
| Equity, royalty and interest income from investees | 16 | 5 | 4 | 32 | ― | 57 | |||||||||||||||||
| Restructuring and other charges | ― | ― | ― | ― | 22 | 22 | |||||||||||||||||
| Interest income | 1 | ― | 1 | ― | ― | 2 | |||||||||||||||||
| Segment EBIT | 61 | 23 | 31 | 55 | (15 | ) | 155 | ||||||||||||||||
| Three months ended June 28, 2009 | |||||||||||||||||||||||
| External sales | $ | 1,133 | $ | 481 | $ | 355 | $ | 462 | $ | — | $ | 2,431 | |||||||||||
| Intersegment sales | 173 | 129 | 147 | 1 | (450 | ) | ― | ||||||||||||||||
| Total sales | 1,306 | 610 | 502 | 463 | (450 | ) | 2,431 | ||||||||||||||||
| Depreciation and amortization(2) | 45 | 11 | 17 | 4 | ― | 77 | |||||||||||||||||
| Research, development and engineering expense | 51 | 8 | 20 | ― | ― | 79 | |||||||||||||||||
| Equity, royalty and interest income from investees | 17 | 6 | 4 | 30 | ― | 57 | |||||||||||||||||
| Restructuring and other charges | ― | ― | ― | ― | 7 | 7 | |||||||||||||||||
| Interest income | ― | ― | ― | 1 | ― | 1 | |||||||||||||||||
| Segment EBIT | (4 | ) | 41 | (10 | ) | 55 | 27 | 109 | |||||||||||||||
| Three months ended September 28, 2008 | |||||||||||||||||||||||
| External sales | $ | 1,927 | $ | 653 | $ | 535 | $ | 578 | $ | — | $ | 3,693 | |||||||||||
| Intersegment sales | 352 | 235 | 266 | 3 | (856 | ) | ― | ||||||||||||||||
| Total sales | 2,279 | 888 | 801 | 581 | (856 | ) | 3,693 | ||||||||||||||||
| Depreciation and amortization(2) | 43 | 9 | 16 | 6 | ― | 74 | |||||||||||||||||
| Research, development and engineering expense | 75 | 11 | 27 | ― | ― | 113 | |||||||||||||||||
| Equity, royalty and interest income from investees | 26 | 6 | 3 | 31 | ― | 66 | |||||||||||||||||
| Interest income | 2 | 1 | 1 | ― | ― | 4 | |||||||||||||||||
| Segment EBIT | 160 | 108 | 61 | 61 | (10 | ) | 380 | ||||||||||||||||
| Nine months ended September 27, 2009 | |||||||||||||||||||||||
| External sales | $ | 3,608 | $ | 1,402 | $ | 1,096 | $ | 1,294 | $ | ― | $ | 7,400 | |||||||||||
| Intersegment sales | 629 | 414 | 527 | 4 | (1,574 | ) | ― | ||||||||||||||||
| Total sales | 4,237 | 1,816 | 1,623 | 1,298 | (1,574 | ) | 7,400 | ||||||||||||||||
| Depreciation and amortization(2) | 135 | 35 | 53 | 14 | ― | 237 | |||||||||||||||||
| Research, development and engineering expense | 168 | 25 | 61 | ― | ― | 254 | |||||||||||||||||
| Equity, royalty and interest income from investees | 30 | 16 | 9 | 92 | ― | 147 | |||||||||||||||||
| Restructuring and other charges | ― | ― | ― | ― | 95 | 95 | |||||||||||||||||
| Interest income | 2 | 1 | 1 | 1 | ― | 5 | |||||||||||||||||
| Segment EBIT | 41 | 133 | 22 | 168 | (72 | ) | 292 | ||||||||||||||||
| Nine months ended September 28, 2008 | |||||||||||||||||||||||
| External sales | $ | 5,842 | $ | 1,926 | $ | 1,686 | $ | 1,600 | $ | — | $ | 11,054 | |||||||||||
| Intersegment sales | 1,032 | 687 | 790 | 7 | (2,516 | ) | ― | ||||||||||||||||
| Total sales | 6,874 | 2,613 | 2,476 | 1,607 | (2,516 | ) | 11,054 | ||||||||||||||||
| Depreciation and amortization(2) | 133 | 31 | 49 | 17 | ― | 230 | |||||||||||||||||
| Research, development and engineering expense | 215 | 31 | 74 | ― | ― | 320 | |||||||||||||||||
