Cummins Reports Strong First Quarter Profits; Increases Financial Guidance for 2010

COLUMBUS, Ind.--Cummins Inc. today reported higher sales and significantly improved profits in the first quarter compared to the same period in 2009. The gains came on the strength of the Companyâ€™s performance in key international markets, and cost reductions and productivity gains in manufacturing facilities across the Company.

“We remain focused on managing the business conservatively so that we can earn a solid profit for the duration of the global downturn and position the Company for strong profitable growth in all markets as the economy recovers”

Sales of $2.48 billion rose 2 percent from $2.44 billion in the first quarter in 2009, as growth in the Companyâ€™s Components and Distribution segments slightly more than offset declines in the Engine and Power Generation segments.

Net income attributable to Cummins Inc. increased to $149 million, or $0.75 a share, from $7 million, or $0.04 a share, during the same period in 2009. Earnings Before Interest and Taxes (EBIT) rose to $266 million, or 10.7 percent of sales, compared to the $94 million, or 3.9 percent of sales a year ago, which excluded restructuring charges.

Compared to the fourth quarter of 2009, sales were down 27 percent due to lower demand in North America, but EBIT remained strong at 10.7 percent of sales, compared to the 11.4 percent reported last quarter, which excluded restructuring charges.

Three of the Companyâ€™s four business segments reported improved profits compared to the first quarter of 2009, with only the later-cycle Power Generation business reporting a decline.

The Companyâ€™s operational improvements were most evident in the Engine and Components segments, where gross margins and EBIT improved significantly, while the Distribution segment continued its strong performance.

â€œOur strength in large developing markets such as China, India and Brazil has given us a significant boost as those economies have continued to recover from the recession more quickly than other regions,â€??? said Cummins Chairman and Chief Executive Officer Tim Solso.

â€œIn addition, while demand in the North American on-highway truck markets was very low as we expected due to the implementation of new emissions standards in the U.S. in January 2010, our work during the downturn to reduce costs and improve productivity, largely through our well-established Six Sigma quality program, has allowed us to be much more efficient and to respond quickly to the volatility in demand,â€??? Solso added.

Based on the first quarter results and its forecast for the remainder of the year, the Company today increased its sales and EBIT guidance for 2010. The Company now expects sales to be $12 billion and to earn an EBIT margin of 10 percent of sales.

The Company benefited from stronger demand in China, India and Brazil as those countries continue their recovery from the recession in 2009. Demand for trucks, construction, mining and distributed power generation equipment strengthened in all three countries â€“ as well as with European OEM customers that export to China, India and the Middle East, and is expected to continue through 2010.

The Company reported weaker demand in North America with medium-duty truck and bus, and heavy-duty engine shipments declining 80 percent from the same period a year ago â€“ and by approximately 90 percent from the fourth quarter of last year. Demand in the North American on-highway engine markets is expected to remain weak through the end of the second quarter, before gradually improving in the second half of the year.

Joint venture income more than doubled year-over-year to $76 million in the first quarter, largely on increased volume at the Companyâ€™s engine joint ventures in China and India.

The Company also expects to generate positive cash flow in 2010 and is forecasting capital spending of approximately $400 million for the year, an increase of nearly 30 percent from 2009, to fund projects critical to the Companyâ€™s long-term growth.

â€œOur employees worldwide have done outstanding work, which is reflected in our strong first quarter results, but our priorities for the year have not changed,â€??? said Tom Linebarger, Cummins President and Chief Operating Officer.

â€œWe remain focused on managing the business conservatively so that we can earn a solid profit for the duration of the global downturn and position the Company for strong profitable growth in all markets as the economy recovers,â€??? Linebarger said.

First quarter details (all comparisons are to same period in 2009)

Engine Segment

Sales - $1.42 billion, down 5 percent
Segment EBIT - $133 million (9.3 percent of sales), compared to a loss of $16 million
Total on-highway sales decreased 13 percent
- Revenues in worldwide heavy-duty truck fell 36 percent; worldwide medium-duty truck and bus revenues decreased 5 percent; sales to the light-duty automotive market increased 33 percent on the launch of 2010 model year Dodge Ram pickup
Industrial sales increased 24 percent
- Construction sales increased 62 percent; marine engine sales increased 13 percent; mining sales increased 28 percent; oil and gas sales fell 80 percent

Power Generation

Sales - $517 million, down 21 percent
Segment EBIT - $34 million (6.6 percent of sales), down 51 percent from $69 million (10.5 percent of sales)
Commercial Product sales down 27 percent; Commercial Projects down 21 percent; Generator Technologies down 21 percent; Power Electronics down 13 percent. Consumer sales rose 43 percent.
Markets with the largest declines were Western Europe, Middle East, Africa and North America. The segment saw sales gains in India, China and Eastern Europe.

