Cummins Reports Third Quarter Results, Confirms Full Year Guidance

Cummins Inc. (NYSE: CMI) today reported results for the third quarter of 2012.

Third quarter revenue of $4.1 billion decreased 11 percent from the same quarter in 2011. Revenues in North America grew 2 percent while revenues from international markets declined 21 percent.

Earnings before interest and taxes (EBIT) were $496 million or 12.0 percent of sales compared to $640 million or 13.8 percent of sales in the third quarter of 2011.

Net income attributable to Cummins in the third quarter of 2012 was $352 million ($1.86 per diluted share) compared to $452 million in the same period a year ago ($2.35 per diluted share).

“Demand has dropped sharply over the last three months, reflecting a high degree of uncertainty among customers in most geographic markets,” said Tom Linebarger, Chairman and Chief Executive Officer. “We have been responding to the conditions by delaying or cancelling projects, flexing production at some of our manufacturing plants, reducing discretionary expenses, and reducing our workforce by 1000 to 1500 people by the end of this year. We are continuing to fund projects that are important for future growth and meeting commitments to customers. We are working to respond to the conditions now to ensure the long term strength of the company and to best serve the many stakeholders who rely on Cummins long term success.”

Based on the current forecast, Cummins expects full year revenues to be $17 billion, with EBIT in the range of 13.5 percent of sales.

Other recent highlights:

• Fitch Rating Services raised its Long-term Issuer Default Rating and long-term debt ratings for Cummins to “A”;
• Cummins became the first engine manufacturer to receive certification for the EPA 2013 regulations and the new Greenhouse Gas rules that come into effect in the U.S. in 2014 with our ISX15 engine;
• Cummins Power Generation’s stationary diesel generator set received EPA Tier 4 interim certification for the North American market 3 years ahead of deadline; and
• Newsweek’s 2012 Green Rankings of businesses ranked Cummins #64 among the 500 largest public companies in the United States, which is #1 among industrial companies;

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

Engine Segment

• Sales – $2.5 billion, down 14 percent
• Segment EBIT – $239 million, or 9.5 percent of sales, compared to $349 million or 11.8 percent of sales
• Lower demand in North American heavy duty truck, medium duty truck, oil and gas and mining markets, lower demand for trucks in Brazil and in the construction market in China offset stronger demand for light duty truck and construction engines in North America.

Components Segment

• Sales - $938 million, down 8 percent
• Segment EBIT - $89 million, or 9.5 percent of sales, compared to $113 million or 11.1 percent of sales
• Lower demand in on-highway markets in North America, Europe and China offset higher product content in Brazil. The net impact of acquisitions and divestitures slightly increased revenues

Power Generation Segment

• Sales – $814 million, down 7 percent
• Segment EBIT – $73 million, or 9.0 percent of sales, compared to $92 million or 10.5 percent of sales
• Higher revenues in North America offset by lower demand in Europe, China, the Middle East and Latin America

Distribution Segment

• Sales – $801 million, up 2 percent, down 7 percent excluding acquisitions
• Segment EBIT – $99 million, or 12.4 percent of sales, compared to $104 million or 13.3 percent of sales
• Lower sales in Africa, Europe and Asia Pacific offsetting growth in North America, China and 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 employed approximately 44,000 people worldwide at the end of 2011 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

