Cummins Reports Solid Profit and Strong Cash Flow in Second Quarter Despite Continued Global Recession

COLUMBUS, Ind.--Cummins Inc. today reported lower sales and profit in the second quarter 2009 compared to its record performance during the same period in 2008 as the global recession continued to dampen demand around the world. Compared to the first quarter, the Company increased its profit and improved cash flow on essentially flat sales, as a result of its ongoing efforts to reduce costs and align manufacturing capacity to the lower demand.

Sales for the quarter were $2.43 billion, 37 percent lower than $3.89 billion in the second quarter of 2008. Earnings Before Interest and Taxes were $109 million, or 4.5 percent of sales, compared to $469 million, or 12.1 percent of sales, in the second quarter 2008. Net income attributable to Cummins Inc. was $56 million, or $0.28 a share, down from $293 million, or $1.49 a share, a year ago.

The second quarter results include a $7 million charge associated with the cost of job-reduction actions taken at several Company manufacturing facilities during the quarter. Excluding the charge, EBIT was $116 million, or 4.8 percent of sales, and net income attributable to Cummins Inc. was $60 million, or $0.30 a share.

“The economic climate continues to be extremely challenging, and we are managing our business under the assumption that we won’t see any recovery in our markets in 2009,” said Cummins Chairman and Chief Executive Officer Tim Solso. “Still, our aggressive efforts to reduce costs and align manufacturing capacity with demand have allowed us to perform well under the circumstances and to position ourselves to emerge from the downturn an even stronger company.”

The decline in profitability was primarily due to the sharply lower volumes. The Engine and Components segments continue to see the most severe reductions in demand, while the pace of the sales decline in the Power Generation segment increased rapidly in the quarter. Profitability in all three segments was significantly affected by the lower volumes.

Despite significant weakness in almost all end-markets and geographic regions, the Company improved its profitability from the first quarter, which – along with a significant reduction in inventory - contributed to the positive cash flow of $181 million in the quarter.

The Company continued to make capital expenditures on the most critical projects, especially those associated with the launch of new emission-compliant products in 2010 and with fuel economy improvements.

“Cash management remains a top priority for the Company this year,” said Pat Ward, Chief Financial Officer. “And, despite the challenging economic conditions, the Company generated significant positive cash flow and did not need to use any of its $1.1 billion credit facility.”

At the end of the second quarter the Company had $534 million in available cash and cash equivalents, compared to $353 million at the end of the first quarter and $426 million at the beginning of 2009.

Based on the second quarter results and Company forecasts for the remainder of the year, Cummins today reaffirmed its sales and profit guidance for 2009. The Company still expects 2009 sales to be slightly more than 30 percent lower than 2008 and anticipates EBIT of 5 percent of sales for the year, excluding the restructuring charges.

Second quarter details (all comparisons are to same period in 2008)

Engine Segment

• Sales - $1.31 billion, down 45 percent
• Segment EBIT - $4 million loss (negative 0.3 percent of sales), compared to a $221 million profit (9.3 percent of sales)
• Heavy-duty sales down 41 percent; medium-duty down 43 percent; light-duty/RV down 54 percent; industrial down 45 percent
• Sales declined sharply in nearly every geographic market due to the global recession

Power Generation

• Sales - $610 million, down 35 percent
• Segment EBIT - $41 million (6.7 percent of sales), down 64 percent from $115 million (12.3 percent of sales)
• Commercial product sales down 35 percent; commercial projects down 59 percent; Consumer products down 48 percent; Alternators down 24 percent
• Commercial markets most affected by economic slowdown in Europe, Middle East and Latin America; Consumer decline led by continued weakness in the North American marine and RV markets

Components

• Sales - $502 million, down 41 percent
• Segment EBIT - $10 million loss (negative 2.0 percent of sales), compared to a $77 million profit (9.0 percent of sales)
• Turbochargers down 50 percent; Filtration down 37 percent; Emission Solutions down 22 percent; Fuel Systems down 54 percent
• Sales and profit decline driven primarily by large volume drop from OEM customers in North America and Europe

Distribution

• Sales - $463 million, down 20 percent
• Segment EBIT - $55 million (11.9 percent of sales), down 19 percent from $68 million (11.7 percent of sales)
• Unfavorable foreign currency movements had a significant impact on sales – 9 percentage points
• Improved Segment EBIT margin from 7 percent increase in joint venture earnings

Joint Ventures

• Total income - $57 million, down 17 percent from second quarter 2008, but up $24 million (73 percent) from the first quarter 2009
• Engine JV income down $15 million (47 percent) primarily as a result of large demand declines in on-highway markets in China
• All other segment JVs reported flat or modestly higher profits compared to second quarter 2008

Presentation of Non-GAAP Financial Information

EBIT and Net income and diluted earnings per share (EPS) attributable to Cummins Inc. excluding restructuring charges are non-GAAP measure used in this release. Each 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 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.