Components

Sales - $630 million, up 19 percent
Segment EBIT - $57 million (9.0 percent of sales), up from $1 million (0.2 percent of sales)
Emission Solutions sales up 30 percent; Turbo Technologies sales up 28 percent; Filtration up 13 percent; Fuel Systems down 4 percent
Fuel systems sales decreased mainly as result of demand decline in North American truck and bus engine markets.
Turbo Technologies sales growth led by large increases in volumes in China and recovery in aftermarket sales.
Emission Solutions sales gain driven by higher volumes in North America as a result of the transition to the EPA 2010 emissions standards.

Distribution

Sales - $476 million, up 15 percent
Segment EBIT - $72 million (15.1 percent of sales), up 24 percent from $58 million (14.0 percent of sales). Gain of $12 million on the acquisition of the Cummins Western Canada distributor contributed to improved segment EBIT margin.
Cummins Western Canada consolidation contributed $54 million in sales. Largest sales declines by region were in Europe and North and Central America, excluding Western Canada. Asia Pacific posted largest revenue gain. Aftermarket growth in most regions more than offset decline in power generation and engine sales.

Joint Ventures

Total income - $76 million, up 130 percent from $33 million
Engine JVs accounted for nearly all of the gain from previous year, led by China and India JVs.

Presentation of Non-GAAP Financial Information

EBIT and EBIT excluding restructuring and other charges and net income attributable to Cummins Inc. are non-GAAP measures 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 atÂ 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. The Company reported net income attributable to Cummins Inc. of $428 million on sales of $10.8 billion in 2009. 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 companyâ€™s expectations, hopes, beliefs and intentions on strategies regarding the future. It is important to note that the companyâ€™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)
	Â
		Three months ended
		March 28,			Â	December 31,			Â	March 29,
In millions, except per share amounts		2010				2009				2009
NET SALES		$	2,478			$	3,400			$	2,439
Cost of sales		1,877				2,627				1,994
GROSS MARGIN		601				773				445
												Â
OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses		335				348				300
Research, development and engineering expenses		92				108				85
Equity, royalty and interest income from investees (Note 1)		76				67				33
Restructuring and other charges		â€•				4				66
Other operating (expense) income, net		(4		)		5				2
OPERATING INCOME		246				385				29
												Â
Interest income		3				3				2
Interest expense		9				9				7
Other income (expense), net (Note 2)		17				(5		)	Â	(3		)
INCOME BEFORE INCOME TAXES		257				374				21
												Â
Income tax expense (Note 3)		87				84				7
CONSOLIDATED NET INCOME		170				290				14
												Â
Less: net income attributable to noncontrolling interests		21				20				7
NET INCOME ATTRIBUTABLE TO CUMMINS INC.		$	149			$	270			$	7
												Â
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
Basic		$	0.75			$	1.36			$	0.04
Diluted		$	0.75			$	1.36			$	0.04
												Â
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic			198.4				198.4				196.8
Diluted			198.7				198.7				197.0
												Â
CASH DIVIDENDS DECLARED PER COMMON SHARE		$	0.175			$	0.175			$	0.175