EBIT is a non-GAAP measure used in this release, and is 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 11 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
			September 30,			July 1,			September 25,
In millions, except per share amounts			2012			2012			2011
NET SALES			$	4,118		$	4,452		$	4,626
	Cost of sales			3,076			3,242			3,438
GROSS MARGIN				1,042			1,210			1,188
OPERATING EXPENSES AND INCOME
	Selling, general and administrative expenses			456			487			489
	Research, development and engineering expenses			186			187			164
	Equity, royalty and interest income from investees (Note 1)			94			104			102
	Gain on sale of businesses			-			6			-
	Other operating income (expense), net			(1)			2			2
OPERATING INCOME				493			648			639
	Interest income			5			7			9
	Interest expense			9			8			11
	Other income (expense), net			(2)			14			(8)
INCOME BEFORE INCOME TAXES				487			661			629
	Income tax expense (Note 2)			117			166			157
CONSOLIDATED NET INCOME				370			495			472
	Less: Net income attributable to noncontrolling interests			18			26			20
NET INCOME ATTRIBUTABLE TO CUMMINS INC.			$	352		$	469		$	452
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
	Basic		$	1.87		$	2.47		$	2.35
	Diluted		$	1.86		$	2.47		$	2.35
WEIGHTED AVERAGE SHARES OUTSTANDING
	Basic			188.6			189.8			192.1
	Diluted			189.0			190.1			192.7
CASH DIVIDENDS DECLARED PER COMMON SHARE			$	0.50		$	0.40		$	0.40

(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)
			Nine months ended
In millions, except per share amounts			September 30, 2012			September 25, 2011
NET SALES			$	13,042		$	13,127
	Cost of sales			9,592			9,779
GROSS MARGIN				3,450			3,348
OPERATING EXPENSES AND INCOME
	Selling, general and administrative expenses			1,418			1,341
	Research, development and engineering expenses			554			450
	Equity, royalty and interest income from investees (Note 1)			302			315
	Gain on sale of businesses			6			68
	Other operating income (expense), net			3			(4)
OPERATING INCOME				1,789			1,936
	Interest income			20			25
	Interest expense			25			34
	Other income (expense), net			14			(14)
INCOME BEFORE INCOME TAXES				1,798			1,913
	Income tax expense (Note 2)			458			539
CONSOLIDATED NET INCOME				1,340			1,374
	Less: Net income attributable to noncontrolling interests			64			74
NET INCOME ATTRIBUTABLE TO CUMMINS INC.			$	1,276		$	1,300
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
	Basic		$	6.73		$	6.71
	Diluted		$	6.72		$	6.69
WEIGHTED AVERAGE SHARES OUTSTANDING
	Basic			189.6			193.8
	Diluted			190.0			194.4
CASH DIVIDENDS DECLARED PER COMMON SHARE			$	1.30		$	0.925

