Cummins Reports Strong Second Quarter Profits

Cummins Inc. (NYSE: CMI) today reported strong profits for the second quarter of 2012.

Second quarter revenue of $4.45 billion decreased 4 percent from the same quarter in 2011. Excluding the impact of divestitures and currency movements, revenues were flat year over year. Growth in North America offset weakness in international markets, particularly China and Brazil.

Earnings before interest and taxes (EBIT) was $669 million or 15.0 percent of sales. Excluding gains from divestitures, EBIT was $663 million or 14.9 percent of sales compared to $707 million or 15.2 percent of sales in the second quarter of 2011.

Net income attributable to Cummins in the second quarter of 2012 was $469 million ($2.47 per diluted share) compared to $505 million in the same period a year ago ($2.60 per diluted share). Excluding gains from divestitures, the Company reported earnings of $2.45 per share compared to $2.41 in the second quarter of 2011.

“The Company continued to deliver strong profits despite the weakening global economic conditions,” said Tom Linebarger, Chairman and Chief Executive Officer. “Second quarter gross margins were at record levels as we continue to drive improvements in productivity and quality. Looking forward, as the global economy improves, our growth opportunities remain strong.”

Based on the current forecast, Cummins expects full year revenues to be $18 billion, with EBIT in the range of 14.25 to 14.75 percent of sales.

Other recent highlights:

• Cummins increased its dividend by 25 percent.
• The Company repurchased 1.8 million shares of common stock.
• Cummins Emission Solutions and Cummins Parts business each recently received supplier Quality Achievement awards from PACCAR for 2011 performance.
• The Company was recognized by Chrysler Group LLC as the 2012 Sustainability Supplier of the Year.
• The Company completed the acquisition of the emission control assets of Hilite International.

Second quarter 2012 detail (all comparisons to same period in 2011)

Engine Segment

• Sales – $2.8 billion, down 2 percent
• Segment EBIT – $376 million, or 13.2 percent of sales, compared to $377 million or 13.0 percent of sales
• Improved demand in North American heavy duty truck, medium duty truck and light duty truck and construction markets offset by lower sales to China construction, Brazilian truck and North American oil and gas markets

Components

• Sales - $1.0 billion, flat
• Segment EBIT - $116 million, or 11.2 percent of sales, compared to $120 million or 11.6 percent of sales
• Increased demand in North American on-highway markets and higher product content in Brazil offset by lower demand in Europe and China and the impact of divestitures completed in 2011

Power Generation

• Sales – $909 million, flat
• Segment EBIT – $94 million, or 10.3 percent of sales, compared to $105 million or 11.6 percent of sales
• Higher revenues in North America offsetting lower demand in Europe, China and Latin America

Distribution

• Sales – $794 million, up 1 percent
• Segment EBIT – $92 million, or 11.6 percent of sales, compared to $106 million or 13.5 percent of sales
• Revenue increase driven by strong parts and service growth in several regions offsetting weaker demand in North American oil and gas market and power generation in the Middle East

About Cummins

Cummins Inc., a global power leader, is a corporation of complementary business units that design, manufacture, distribute and service diesel and natural gas engines and related technologies, including fuel systems, controls, air handling, filtration, emission solutions and electrical power generation systems. Headquartered in Columbus, Indiana, (USA) Cummins employs approximately 44,000 people worldwide and serves customers in approximately 190 countries and territories through a network of more than 600 company-owned and independent distributor locations and approximately 6,500 dealer locations. Cummins earned $1.85 billion on sales of $18.0 billion in 2011. Press releases can be found on the Web at www.cummins.com.

Forward-looking disclosure statement

Information provided in this release that is not purely historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our forecasts, guidance, preliminary results, expectations, hopes, beliefs and intentions on strategies regarding the future. These forward looking statements include, without limitation, statements relating to our plans and expectations for our revenues for the second quarter of 2012, as well as the full year. Our actual future results could differ materially from those projected in such forward-looking statements because of a number of factors, including, but not limited to: the adoption and implementation of global emission standards; the price and availability of energy; the pace of infrastructure development; increasing global competition among our customers; general economic, business and financing conditions; governmental action; changes in our customers’ business strategies; competitor pricing activity; expense volatility; labor relations; and other risks detailed from time to time in our Securities and Exchange Commission filings, including particularly in the Risk Factors section of our 2011 Annual Report on Form 10-K. Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are made only as of the date of this press release and we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. More detailed information about factors that may affect our performance may be found in our filings with the Securities and Exchange Commission, which are available at http://www.sec.gov or at http://www.cummins.com in the Investor Relations section of our website.