(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 BALANCE SHEETS (Unaudited) (a)
	Â				Â
		March 28,				December 31,
In millions, except par value		2010				2009
ASSETS
Current assets
Cash and cash equivalents		$	885			$	930
Marketable securities			217				190
Accounts and notes receivable, net			1,727				2,004
Inventories			1,549				1,341
Deferred income taxes			302				295
Prepaid expenses and other current assets		Â	240			Â	243
Total current assets		Â	4,920			Â	5,003
Long-term assets
Property, plant and equipment			4,696				4,765
Accumulated depreciation		Â	(2,834	)		Â	(2,879	)
Property, plant and equipment, net		Â	1,862			Â	1,886
Investments and advances related to equity method investees			638				574
Goodwill			365				364
Other intangible assets, net			239				228
Deferred income taxes			413				436
Other assets		Â	332			Â	325
Total assets		$	8,769			$	8,816
LIABILITIES
Current liabilities
Loans payable		$	95			$	37
Accounts payable (principally trade)			1,030				957
Current portion of accrued product warranty			387				426
Accrued compensation, benefits and retirement costs			308				366
Deferred revenue			144				128
Other accrued expenses		Â	522			Â	518
Total current liabilities		Â	2,486			Â	2,432
Long-term liabilities
Long-term debt			640				637
Pensions			406				514
Postretirement benefits other than pensions			466				453
Other liabilities and deferred revenue		Â	719			Â	760
Total liabilities		Â	4,717			Â	4,796
EQUITY
Cummins Inc. shareholdersâ€™ equity
Common stock, $2.50 par value, 500 shares authorized, 221.9 and 222.0 shares issued			1,862				1,860
Retained earnings			3,689				3,575
Treasury stock, at cost, 21.3 and 20.7 shares			(769	)			(731	)
Common stock held by employee benefits trust, at cost, 3.0 and 3.0 shares			(36	)			(36	)
Accumulated other comprehensive loss
Defined benefit postretirement plans			(794	)			(788	)
Other		Â	(161	)		Â	(107	)
Total accumulated other comprehensive loss		Â	(955	)		Â	(895	)
Total Cummins Inc. shareholdersâ€™ equity			3,791				3,773
Noncontrolling interests		Â	261			Â	247
Total equity		Â	4,052			Â	4,020
Total liabilities and equity		$	8,769			$	8,816

(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)
	Â
		Three months ended
		March 28,			Â	March 29,
In millions		2010				2009
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net income		$	170			$	14
Adjustments to reconcile consolidated net income to net cash provided by operating activities:
Restructuring charges, net of cash payments		â€•				48
Depreciation and amortization		79				76
Gain on fair value adjustment for consolidated investee		(12		)		â€•
Deferred income tax provision (benefit)		13				(21		)
Equity in income of investees, net of dividends		(53		)		52
Pension expense, net of pension contributions		(93		)		15
Other post-retirement benefits expense, net of cash payments		(1		)		(8		)
Stock-based compensation expense		6				6
Translation and hedging activities		(9		)		19
Changes in current assets and liabilities, net of acquisitions and divestitures:
Accounts and notes receivable		275				49
Inventories		(189		)		44
Other current assets		3				9
Accounts payable		54				(103		)
Accrued expenses		(154		)		(173		)
Changes in long-term liabilities		29				36
Other, net		8				13
Net cash provided by operating activities		126				76
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures		(47		)		(64		)
Investments in internal use software		(17		)		(11		)
Proceeds from disposals of property, plant and equipment		38				6
Investments in and advances (to) from equity investees		(11		)		5
Acquisition of businesses, net of cash acquired		(71		)		(2		)
Investments in marketable securitiesâ€”acquisitions		(133		)		(69		)
Investments in marketable securitiesâ€”liquidations		108				78
Cash flows from derivatives not designated as hedges		(11		)		(33		)
Net cash used in investing activities		(144		)		(90		)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings		70				7
Payments on borrowings and capital lease obligations		(20		)		(19		)
Net borrowings under short-term credit agreements		5				4
Distributions to noncontrolling interests		(1		)		(9		)
Dividend payments on common stock		(35		)		(35		)
Repurchases of common stock		(39		)		â€•
Other, net		13				(1		)
Net cash used in financing activities		(7		)		(53		)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		(20		)		(6		)
Net decrease in cash and cash equivalents		(45		)		(73		)
Cash and cash equivalents at beginning of year		930				426
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	885			$	353
Â