About Cummins

Cummins Inc., a global power leader, is a corporation of complementary business units that design, manufacture, distribute and service engines and related technologies, including fuel systems, controls, air handling, filtration, emission solutions and electrical power generation systems. Headquartered in Columbus, Indiana, (USA) Cummins serves customers in approximately 190 countries and territories through a network of more than 500 company-owned and independent distributor locations and approximately 5,200 dealer locations. Cummins reported net income of $755 million on sales of $14.3 billion in 2008. 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 the company’s expectations, hopes, beliefs and intentions on strategies regarding the future. It is important to note that the company’s 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, general economic, business and financing conditions, labor relations, governmental action, competitor pricing activity, expense volatility and other risks detailed from time to time in Cummins Securities and Exchange Commission filings.

CUMMINS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (a)
		Three months ended
		June 28,			March 29,			June 29,
In millions (except per share amounts)		2009			2009			2008
NET SALES		$	2,431		$	2,439		$	3,887
Cost of sales		1,983			1,994			3,008
GROSS MARGIN		448			445			879
OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses		287			300			370
Research, development and engineering expenses		79			85			104
Equity, royalty and interest income from investees		57			33			69
Restructuring charges		7			66			―
Other operating (expense) income, net		(11		)	2			(6		)
OPERATING INCOME		121			29			468
Interest income		1			2			4
Interest expense		10			7			12
Other (expense) income, net		(13		)	(3		)	(3		)
INCOME BEFORE INCOME TAXES		99			21			457
Income tax expense		29			7			147
NET INCOME		70			14			310
Less: net income attributable to noncontrolling interests		14			7			17
NET INCOME ATTRIBUTABLE TO CUMMINS INC.		$	56		$	7		$	293
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
Basic		$	0.28		$	0.04		$	1.50
Diluted		$	0.28		$	0.04		$	1.49
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic			197.1			196.8			195.2
Diluted			197.4			197.0			196.6
CASH DIVIDENDS DECLARED PER COMMON SHARE		$	0.175		$	0.175		$	0.125

(a)

Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America (GAAP).

CUMMINS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (a)
		Six months ended
		June 28,			June 29,
In millions (except per share amounts)		2009			2008
NET SALES		$	4,870		$	7,361
Cost of sales		3,977			5,775
GROSS MARGIN		893			1,586
OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses		587			721
Research, development and engineering expenses		164			207
Equity, royalty and interest income from investees		90			136
Restructuring charges		73			―
Other operating (expense) income, net		(9		)	(7		)
OPERATING INCOME		150			787
Interest income		3			10
Interest expense		17			23
Other (expense) income, net		(16		)	(13		)
INCOME BEFORE INCOME TAXES		120			761
Income tax expense		36			249
NET INCOME		84			512
Less: net income attributable to noncontrolling interests		21			29
NET INCOME ATTRIBUTABLE TO CUMMINS INC.		$	63		$	483
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
Basic		$	0.32		$	2.47
Diluted		$	0.32		$	2.46
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic			197.0			195.1
Diluted			197.2			196.5
CASH DIVIDENDS DECLARED PER COMMON SHARE		$	0.35		$	0.25