| Equity, royalty and interest income from investees | 91 | 17 | 10 | 84 | ― | 202 | |||||||||||||||||
| Interest income | 7 | 3 | 3 | 1 | ― | 14 | |||||||||||||||||
| Segment EBIT | 575 | 301 | 175 | 178 | (65 | ) | 1,164 | ||||||||||||||||
(1) | Includes intersegment sales and profit in inventory eliminations and unallocated corporate expenses. For the three and nine months ended September 27, 2009, unallocated corporate expenses included restructuring and other charges of $22 million and $95 million and gains of $8 million and $5 million related to flood damages. For the three months ended June 28, 2009, unallocated corporate expenses included restructuring and other charges of $7 million and a $9 million loss related to flood damage insurance recoveries. There were no unallocated corporate expenses for the three months ended September 28, 2008. For the nine months ended September 28, 2008, unallocated corporate expenses included losses of $6 million related to flood damages. |
| (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 | |||||||||||||||
A reconciliation of our segment information to the corresponding amounts in the Condensed Consolidated Statements of Income is shown in the table below: | |||||||||||||||
| Three months ended | Nine months ended | ||||||||||||||
| September 27, | June 28, | September 28, | September 27, | September 28, | |||||||||||
| In millions | 2009 | 2009 | 2008 | 2009 | 2008 | ||||||||||
| Segment EBIT | $ | 155 | $ | 109 | $ | 380 | $ | 292 | $ | 1,164 | |||||
| Less: | |||||||||||||||
| Interest expense | 9 | 10 | 10 | 26 | 33 | ||||||||||
| Income before income taxes | $ | 146 | $ | 99 | $ | 370 | $ | 266 | $ | 1,131 | |||||
FINANCIAL MEASURES THAT SUPPLEMENT GAAP | ||||||||||||||||
Earnings before interest, taxes, noncontrolling interests and restructuring and other 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, a non-GAAP financial measure, to consolidated net income attributable to Cummins Inc., for each of the applicable periods: | ||||||||||||||||
| Three months ended | Nine months ended | |||||||||||||||
| September 27, | June 28, | September 28, | September 27, | September 28, | ||||||||||||
| In millions | 2009 | 2009 | 2008 | 2009 | 2008 | |||||||||||
| Earnings before interest expense, income taxes and restructuring and other charges | $ | 177 | $ | 116 | $ | 380 | $ | 387 | $ | 1,164 | ||||||
| Earnings before interest expense, income taxes and restructuring and other charges as a percentage of sales | 7.0 | % | 4.8 | % | 10.3 | % | 5.2 | % | 10.5 | % | ||||||
| Less: | ||||||||||||||||
| Restructuring and other charges | 22 | 7 | ― | 95 | ― | |||||||||||
| Earnings before interest and income taxes | $ | 155 | $ | 109 | $ | 380 | $ | 292 | $ | 1,164 | ||||||
| EBIT as a percentage of net sales | 6.1 | % | 4.5 | % | 10.3 | % | 3.9 | % | 10.5 | % | ||||||
| Less: | ||||||||||||||||
| Interest expense | 9 | 10 | 10 | 26 | 33 | |||||||||||
| Income tax expense | 36 | 29 | 123 | 72 | 372 | |||||||||||
| Net income | 110 | 70 | 247 | 194 | 759 | |||||||||||
| Less: | ||||||||||||||||
| Net income attributable to noncontrolling interests | 15 | 14 | 18 | 36 | 47 | |||||||||||