(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)
				Â				Â				Â				Â				Â
In millions	Engine				Power Generation				Components				Distribution				Non-segment items⁽¹⁾				Total
Three months ended March 28, 2010
External sales	$	1,173			$	378			$	453			$	474			$	â€”			$	2,478
Intersegment sales	250		Â		139		Â		177		Â		2		Â		(568		)		â€•
Total sales	1,423				517				630				476				(568		)		2,478
Depreciation and amortization⁽²⁾	41				10				20				7				â€•				78
Research, development and engineering expense	60				7				25				â€•				â€•				92
Equity, royalty and interest income from investees	35				6				5				30				â€•				76
Interest income	2				1				â€•				â€•				â€•				3
Segment EBIT	133				34				57				72				(30		)		266
																					Â
Three months ended December 31, 2009
External sales	$	1,974			$	477			$	466			$	483			$	â€”			$	3,400
Intersegment sales	194		Â		124		Â		266		Â		3		Â		(587		)		â€•
Total sales	2,168				601				732				486				(587		)		3,400
Depreciation and amortization⁽²⁾	50				14				20				3				â€•				87
Research, development and engineering expense	73				8				27				â€•				â€•				108
Equity, royalty and interest income from investees	24				6				4				33				â€•				67
Restructuring and other charges	â€•				â€•				â€•				â€•				4				4
Interest income	1				2				â€•				â€•				â€•				3
Segment EBIT	211				34				73				67				(2		)		383
																					Â
Three months ended March 29, 2009
External sales	$	1,205			$	477			$	346			$	411			$	â€”			$	2,439
Intersegment sales	287		Â		180		Â		184		Â		2		Â		(653		)		â€•
Total sales	1,492				657				530				413				(653		)		2,439
Depreciation and amortization⁽²⁾	41				11				18				5				â€•				75
Research, development and engineering expense	58				8				19				â€•				â€•				85
Equity, royalty and interest income from investees	(3		)		5				1				30				â€•				33
Restructuring and other charges	â€•				â€•				â€•				â€•				66				66
Interest income	1				1				â€•				â€•				â€•				2
Segment EBIT	(16		)		69				1				58				(84		)		28
																					Â
⁽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 March 28, 2010. For the three months ended December 31, 2009, unallocated corporate expenses included $4 million of restructuring and other charges and a gain of $7 million related to flood damage recoveries. For the three months ended March 29, 2009, unallocated corporate expenses included $66 million of restructuring charges and a $6 million gain related to flood damage recoveries.
⁽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 â€œInterest expense.â€???

CUMMINS INC. AND SUBSIDIARIES RECONCILIATION OF SEGMENT INFORMATION (Unaudited)
	Â
A reconciliation of our segment information to the corresponding amounts in the Condensed Consolidated Statements of Income is shown in the table below:
Â
		Three months ended
		March 28,		Â	December 31,		Â	March 29,
In millions		2010			2009			2009
Segment EBIT		$	266		$	383		$	28
Less:
Interest expense		9			9			7
Income before income taxes		$	257		$	374		$	21

FINANCIAL MEASURES THAT SUPPLEMENT GAAP (Unaudited)
	Â
Earnings before interest, taxes, noncontrolling interests and restructuring and other charges
										Â
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 â€???Net income attributable to Cummins Inc.â€???, for each of the applicable periods:
										Â
		Three months ended
		March 28,			December 31,			March 29,
In millions		2010			2009			2009
Earnings before interest expense, income taxes and restructuring and other charges		$	266		$	387		$	94
										Â
Earnings before interest expense, income taxes and restructuring and other charges as a percentage of sales		10.7		%	11.4		%	3.9		%
Less:
Restructuring and other charges		â€•			4			66
										Â
Earnings before interest and income taxes		$	266		$	383		$	28
										Â
EBIT as a percentage of net sales		10.7		%	11.3		%	1.1		%
										Â
Less:
Interest expense		9			9			7
Income tax expense		87			84			7
Consolidated net income		170			290			14
										Â
Less:
Net income attributable to noncontrolling interests		21			20			7
Net income attributable to Cummins Inc.		$	149		$	270		$	7
										Â
Net income attributable to Cummins Inc. as a percentage of net sales		6.0		%	7.9		%	0.3		%

