Print PageCUMMINS INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17. EARNINGS PER SHARE
We calculate basic earnings per share (EPS) of common stock by dividing net earnings by the weighted-average number of common shares outstanding for the period. The calculation of diluted EPS reflects the potential dilution that occurs if options or securities are exercised or debt is converted into common stock and the effect of the exercise or conversion on EPS. We exclude shares of common stock held in the Employee Benefits Trust (see Note 15) from the calculation of the weighted-average common shares outstanding until those shares are distributed from the Employee Benefits Trust to the RSP. Following is a reconciliation of net earnings and weighted-average common shares outstanding for purposes of calculating basic and diluted earnings per share (all share and per share amounts were adjusted for the impact of a two-for-one stock split on April 9, 2007 and an additional two-for-one stock split on January 2, 2008):
| Years ended December 31, | ||||||||||||
| 2007 | 2006 | 2005 | ||||||||||
| Millions (except shares and per share amounts) |
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| Net earnings for basic EPS | $ | 739.0 | $ | 715.4 | $ | 549.8 | ||||||
| Interest on junior convertible subordinated debentures, net of tax | — | 5.9 | 12.9 | |||||||||
| Net earnings for diluted EPS | $ | 739.0 | $ | 721.3 | $ | 562.7 | ||||||
| Weighted-average common shares outstanding: Basic |
198.4 | 190.5 | 177.0 | |||||||||
| Dilutive effect of stock compensation awards | 1.5 | 1.6 | 2.2 | |||||||||
| Dilutive effect of junior convertible subordinated debentures | — | 11.0 | 25.2 | |||||||||
| Diluted | 199.9 | 203.1 | 204.4 | |||||||||
| Earnings per common share: Basic |
$ | 3.72 | $ | 3.76 | $ | 3.11 | ||||||
| Diluted | 3.70 | 3.55 | 2.75 | |||||||||
The weighted-average diluted common shares outstanding for 2007 excludes the effect of approximately 825 weighted-average shares of common stock options, since such options had an exercise price in excess of the monthly average market value of our common stock during that year. In 2006 and 2005, the monthly average market value of our common stock was greater than the exercise price of all our common stock options and therefore no options were excluded from our calculation of the weighted-average diluted shares outstanding.
The Board of Directors authorized a pair of two-for-one splits of Cummins stock in 2007, which were distributed on April 9, 2007 and January 2, 2008, to shareholders of record as of March 26, 2007 and December 21, 2007, respectively. All share and per share amounts in this Form 10-K have been adjusted to reflect the two-for-one stock splits. During the second quarter of 2007 our shareholders ratified a proposal to increase our common stock authorization to 300 million shares.
The accompanying notes are an integral part of the Consolidated Financial Statements.