Presentation of Non-GAAP Financial Information

Net income attributable to Cummins excluding gain on divestitures and EBIT are non-GAAP measures used in this release, and are defined and reconciled to what management believes to be the most comparable GAAP measure in a schedule attached to this release. Cummins presents this information as it believes it is useful to understanding the Company's operating performance, and because EBIT is a measure used internally to assess the performance of the operating units.

Webcast information

Cummins management will host a teleconference to discuss these results today at 10 a.m. EDT. This teleconference will be webcast and available on the Investor Relations section of the Cummins website at www.cummins.com . Participants wishing to view the visuals available with the audio are encouraged to sign-in a few minutes prior to the start of the teleconference.

CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) (a)
			Three months ended
			July 1,				April 1,				June 26,
In millions, except per share amounts			2012				2012				2011
NET SALES			$	4,452			$	4,472			$	4,641
	Cost of sales			3,242				3,274				3,438
GROSS MARGIN				1,210				1,198				1,203
OPERATING EXPENSES AND INCOME
	Selling, general and administrative expenses			487				475				463
	Research, development and engineering expenses			187				181				157
	Equity, royalty and interest income from investees (Note 1)			104				104				117
	Gain on sale of businesses			6				-				68
	Other operating income (expense), net			2				2				-
OPERATING INCOME				648				648				768
	Interest income			7				8				10
	Interest expense			8				8				13
	Other income (expense), net			14				2				(3	)
INCOME BEFORE INCOME TAXES				661				650				762
	Income tax expense (Note 2)			166				175				225
CONSOLIDATED NET INCOME				495				475				537
	Less: Net income attributable to noncontrolling interests			26				20				32
NET INCOME ATTRIBUTABLE TO CUMMINS INC.			$	469			$	455			$	505
EARNINGS PER COMMON SHARE ATTRIBUTABLE
	TO CUMMINS INC.
	Basic		$	2.47			$	2.39			$	2.61
	Diluted		$	2.47			$	2.38			$	2.60
WEIGHTED AVERAGE SHARES OUTSTANDING
	Basic			189.8				190.4				193.8
	Diluted			190.1				190.8				194.4
CASH DIVIDENDS DECLARED PER COMMON SHARE			$	0.40			$	0.40			$	0.2625

(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			July 1, 2012				June 26, 2011
NET SALES			$	8,924			$	8,501
	Cost of sales			6,516				6,341
GROSS MARGIN				2,408				2,160
OPERATING EXPENSES AND INCOME
	Selling, general and administrative expenses			962				852
	Research, development and engineering expenses			368				286
	Equity, royalty and interest income from investees (Note 1)			208				213
	Gain on sale of businesses			6				68
	Other operating income (expense), net			4				(6	)
OPERATING INCOME				1,296				1,297
	Interest income			15				16
	Interest expense			16				23
	Other income (expense), net			16				(6	)
INCOME BEFORE INCOME TAXES				1,311				1,284
	Income tax expense (Note 2)			341				382
CONSOLIDATED NET INCOME				970				902
	Less: Net income attributable to noncontrolling interests			46				54
NET INCOME ATTRIBUTABLE TO CUMMINS INC.			$	924			$	848
EARNINGS PER COMMON SHARE ATTRIBUTABLE
	TO CUMMINS INC.
	Basic		$	4.86			$	4.36
	Diluted		$	4.85			$	4.34
WEIGHTED AVERAGE SHARES OUTSTANDING
	Basic			190.1				194.6
	Diluted			190.5				195.2
CASH DIVIDENDS DECLARED PER COMMON SHARE			$	0.80			$	0.525

(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							July 1, 2012					December 31, 2011
ASSETS
Current assets
	Cash and cash equivalents						$	1,145				$	1,484
	Marketable securities							261					277
		Total cash, cash equivalents and marketable securities						1,406					1,761
	Accounts and notes receivable, net							2,620					2,526
	Inventories							2,581					2,141
	Prepaid expenses and other current assets							639					663
			Total current assets					7,246					7,091
Long-term assets
	Property, plant and equipment							5,475					5,245
		Accumulated depreciation						(3,051	)				(2,957	)
		Property, plant and equipment, net						2,424					2,288
	Investments and advances related to equity method investees							890					838
	Goodwill							345					339
	Other intangible assets, net							268					227
	Other assets							996					885
				Total assets			$	12,169				$	11,668
LIABILITIES
Current liabilities
	Loans payable						$	58				$	28
	Accounts payable (principally trade)							1,634					1,546
	Current portion of accrued product warranty							407					422
	Accrued compensation, benefits and retirement costs							340					511
	Deferred revenue							208					208
	Taxes payable (including taxes on income)							258					282
	Other accrued expenses							665					660
			Total current liabilities					3,570					3,657
Long-term liabilities
	Long-term debt							653					658
	Pensions							118					205
	Postretirement benefits other than pensions							425					432
	Other liabilities and deferred revenue							966					885
				Total liabilities				5,732					5,837
EQUITY
Cummins Inc. shareholders’ equity
	Common stock, $2.50 par value, 500 shares authorized, 222.4 and 222.2 shares issued							2,036					2,001
	Retained earnings							6,810					6,038
	Treasury stock, at cost, 32.0 and 30.2 shares							(1,777	)				(1,587	)
	Common stock held by employee benefits trust, at cost, 1.6 and 1.8 shares							(20	)				(22	)
	Accumulated other comprehensive loss
		Defined benefit postretirement plans						(703	)				(724	)
		Other						(243	)				(214	)
		Total accumulated other comprehensive loss						(946	)				(938	)
			Total Cummins Inc. shareholders’ equity					6,103					5,492
	Noncontrolling interests							334					339
				Total equity				6,437					5,831
					Total liabilities and equity		$	12,169				$	11,668