CUMMINS INC. AND SUBSIDIARIES FINANCIAL MEASURES THAT SUPPLEMENT GAAP (Unaudited)
	Â
Net income and diluted earnings per share (EPS) attributable to Cummins Inc. excluding restructuring and other charges
		Â
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. The following table reconciles net income attributable to Cummins Inc. excluding restructuring and other charges to â€œNet income attributable to Cummins Inc.â€??? for the three months ended December 31, 2009, and the three months ended March 29, 2009. There were no restructuring actions taken in the three months ended March 28, 2010.
Â
		Three months ended
		December 31, 2009					Â	March 29, 2009
In millions		Net Income		Â	Diluted EPS			Net Income		Â	Diluted EPS
Net income attributable to Cummins Inc. excluding restructuring and other charges		$	272		$	1.37		$	51		$	0.26
Less:
Restructuring and other charges, net⁽¹⁾		2			0.01			44			0.22
Net income attributable to Cummins Inc.		$	270		$	1.36		$	7		$	0.04
⁽¹⁾ During the three months ended December 31, 2009, and March 29, 2009, management approved and committed to undertake restructuring actions, which resulted in pretax charges of $4 million and $66 million, respectively. These charges included employee-related liabilities for severance and benefits, exit costs and pension and other postretirement benefit curtailment charges.

CUMMINS INC. AND SUBSIDIARIES SELECTED FOOTNOTE DATA (Unaudited)
Â
NOTE 1. EQUITY, ROYALTY AND INTEREST INCOME FROM INVESTEES
Â
Equity, royalty and interest income from investees included in our Condensed Consolidated Statements of Income for the interim reporting periods was as follows:
									Â
	Three months ended
	March 28,		Â	December 31,		Â	March 29,
In millions	2010			2009			2009
Distribution Entities
North American distributors	$	23		$	26		$	26
Komatsu Cummins Chile, Ltda.	3			3			2
All other distributors	1			1			1
									Â
Manufacturing Entities
Dongfeng Cummins Engine Company, Ltd.	18			15			â€•
Chongqing Cummins Engine Company, Ltd.	10			8			8
Tata Cummins Ltd.	4			3			(2		)
All other manufacturers	10			4			(5		)
Cummins share of net income	69			60			30
Royalty and interest income	7			7			3
Equity, royalty and interest income from investees	$	76		$	67		$	33

NOTE 2. OTHER INCOME (EXPENSE)	Â
												Â
Other income (expense) included the following:
												Â
		Three months ended
		March 28,			Â	December 31,			Â	March 29,
In millions		2010				2009				2009
Gain on acquisition of Cummins Western Canada		$	12			$	â€•			$	â€•
Foreign currency gains (losses)		7				(2		)		(8		)
Other, net		(2		)		(3		)		5
Total other income (expense), net		$	17			$	(5	)		$	(3	)

NOTE 3. INCOME TAXES

Our effective tax rate for the year is expected to approximate 31 percent, absent 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 rate for the three month period ended March 28, 2010, was 34 percent and includes a discrete tax charge of $7 million (3 percent) related to the enactment of the â€œPatient Protection and Affordable Care Act.â€???

Our effective tax rate for March 29, 2009 was 33 percent. This rate is less than the 35 percent U.S. income tax rate primarily due to lower tax rates on foreign income.

Sales

$Millions

YTD

2010

Engine Business

Heavy-Duty Truck

252

Medium Duty Truck+Bus

217

Light Duty Auto+RV

207

Industrial

577

Stationary Power

170

TOTAL ENGINE BUSINESS

1,423

Power Generation

517

Components

630

Distributors

476

Eliminations

(568

)

(568

)

TOTAL

2,478

2009

Engine Business

Heavy-Duty Truck

394

395

493

714

1,996

Medium Duty Truck+Bus

229

240

294

469

1,232

Light Duty Auto+RV

156

120

318

688

Industrial

467

440

407

507

1,821

Stationary Power

246

137

125

160

668

TOTAL ENGINE BUSINESS

1,492

1,306

1,439

2,168

6,405

Power Generation

657

610

549

601

2,417

Components

530

502

591

732

2,355

Distributors

413

463

422

486

1,784

Eliminations

(653

)

(450

)

(471

)

(587

)

(2,161

)

TOTAL

2,439

2,431

2,530

3,400

10,800

Engine Shipments

Units

YTD

2010

Midrange

69,100

Heavy-duty

8,700

High Horsepower

3,400

TOTAL

81,200

2009

Midrange

60,600

49,200

58,800

100,600

269,200

Heavy-duty

16,600

16,400

20,600

32,300

85,900

High Horsepower

3,900

3,200

2,600

3,700

13,400

TOTAL

81,100

68,800

82,000

136,600

368,500

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