(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)
		June 28,				December 31,
In millions (except par value)		2009				2008
ASSETS
Current assets
Cash and cash equivalents		$	534			$	426
Marketable securities			17				77
Accounts and notes receivable, net			1,725				1,782
Inventories			1,535				1,783
Deferred income taxes			364				347
Prepaid expenses and other current assets			198				298
Total current assets			4,373				4,713
Long-term assets
Property, plant and equipment			4,681				4,539
Accumulated depreciation			(2,821	)			(2,698	)
Property, plant and equipment, net			1,860				1,841
Investments and advances related to equity method investees			527				588
Goodwill			362				362
Other intangible assets, net			241				223
Deferred income taxes			499				491
Other assets			259				301
Total assets		$	8,121			$	8,519
LIABILITIES
Current liabilities
Current portion of long-term debt and loans payable		$	63			$	69
Accounts payable (principally trade)			773				1,009
Current portion of accrued product warranty			373				434
Accrued compensation, benefits and retirement costs			283				364
Other accrued expenses			622				763
Total current liabilities			2,114				2,639
Long-term liabilities
Long-term debt			617				629
Pensions			561				574
Postretirement benefits other than pensions			442				452
Other liabilities and deferred revenue			792				745
Total liabilities			4,526				5,039
EQUITY
Cummins Inc. shareholders’ equity
Common stock, $2.50 par value, 500 shares authorized, 222.1 and 221.7 shares issued			1,796				1,793
Retained earnings			3,280				3,288
Treasury stock, at cost, 20.3 and 20.4 shares			(714	)			(715	)
Common stock held by employee benefits trust, at cost, 4.8 and 5.1 shares			(58	)			(61	)
Unearned compensation			(1	)			(5	)
Accumulated other comprehensive loss
Defined benefit postretirement plans			(794	)			(798	)
Other			(137	)			(268	)
Total accumulated other comprehensive loss			(931	)			(1,066	)
Total Cummins Inc. shareholders’ equity			3,372				3,234
Noncontrolling interests			223				246
Total equity			3,595				3,480
Total liabilities and equity		$	8,121			$	8,519

(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
		June 28,				June 29,
In millions		2009				2008
CASH FLOWS FROM OPERATING ACTIVITIES
Net income		$	84			$	512
Adjustments to reconcile net income to net cash provided by operating activities:
Restructuring charges, net of cash payments		20				―
Depreciation and amortization		154				158
Deferred income taxes		20				14
Equity in income of investees, net of dividends		60				(62		)
Pension expense, net of pension contributions		(15		)		(3		)
Other post-retirement benefits expense, net of cash payments		(16		)		(5		)
Stock-based compensation expense		12				17
Excess tax deficiencies (benefits) on stock-based awards		2				(12		)
Translation and hedging activities		51				8
Changes in current assets and liabilities, net of acquisitions and dispositions:
Accounts and notes receivable		86				(316		)
Inventories		282				(202		)
Other current assets		22				(16		)
Accounts payable		(253		)		172
Accrued expenses		(242		)		102
Changes in long-term liabilities		73				47
Other, net		(19		)		(8		)
Net cash provided by operating activities		321				406
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures		(139		)		(201		)
Investments in internal use software		(19		)		(36		)
Proceeds from disposals of property, plant and equipment		7				10
Investments in and advances (to) from equity investees		1				(41		)
Acquisition of businesses, net of cash acquired		(2		)		(76		)
Investments in marketable securities—acquisitions		(69		)		(158		)
Investments in marketable securities—liquidations		133				159
Cash flows from derivatives not designated as hedges		(21		)		(18		)
Other, net		―				5
Net cash used in investing activities		(109		)		(356		)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings		10				77
Payments on borrowings and capital lease obligations		(44		)		(101		)
Net borrowings under short-term credit agreements		(5		)		1
Distributions to noncontrolling interests		(10		)		(6		)
Dividend payments on common stock		(71		)		(51		)
Repurchases of common stock		―				(45		)
Excess tax (deficiencies) benefits on stock-based awards		(2		)		12
Other, net		3				2
Net cash used in financing activities		(119		)		(111		)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		15				6
Net increase (decrease) in cash and cash equivalents		108				(55		)
Cash and cash equivalents at beginning of year		426				577
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	534			$	522