| Net income attributable to Cummins Inc. | $ | 95 | $ | 56 | $ | 229 | $ | 158 | $ | 712 | ||||||
| Net income attributable to Cummins Inc. as a percentage of net sales | 3.8 | % | 2.3 | % | 6.2 | % | 2.1 | % | 6.4 | % | ||||||
CUMMINS INC. AND SUBSIDIARIES | |||||||||||||||||
Net income and diluted earnings per share (EPS) attributable to Cummins Inc. excluding restructuring and other charges | |||||||||||||||||
We believe this is a useful measure of our operating performance for the period presented as it illustrates our operating performance without regard to restructuring. 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. excluding restructuring and other charges to Net income attributable to Cummins Inc. for the three and nine months ended September 27, 2009, and the three months ended June 28, 2009. There were no restructuring actions taken in the three or nine months ended September 28, 2008. | |||||||||||||||||
| Three months ended | Nine months ended | ||||||||||||||||
| September 27, 2009 | June 28, 2009 | September 27, 2009 | |||||||||||||||
| In millions | Net Income | Diluted EPS | Net Income | Diluted EPS | Net Income | Diluted EPS | |||||||||||
| Net income attributable to Cummins Inc. excluding restructuring and other charges | $ | 110 | $ | 0.56 | $ | 60 | $ | 0.30 | $ | 221 | $ | 1.12 | |||||
| Less: | |||||||||||||||||
| Restructuring and other charges, net(1) | 15 | 0.08 | 4 | 0.02 | 63 | 0.32 | |||||||||||
| Net income attributable to Cummins Inc. | $ | 95 | $ | 0.48 | $ | 56 | $ | 0.28 | $ | 158 | $ | 0.80 | |||||
| (1) | During the three and nine months ended September 27, 2009, management approved and committed to undertake actions, which resulted in a pretax charge of $22 million and $95 million, respectively. These charges included employee-related liabilities for severance and benefits of approximately $10 million and $76 million, net of changes in estimate, exit costs of approximately zero and $7 million, and pension and other postretirement benefit curtailment charges of $12 million and $12 million, for the three and nine months ended, respectively. During the three months ended June 28, 2009, management approved actions, which resulted in a pretax charge of $7 million, including employee-related liabilities for severance and benefits of approximately $8 million. In the three months ended June 28, 2009, there was also a favorable change in estimate for previously recorded restructuring actions of $1 million. |
SUPPLEMENTAL INFORMATION
In 2009, the Power Generation segment reorganized its reporting structure to include the following businesses: Commercial Products, Alternators, Commercial Projects, Power Electronics and Consumer. Sales by quarter for our Power Generation segment by business for the years 2008 and 2007 were as follows:
| 2008 | Three months ended | Year ended | |||||||||||||
| In millions | March 30, 2008 | June 29, 2008 | September 28, 2008 | December 31, 2008 | December 31, 2008 | ||||||||||
| Commercial Products | $ | 444 | $ | 555 | $ | 559 | $ | 558 | $ | 2,116 | |||||
| Alternator | 156 | 178 | 174 | 178 | 686 | ||||||||||
| Commercial Projects | 86 | 111 | 63 | 68 | 328 | ||||||||||
