8-K 1 cmiq220148-k.htm 8-K CMI Q2 2014 8-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549


FORM 8-K
 
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report:  July 28, 2014
 
  CUMMINS INC.
(Exact name of registrant as specified in its charter)
Indiana
(State or other Jurisdiction of
Incorporation)
1-4949
 (Commission File Number)
35-0257090
 (I.R.S. Employer Identification No.)

500 Jackson Street
P. O. Box 3005
Columbus, IN  47202-3005
(Principal Executive Office)  (Zip Code)

Registrant's telephone number, including area code:  (812) 377-5000
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
 
[ ]
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
[ ]
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
[ ]
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
[ ]
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
  
 



Item 2.02. Results of Operations and Financial Condition.
 
On July 28, 2014, Cummins Inc. (“Cummins,” “the Company,” “the registrant,” “we,” “our,” or “us”) issued the attached press release reporting its financial results for the second quarter of 2014, which is furnished herewith as Exhibit 99. The information furnished pursuant to this Item 2.02, including Exhibit 99, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities under that Section and shall not be deemed to be incorporated by reference into any filing of the Company under the Securities Act of 1933 or the Exchange Act.


 Item 9.01. Financial Statements and Exhibits.
 
(d)
The following exhibit is furnished pursuant to Item 2.02 herewith: 
99-Press Release dated July 28, 2014


SIGNATURE

 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
Date: July 28, 2014
 
CUMMINS INC.
 /s/ Marsha L. Hunt
Marsha L. Hunt
Vice President - Corporate Controller
(Principal Accounting Officer)

 


CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) (a)



 
 
Three months ended
In millions, except per share amounts
 
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 the Condensed 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



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


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