(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)
In millions		Engine				Power Generation				Components				Distribution				Non-segment items(1)				Total
Three months ended June 28, 2009
External sales		$	1,133			$	481			$	355			$	462			$	—			$	2,431
Intersegment sales		173				129				147				1				(450		)		―
Total sales		1,306				610				502				463				(450		)		2,431
Depreciation and amortization(2)		45				11				17				4				—				77
Research, development and engineering expense		51				8				20				―				—				79
Equity, royalty and interest income from investees		17				6				4				30				—				57
Restructuring charges		―				―				―				―				7				7
Interest income		―				―				―				1				―				1
Segment EBIT		(4		)		41				(10		)		55				27				109
Three months ended March 29, 2009
External sales		$	1,205			$	477			$	346			$	411			$	—			$	2,439
Intersegment sales		287				180				184				2				(653		)		―
Total sales		1,492				657				530				413				(653		)		2,439
Depreciation and amortization(2)		41				11				18				5				—				75
Research, development and engineering expense		58				8				19				―				—				85
Equity, royalty and interest (loss) income from investees		(3		)		5				1				30				—				33
Restructuring charges		―				―				―				―				66				66
Interest income		1				1				―				―				―				2
Segment EBIT		(16		)		69				1				58				(84		)		28
Three months ended June 29, 2008
External sales		$	2,030			$	692			$	584			$	581			$	—			$	3,887
Intersegment sales		356				246				271				―				(873		)		―
Total sales		2,386				938				855				581				(873		)		3,887
Depreciation and amortization(2)		46				11				18				7				―				82
Research, development and engineering expense		70				10				24				―				―				104
Equity, royalty and interest income from investees		32				6				3				28				—				69
Interest income		2				1				1				―				—				4
Segment EBIT		221				115				77				68				(12		)		469
Six months ended June 28, 2009
External sales		$	2,338			$	958			$	701			$	873			$	―			$	4,870
Intersegment sales		460				309				331				3				(1,103		)		―
Total sales		2,798				1,267				1,032				876				(1,103		)		4,870
Depreciation and amortization(2)		86				22				35				9				―				152
Research, development and engineering expense		109				16				39				―				―				164
Equity, royalty and interest income from investees		14				11				5				60				―				90
Restructuring charges		―				―				―				―				73				73
Interest income		1				1				―				1				―				3
Segment EBIT		(20		)		110				(9		)		113				(57		)		137
Six months ended June 29, 2008
External sales		$	3,915			$	1,273			$	1,151			$	1,022			$	—			$	7,361
Intersegment sales		680				452				524				4				(1,660		)		―
Total sales		4,595				1,725				1,675				1,026				(1,660		)		7,361
Depreciation and amortization(2)		90				22				33				11				―				156
Research, development and engineering expense		140				20				47				―				―				207
Equity, royalty and interest income from investees		65				11				7				53				―				136
Interest income		5				2				2				1				―				10
Segment EBIT		415				193				114				117				(55		)		784
(1) Includes intersegment sales and profit in inventory eliminations and unallocated corporate expenses. For the three and six months ended June 28, 2009, unallocated corporate expenses included restructuring charges of $7 million and $73 million and losses of $9 million and $3 million related to flood damages. For the three months ended March 29, 2009, unallocated corporate expenses include restructuring charges of $66 million and a $6 million gain related to flood damage insurance recoveries. For both the three and six months ended June 29, 2008, unallocated corporate expenses included losses of $6 million related to flood damages.
(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
		June 28,			March 29,			June 29,			June 28,			June 29,
In millions		2009			2009			2008			2009			2008
Segment EBIT		$	109		$	28		$	469		$	137		$	784
Less:
Interest expense		10			7			12			17			23
Income before income taxes		$	99		$	21		$	457		$	120		$	761

FINANCIAL MEASURES THAT SUPPLEMENT GAAP (Unaudited)
Earnings before interest, taxes, noncontrolling interests and restructuring charges
We define EBIT as earnings or loss before interest expense, income tax expense and noncontrolling interests in income of consolidated subsidiaries (EBIT). We use EBIT to assess and measure the performance of our operating segments and also as a component in measuring our variable compensation programs. Below is a reconciliation of EBIT, a non-GAAP financial measure, to consolidated net income attributable to Cummins Inc., for each of the applicable periods:
		Three months ended									Six months ended
		June 28,			March 29,			June 29,			June 28,			June 29,
In millions		2009			2009			2008			2009			2008
Earnings before interest expense, income taxes and restructuring charges		$	116		$	94		$	469		$	210		$	784
Earnings before interest expense, income taxes and restructuring charges as a percentage of net sales		4.8		%	3.9		%	12.1		%	4.3		%	10.7		%
Less:
Restructuring charges		7			66			―			73			―
Earnings before interest and income taxes		$	109		$	28		$	469		$	137		$	784
EBIT as a percentage of net sales		4.5		%	1.1		%	12.1		%	2.8		%	10.7		%
Less:
Interest expense		10			7			12			17			23
Income tax expense		29			7			147			36			249
Net income		70			14			310			84			512
Less:
Net income attributable to noncontrolling interests		14			7			17			21			29
Net income attributable to Cummins Inc.		$	56		$	7		$	293		$	63		$	483
Net income attributable to Cummins Inc. as a percentage of net sales		2.3		%	0.3		%	7.5		%	1.3		%	6.6		%

