Cummins Revises 2008 Operating Results to Reflect Increased Warranty Liability - aftermarketNews

Cummins Revises 2008 Operating Results to Reflect Increased Warranty Liability

Company reaffirms sales and earnings guidance for 2009.

COLUMBUS, Ind. — Cummins Inc. said this week it has revised its fourth quarter and full year 2008 operating results to reflect a higher warranty liability than previously reported.

As a result of the change, the company’s Earnings Before Interest and Taxes (EBIT) for the fourth quarter decreased by $73 million, while net income was reduced by $46 million, or 23 cents a share. The change in earnings reflects an $82 million increase in warranty liability, offset by a $9 million reduction in variable and incentive compensation as a result of this change.

The company’s revised fourth quarter EBIT was $56 million and net income was $43 million, or 22 cents a share. For the full year, the company’s revised EBIT was $1.22 billion and net income was $755 million, or $3.84 a share. The earnings revisions affect the fourth quarter results of the company’s Engine and Component segments.

The warranty liability was revised to reflect a change in estimate in the warranty costs primarily for mid-range engine products launched in 2007. In late February, analysis of Cummins’ recent warranty payments indicated that a revision to its initial warranty liability estimate was appropriate.

Cummins said it is aggressively addressing the product issues and has made modifications that have reduced the failure rate of these products. The increase in the warranty liability reflects higher than expected costs associated with these repairs.
The company also reaffirmed the financial guidance it gave earlier this month, with sales in 2009 expected to be approximately 20 percent lower than 2008. EBIT margin is expected to be 6.5 percent of sales, excluding restructuring costs associated with job actions announced in the first quarter of 2009.

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