Warranty issues dent Cummins bottom line

Cummins said 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.For the full 2009 calendar year, the company’s revised EBIT was $US1.22 billion and net income was $US755 million. The earnings revisions affect the fourth quarter results of the company’s Engine and Component segments.Cummins said 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, our analysis of recent warranty payments indicated that a revision to our initial warranty liability estimate is appropriate,” the company said in a statement to the New York Stock Exchange.Cummins said modifications had reduced the failure rate of the products causing the increased warranty claims, and the increase in the warranty liability reflected the 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 around 20% lower than 2008.

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