(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				July 1, 2012					June 26, 2011
CASH FLOWS FROM OPERATING ACTIVITIES
	Consolidated net income			$	970				$	902
	Adjustments to reconcile consolidated net income to net cash provided by operating activities
		Depreciation and amortization			171					159
		Gain on sale of businesses			(6	)				(68	)
		Deferred income taxes			(39	)				87
		Equity in income of investees, net of dividends			(25	)				2
		Pension contributions in excess of expense			(52	)				(47	)
		Other post-retirement benefits payments in excess of expense			(7	)				(10	)
		Stock-based compensation expense			21					18
		Excess tax benefits on stock-based awards			(11	)				(4	)
		Translation and hedging activities			7					(6	)
	Changes in current assets and liabilities, net of acquisitions and divestitures:
		Accounts and notes receivable			(116	)				(513	)
		Inventories			(439	)				(290	)
		Other current assets			(47	)				11
		Accounts payable			61					307
		Accrued expenses			(173	)				169
	Changes in other liabilities and deferred revenue				103					58
	Other, net				(21	)				(31	)
Net cash provided by operating activities					397					744
CASH FLOWS FROM INVESTING ACTIVITIES
	Capital expenditures				(266	)				(215	)
	Investments in internal use software				(40	)				(22	)
	Investments in and advances to equity investees				(40	)				(20	)
	Proceeds from sale of business, net of cash sold				-					111
	Acquisition of businesses, net of cash acquired				(12	)				-
	Investments in marketable securities—acquisitions				(276	)				(361	)
	Investments in marketable securities—liquidations				280					343
	Cash flows from derivatives not designated as hedges				1					6
	Other, net				3					7
Net cash used in investing activities					(350	)				(151	)
CASH FLOWS FROM FINANCING ACTIVITIES
	Proceeds from borrowings				46					60
	Payments on borrowings and capital lease obligations				(75	)				(94	)
	Net borrowings under short-term credit agreements				3					11
	Distributions to noncontrolling interests				(32	)				(26	)
	Dividend payments on common stock				(152	)				(102	)
	Repurchases of common stock				(196	)				(373	)
	Excess tax benefits on stock-based awards				11					4
	Other, net				9					7
Net cash used in financing activities					(386	)				(513	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS					-					8
Net increase (decrease) in cash and cash equivalents					(339	)				88
Cash and cash equivalents at beginning of year					1,484					1,023
CASH AND CASH EQUIVALENTS AT END OF PERIOD				$	1,145				$	1,111