(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)
							September 30,			December 31,
In millions, except par value							2012			2011
ASSETS
Current assets
	Cash and cash equivalents						$	1,033		$	1,484
	Marketable securities							239			277
		Total cash, cash equivalents and marketable securities						1,272			1,761
	Accounts and notes receivable, net							2,503			2,526
	Inventories							2,570			2,141
	Prepaid expenses and other current assets							770			663
			Total current assets					7,115			7,091
Long-term assets
	Property, plant and equipment							5,691			5,245
		Accumulated depreciation						(3,134)			(2,957)
		Property, plant and equipment, net						2,557			2,288
	Investments and advances related to equity method investees							962			838
	Goodwill							443			339
	Other intangible assets, net							365			227
	Other assets							972			885
				Total assets			$	12,414		$	11,668
LIABILITIES
Current liabilities
	Loans payable						$	54		$	28
	Accounts payable (principally trade)							1,460			1,546
	Current portion of accrued product warranty							406			422
	Accrued compensation, benefits and retirement costs							388			511
	Deferred revenue							208			208
	Taxes payable (including taxes on income)							172			282
	Other accrued expenses							621			660
			Total current liabilities					3,309			3,657
Long-term liabilities
	Long-term debt							670			658
	Postretirement benefits other than pensions							417			432
	Other liabilities and deferred revenue							1,184			1,090
				Total liabilities				5,580			5,837
EQUITY
Cummins Inc. shareholders’ equity
	Common stock, $2.50 par value, 500 shares authorized, 222.4 and 222.2 shares issued							2,046			2,001
	Retained earnings							7,068			6,038
	Treasury stock, at cost, 32.3 and 30.2 shares							(1,809)			(1,587)
	Common stock held by employee benefits trust, at cost, 1.6 and 1.8 shares							(19)			(22)
	Accumulated other comprehensive loss
		Defined benefit postretirement plans						(694)			(724)
		Other						(114)			(214)
		Total accumulated other comprehensive loss						(808)			(938)
			Total Cummins Inc. shareholders’ equity					6,478			5,492
	Noncontrolling interests							356			339
				Total equity				6,834			5,831
					Total liabilities and equity		$	12,414		$	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)
				Nine months ended
				September 30,			September 25,
In millions				2012			2011
CASH FLOWS FROM OPERATING ACTIVITIES
	Consolidated net income			$	1,340		$	1,374
	Adjustments to reconcile consolidated net income to net cash provided by operating activities
		Depreciation and amortization			262			243
		Gain on sale of businesses			(6)			(68)
		Gain on fair value adjustment for consolidated investee			(7)			-
		Deferred income taxes			91			148
		Equity in income of investees, net of dividends			(51)			7
		Pension contributions in excess of expense			(74)			(71)
		Other post-retirement benefits payments in excess of expense			(16)			(10)
		Stock-based compensation expense			29			28
		Excess tax benefits on stock-based awards			(12)			(4)
		Translation and hedging activities			16			(14)
	Changes in current assets and liabilities, net of acquisitions and divestitures:
		Accounts and notes receivable			66			(469)
		Inventories			(367)			(367)
		Other current assets			(54)			(5)
		Accounts payable			(145)			317
		Accrued expenses			(398)			173
	Changes in other liabilities and deferred revenue				154			93
	Other, net				(41)			(7)
Net cash provided by operating activities					787			1,368
CASH FLOWS FROM INVESTING ACTIVITIES
	Capital expenditures				(424)			(377)
	Investments in internal use software				(62)			(31)
	Investments in and advances to equity investees				(92)			(104)
	Proceeds from sale of business, net of cash sold				10			111
	Acquisition of businesses, net of cash acquired				(215)			-
	Investments in marketable securities—acquisitions				(433)			(538)
	Investments in marketable securities—liquidations				475			572
	Cash flows from derivatives not designated as hedges				13			4
	Other, net				9			7
Net cash used in investing activities					(719)			(356)
CASH FLOWS FROM FINANCING ACTIVITIES
	Proceeds from borrowings				64			96
	Payments on borrowings and capital lease obligations				(120)			(174)
	Net borrowings under short-term credit agreements				5			(5)
	Distributions to noncontrolling interests				(50)			(50)
	Dividend payments on common stock				(246)			(178)
	Repurchases of common stock				(231)			(546)
	Excess tax benefits on stock-based awards				12			4
	Other, net				16			13
Net cash used in financing activities					(550)			(840)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS					31			(30)
Net increase (decrease) in cash and cash equivalents					(451)			142
Cash and cash equivalents at beginning of year					1,484			1,023
CASH AND CASH EQUIVALENTS AT END OF PERIOD				$	1,033		$	1,165

