COLUMBUS, Ind. — Despite the current global recession, Cummins is taking aggressive actions to ensure that its long-term profitable growth resumes once the economic recovery begins. That’s what Cummins Chairman and Chief Executive Officer Tim Solso told shareholders yesterday at the company’s annual meeting.
Speaking from its Columbus Engine Plant, Solso told shareholders that Cummins is preparing for little or no global economic growth through the end of 2010, but that the company expects to remain profitable and generate positive cash flow throughout the recession.
“We have reacted more quickly and decisively in this recession than in any of the previous five recessions I have experienced in my nearly 40 years at Cummins,” Solso said. “We entered this recession in the best financial shape in our history, and our actions to reduce costs, manage our cash and invest strategically in key future products give us confidence that we will emerge a stronger company.”
Solso briefly recapped the company’s 2008 performance – Cummins’ fifth consecutive year of record sales and profits – and discussed in detail the company’s response to the global recession, which has significantly affected its markets around the world.
Solso reaffirmed that Cummins expects its sales to decrease slightly more than 30 percent this year from 2008. Earnings Before Interest and Taxes are expected to be approximately 5 percent of sales, excluding restructuring charges associated with workforce reductions announced early this year.
Solso said Cummins’ priorities for managing through the recession are to align costs and manufacturing capacity with the real demand for its products; manage cash to ensure positive cash flow; and continue to make key strategic investments in technology, especially investments associated with the company’s 2010 product launch in North America.
Cummins already has taken significant steps in the last several months to lower its cost structure and improve cash flow, including:
• Implementing its “rings of defense” cost reduction strategy at manufacturing locations worldwide to align costs with lower demand.
• Cutting 7,800 jobs since October 2008, including 1,450 salaried employees, 3,600 hourly employees and 2,750 contract and temporary workers.
• Cutting pay 10 percent for corporate officers and board members, and eliminating merit raises across the company for 2009.
• Reducing Selling, Administrative and Research and Development expenses by nearly $120 million from their peak in the third quarter 2008.
• Reducing capital spending by 70 percent in the first quarter 2009, from the previous quarter.
• Reducing inventory significantly since the end of the third quarter 2008.
“We are planning for this recession to be broader, deeper and longer than any we have seen in the past, but we remain confident in the future prospects for the company,” Solso said. “Our technical leadership, global footprint and the long-range trends around energy availability, environmental regulations and global infrastructure development all play to our strengths.”
Solso also recognized former Cummins Vice Chairman Joe Loughrey for his contributions to Cummins. Loughrey retired in March after more than 35 years with the company.
“Joe has made an enormous positive impact on Cummins during his career, especially in the last decade when he was instrumental in the company’s turnaround,” Solso said. “We have been partners for most of my career at Cummins and he will be missed.”
In the business portion of the meeting, Cummins shareholders voted to:
• Elect the eight Cummins directors standing for election to the Board for another year, and elect Cummins President and Chief Operating Officer Tom Linebarger, who joins the Board today;
• Ratify the selection of PriceWaterhouse Coopers LLC as the company’s external auditing firm;
• Amend the 2003 Stock Incentive Plan to increase the number of performance-based stock grants available under the plan;
• Reapprove performance measures used in the company’s 2003 Stock Incentive and cash-based Senior Executive Bonus and Long-Term Performance Plans; and
• Defeat a shareholder proposal calling on the company to take steps to adhere to the conventions of the International Labor Organization.
The Board members elected yesterday were:
• Tim Solso, Chairman and Chief Executive Officer, Cummins Inc. (first elected to the board in 1994)
• Tom Linebarger, President and Chief Operating Officer, Cummins Inc. (newly elected)
• Robert Bernhard, Vice President for Research, University of Notre Dame (2008)
• Robert Darnall, Retired Chairman and CEO, Inland Steel (1989)
• Robert Herdman, Managing Director, Kalorama Partners LLC (2008)
• Alexis M. Herman, Chairman and CEO, New Ventures Inc. (2001)
• William I. Miller, Chairman, Irwin Financial Corp. (1989)
• Georgia R. Nelson, President and CEO, PTI Resources LLC (2004)
• Carl Ware, Retired Executive Vice President Coca-Cola Co. (2004)