CUMMINS INC. AND SUBSIDIARIES FINANCIAL MEASURES THAT SUPPLEMENT GAAP (Unaudited)
Net income and diluted earnings per share (EPS) attributable to Cummins Inc. excluding restructuring charges
We believe this is a useful measure of our operating performance for the period presented as it illustrates our operating performance without regard to restructuring. This measure is not in accordance with, or an alternative for, accounting principles generally accepted in the United States of America and may not be consistent with measures used by other companies. It should be considered supplemental data.
	Three months ended						Six months ended
	June 28, 2009						June 28, 2009
In millions	Net Income			Diluted EPS			Net Income			Diluted EPS
Net income attributable to Cummins Inc. excluding restructuring charges	$	60		$	0.30		$	111		$	0.56
Less:
Restructuring charges, net(1)	4			0.02			48			0.24
Net income attributable to Cummins Inc.	$	56		$	0.28		$	63		$	0.32
(1) During the three and six months ended June 28, 2009, management approved and committed to undertake certain restructuring actions, which resulted in a pretax charge of $7 and $73 million, respectively. These charges included employee-related liabilities for severance and benefits of approximately $8 million and $68 million and exit costs of approximately zero and $6 million, respectively.

SUPPLEMENTAL INFORMATION
In 2009, the Power Generation segment reorganized its reporting structure to include the following businesses: Commercial Products, Alternators, Commercial Projects, Power Electronics and Consumer. Sales by quarter for our Power Generation segment by business for the years 2008 and 2007 were as follows:
2008		Three months ended												Year ended
In millions		March 30, 2008			June 29, 2008			September 28, 2008			December 31, 2008			December 31, 2008
Commercial Products		$	444		$	555		$	559		$	558		$	2,116
Alternator		156			178			174			178			686
Commercial Projects		86			111			63			68			328
Power Electronics		27			31			35			39			132
Consumer		74			63			57			44			238
Total sales		$	787		$	938		$	888		$	887		$	3,500

2007		Three months ended												Year ended
In millions		April 1, 2007			July 1, 2007			September 30, 2007			December 31, 2007			December 31, 2007
Commercial Products		$	383		$	448		$	449		$	481		$	1,761
Alternator		132			156			163			172			623
Commercial Projects		45			44			49			81			219
Power Electronics		26			26			28			28			108
Consumer		89			95			87			78			349
Total sales		$	675		$	769		$	776		$	840		$	3,060

Sales
	In millions		Q1		Q2		Q3		Q4		YTD
	2009
	Engine Business
		Heavy-Duty Truck	394		395						789
		Medium Duty Truck+Bus	229		240						469
		Light Duty Auto+RV	156		94						250
		Industrial	467		440						907
		Stationary Power	246		137						383
		TOTAL ENGINE BUSINESS	1,492		1,306						2,798
	Power Generation		657		610						1,267
	Components		530		502						1,032
	Distributors		413		463						876
	Eliminations		(653	)	(450	)					(1,103	)
		TOTAL	2,439		2,431						4,870
	2008
	Engine Business
		Heavy-Duty Truck	536		672		630		470		2,308
		Medium Duty Truck+Bus	397		422		406		325		1,550
		Light Duty Auto+RV	275		205		170		154		804
		Industrial	733		804		788		704		3,029
		Stationary Power	268		283		285		283		1,119
		TOTAL ENGINE BUSINESS	2,209		2,386		2,279		1,936		8,810
	Power Generation		787		938		888		887		3,500
	Components		820		855		801		676		3,152
	Distributors		445		581		581		557		2,164
	Eliminations		(787	)	(873	)	(856	)	(768	)	(3,284	)
		TOTAL	3,474		3,887		3,693		3,288		14,342
Engine Shipments
	Units		Q1		Q2		Q3		Q4		YTD
	2009
		Midrange	60,600		49,200						109,800
		Heavy-duty	16,600		16,400						33,000
		High Horsepower	3,900		3,200						7,100
	TOTAL		81,100		68,800						149,900
	2008
		Midrange	114,200		114,800		102,400		86,900		418,300
		Heavy-duty	24,700		31,700		29,400		22,500		108,300
		High Horsepower	4,600		5,500		5,300		5,200		20,600
	TOTAL		143,500		152,000		137,100		114,600		547,200