| Power Electronics | 27 | 31 | 35 | 39 | 132 | ||||||||||
| Consumer | 74 | 63 | 57 | 44 | 238 | ||||||||||
| Total sales | $ | 787 | $ | 938 | $ | 888 | $ | 887 | $ | 3,500 | |||||
| 2007 | Three months ended | Year ended | |||||||||||||
| In millions | April 1, 2007 | July 1, 2007 | September 30, 2007 | December 31, 2007 | December 31, 2007 | ||||||||||
| Commercial Products | $ | 383 | $ | 448 | $ | 449 | $ | 481 | $ | 1,761 | |||||
| Alternator | 132 | 156 | 163 | 172 | 623 | ||||||||||
| Commercial Projects | 45 | 44 | 49 | 81 | 219 | ||||||||||
| Power Electronics | 26 | 26 | 28 | 28 | 108 | ||||||||||
| Consumer | 89 | 95 | 87 | 78 | 349 | ||||||||||
| Total sales | $ | 675 | $ | 769 | $ | 776 | $ | 840 | $ | 3,060 | |||||
| Sales | |||||||||||||||||
| $Millions | Q1 | Q2 | Q3 | Q4 | YTD | ||||||||||||
| 2009 | |||||||||||||||||
| Engine Business | |||||||||||||||||
| Heavy-Duty Truck | 394 | 395 | 493 | 1,282 | |||||||||||||
| Medium Duty Truck+Bus | 229 | 240 | 294 | 763 | |||||||||||||
| Light Duty Auto+RV | 156 | 94 | 120 | 370 | |||||||||||||
| Industrial | 467 | 440 | 407 | 1,314 | |||||||||||||
| Stationary Power | 246 | 137 | 125 | 508 | |||||||||||||
| TOTAL ENGINE BUSINESS | 1,492 | 1,306 | 1,439 | 4,237 | |||||||||||||
| Power Generation | 657 | 610 | 549 | 1,816 | |||||||||||||
| Components | 530 | 502 | 591 | 1,623 | |||||||||||||
| Distributors | 413 | 463 | 422 | 1,298 | |||||||||||||
| Eliminations | (653 | ) | (450 | ) | (471 | ) | (1,574 | ) | |||||||||
| TOTAL | 2,439 | 2,431 | 2,530 | 7,400 | |||||||||||||
| 2008 | |||||||||||||||||
| Engine Business | |||||||||||||||||
| Heavy-Duty Truck | 536 | 672 | 630 | 470 | 2,308 | ||||||||||||
| Medium Duty Truck+Bus | 397 | 422 | 406 | 325 | 1,550 | ||||||||||||
| Light Duty Auto+RV | 275 | 205 | 170 | 154 | 804 | ||||||||||||
| Industrial | 733 | 804 | 788 | 704 | 3,029 | ||||||||||||
| Stationary Power | 268 | 283 | 285 | 283 | 1,119 | ||||||||||||
| TOTAL ENGINE BUSINESS | 2,209 | 2,386 | 2,279 | 1,936 | 8,810 | ||||||||||||
| Power Generation | 787 | 938 | 888 | 887 | 3,500 | ||||||||||||
| Components | 820 | 855 | 801 | 676 | 3,152 | ||||||||||||
| Distributors | 445 | 581 | 581 | 557 | 2,164 | ||||||||||||
| Eliminations | (787 | ) | (873 | ) | (856 | ) | (768 | ) | (3,284 | ) | |||||||
| TOTAL | 3,474 | 3,887 | 3,693 | 3,288 | 14,342 | ||||||||||||
| Engine Shipments | |||||||||||||||||
| Units | Q1 | Q2 | Q3 | Q4 | YTD | ||||||||||||
| 2009 | |||||||||||||||||
| Midrange | 60,600 | 49,200 | 58,800 | 168,600 | |||||||||||||
| Heavy-duty | 16,600 | 16,400 | 20,600 | 53,600 | |||||||||||||
| High Horsepower | 3,900 | 3,200 | 2,600 | 9,700 | |||||||||||||
| TOTAL | 81,100 | 68,800 | 82,000 | 231,900 | |||||||||||||
| 2008 | |||||||||||||||||
| Midrange | 114,200 | 114,800 | 102,400 | 86,900 | 418,300 | ||||||||||||
| Heavy-duty | 24,700 | 31,700 | 29,400 | 22,500 | 108,300 | ||||||||||||
| High Horsepower | 4,600 | 5,500 | 5,300 | 5,200 | 20,600 | ||||||||||||
| TOTAL | 143,500 | 152,000 | 137,100 | 114,600 | 547,200 | ||||||||||||
Contacts:
Mark Land, 317-610-2456
Executive Director -
Corporate Communications
mark.d.land@cummins.com