(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)
			Engine			Components			Power Generation			Distribution			Non-segment Items (1)				Total
In millions
Three months ended July 1, 2012
External sales			$	2,381		$	710		$	572		$	789		$	-			$	4,452
Intersegment sales			460			326			337			5			(1,128		)			-
	Total sales			2,841			1,036			909			794			(1,128	)			4,452
Depreciation and amortization (2)				47			19			11			8			-				85
Research, development and engineering expenses				115			51			19			2			-				187
Equity, royalty and interest income from investees				37			8			10			49			-				104
Interest income				3			1			3			-			-				7
Segment EBIT				376			116			94			92			(9	)			669
Three months ended April 1, 2012
External sales			$	2,412		$	774		$	516		$	770		$	-			$	4,472
Intersegment sales			447				325			264			5			(1,041	)			-
	Total sales			2,859			1,099			780			775			(1,041	)			4,472
Depreciation and amortization (2)				47			19			11			7			-				84
Research, development and engineering expenses				111			51			18			1			-				181
Equity, royalty and interest income from investees				38			8			10			48			-				104
Interest income				4			1			2			1			-				8
Segment EBIT				381			143			76			94			(36	)			658
Three months ended June 26, 2011
External sales			$	2,476		$	741		$	649		$	775		$	-			$	4,641
Intersegment sales			424			291			260			10			(985		)			-
	Total sales			2,900			1,032			909			785			(985	)			4,641
Depreciation and amortization (2)				44			18			11			5			-				78
Research, development and engineering expenses				102			43			12			-			-				157
Equity, royalty and interest income from investees				49			9			13			46			-				117
Interest income				6			1			3			-			-				10
Segment EBIT				377			120			105			106			67				775
Six months ended July 1, 2012
External sales			$	4,793		$	1,484		$	1,088		$	1,559		$	-			$	8,924
Intersegment sales			907			651			601			10			(2,169		)			-
	Total sales			5,700			2,135			1,689			1,569			(2,169	)			8,924
Depreciation and amortization (2)				94			38			22			15			-				169
Research, development and engineering expenses				226			102			37			3			-				368
Equity, royalty and interest income from investees				75			16			20			97			-				208
Interest income				7			2			5			1			-				15
Segment EBIT				757			259			170			186			(45	)			1,327
Six months ended June 26, 2011
External sales			$	4,482		$	1,401		$	1,206		$	1,412		$	-			$	8,501
Intersegment sales			809			555			498			15			(1,877		)			-
	Total sales			5,291			1,956			1,704			1,427			(1,877	)			8,501
Depreciation and amortization (2)				89			36			21			11			-				157
Research, development and engineering expenses				182			80			23			1			-				286
Equity, royalty and interest income from investees				91			17			21			84			-				213
Interest income				9			2			4			1			-				16
Segment EBIT				667			225			194			195			26				1,307

(1)		Includes intersegment sales and profit in inventory eliminations and unallocated corporate expenses. The three and six months ended July 1, 2012, include a $6 million gain ($4 million after-tax) related to adjustments from our 2011 divestitures. There were no significant unallocated corporate expenses for the three months ended April 1, 2012. The three and six months ended June 26, 2011, include a $68 million gain ($37 million after-tax) related to the sale of certain assets and liabilities of our exhaust business from the Components segment. The gains have been excluded from segment results as they were not considered in our evaluation of operating results for the three and six months ended July 1, 2012 and June 26, 2011. There were no other significant unallocated corporate expenses for the three and six months ended July 1, 2012 and June 26, 2011.
(2)		Depreciation and amortization as shown on a segment basis excludes the amortization of debt discount that is included in the Condensed Consolidated Statements of Income as “Interest expense.”

CUMMINS INC. AND SUBSIDIARIES
RECONCILIATION OF SEGMENT INFORMATION
(Unaudited)
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
			July 1,			April 1,			June 26,				July 1,			June 26,
In millions			2012			2012			2011				2012			2011
Segment EBIT			$	669		$	658		$	775			$	1,327		$	1,307
Less
	Interest expense			8			8			13				16			23
Income before income taxes			$	661		$	650		$	762			$	1,311		$	1,284

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 interim reporting periods was as follows:
				Three months ended													Six months ended
				July 1,				April 1,				June 26,					July 1,			June 26,
In millions				2012				2012				2011					2012			2011
Distribution Entities
North American distributors				$	38			$	40			$	35				$	78		$	65
Komatsu Cummins Chile, Ltda.					6				5				6					11			10
All other distributors					2				1				1					3			2
Manufacturing Entities
Chongqing Cummins Engine Company, Ltd.					17				18				19					35			31
Dongfeng Cummins Engine Company, Ltd.					17				16				26					33			49
Cummins Westport, Inc.					4				5				3					9			4
Shanghai Fleetguard Filter Co., Ltd.					4				3				4					7			8
Tata Cummins, Ltd.					3				4				3					7			7
Beijing Foton Cummins Engine Co., Ltd.					2				(2	)			(1	)				-			(3	)
Valvoline Cummins, Ltd.					2				2				2					4			4
Komatsu manufacturing alliances					1				(1	)			(1	)				-			1
All other manufacturers					(1	)			1				6					-			12
	Cummins share of net income			$	95			$	92			$	103				$	187		$	190
Royalty and interest income					9				12				14					21			23
		Equity, royalty and interest income from investees		$	104			$	104			$	117				$	208		$	213

NOTE 2. INCOME TAXES

Our effective tax rate for the year is expected to approximate 26 percent, absent any discrete period activity. Our tax rate is generally less than the 35 percent U.S. income tax rate primarily due to lower tax rates on foreign income. The tax rates for the three and six month periods ended July 1, 2012, were 25.1 percent and 26.0 percent, respectively.

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