(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 September 30, 2012
	External sales			$	2,131		$	663		$	526		$	798		$	-		$	4,118
	Intersegment sales			396			275			288			3			(962)				-
		Total sales			2,527			938			814			801			(962)			4,118
	Depreciation and amortization (2)				48			21			12			8			-			89
	Research, development and engineering expenses				115			51			19			1			-			186
	Equity, royalty and interest income from investees				25			7			12			50			-			94
	Interest income				2			1			2			-			-			5
	Segment EBIT				239			89			73			99			(4)			496
	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 September 25, 2011
	External sales			$	2,539		$	704		$	604		$	779		$	-		$	4,626
	Intersegment sales			416			311			270			4			(1,001)				-
		Total sales			2,955			1,015			874			783			(1,001)			4,626
	Depreciation and amortization (2)				46			19			11			6			-			82
	Research, development and engineering expenses				103			46			14			1			-			164
	Equity, royalty and interest income from investees				35			7			16			44			-			102
	Interest income				5			1			2			1			-			9
	Segment EBIT				349			113			92			104			(18)			640
	Nine months ended September 30, 2012
	External sales			$	6,924		$	2,147		$	1,614		$	2,357		$	-		$	13,042
	Intersegment sales			1,303			926			889			13			(3,131)				-
		Total sales			8,227			3,073			2,503			2,370			(3,131)			13,042
	Depreciation and amortization (2)				142			59			34			23			-			258
	Research, development and engineering expenses				341			153			56			4			-			554
	Equity, royalty and interest income from investees				100			23			32			147			-			302
	Interest income				9			3			7			1			-			20
	Segment EBIT				996			348			243			285			(49)			1,823
	Nine months ended September 25, 2011
	External sales			$	7,021		$	2,105		$	1,810		$	2,191		$	-		$	13,127
	Intersegment sales			1,225			866			768			19			(2,878)				-
		Total sales			8,246			2,971			2,578			2,210			(2,878)			13,127
	Depreciation and amortization (2)				135			55			32			17			-			239
	Research, development and engineering expenses				285			126			37			2			-			450
	Equity, royalty and interest income from investees				126			24			37			128			-			315
	Interest income				14			3			6			2			-			25
	Segment EBIT				1,016			338			286			299			8			1,947

(1)		Includes intersegment sales and profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the three months ended September 30, 2012 and September 25, 2011. The three months ended July 1, 2012, and nine months ended September 30, 2012, include a $6 million gain ($4 million after-tax) related to adjustments from our 2011 divestitures. The nine months ended September 25, 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 corresponding periods. There were no other significant unallocated corporate expenses.
(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									Nine months ended
			September 30,			July 1,			September 25,			September 30,			September 25,
In millions			2012			2012			2011			2012			2011
Segment EBIT			$	496		$	669		$	640		$	1,823		$	1,947
Less: Interest expense				9			8			11			25			34
Income before income taxes			$	487		$	661		$	629		$	1,798		$	1,913

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									Nine months ended
				September 30,			July 1,			September 25,			September 30,			September 25,
In millions				2012			2012			2011			2012			2011
Distribution Entities
North American distributors				$	37		$	38		$	35		$	115		$	100
Komatsu Cummins Chile, Ltda.					9			6			6			20			16
All other distributors					-			2			1			3			3
Manufacturing Entities
Chongqing Cummins Engine Company, Ltd.					14			17			20			49			51
Dongfeng Cummins Engine Company, Ltd.					9			17			15			42			64
Shanghai Fleetguard Filter Co., Ltd.					3			4			4			10			12
Beijing Foton Cummins Engine Co., Ltd.					3			2			(2)			3			(5)
Cummins Westport, Inc.					2			4			4			11			8
Valvoline Cummins, Ltd.					2			2			2			6			6
Tata Cummins, Ltd.					-			3			2			7			9
Komatsu manufacturing alliances					(1)			1			-			(1)			1
All other manufacturers					7			(1)			7			7			19
	Cummins share of net income				85			95			94			272			284
Royalty and interest income					9			9			8			30			31
		Equity, royalty and interest income from investees		$	94		$	104		$	102		$	302		$	315

NOTE 2. INCOME TAXES

Our effective tax rate for the year is expected to approximate 26.5 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 nine month periods ended September 30, 2012, were 24.1 percent and 25.5 percent, respectively. These tax rates include a $16 million tax benefit for third quarter discrete tax adjustments, $6 million of which related to a dividend distribution of accumulated foreign income earned in prior years. These discrete tax adjustments also included a discrete tax benefit of $13 million for prior year tax return true-up adjustments and a discrete tax charge of $3 million related to the third quarter enactment of U.K. tax law changes.

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