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Press release from Business Wire

Cummins Announces Strong First Quarter Results with Revenue Growth of 16 Percent and EBIT Increasing 24 Percent

<ul> <li class='bwlistitemmargb'> <b>Company on track for record full-year revenues and EBIT</b> </li> </ul>

Tuesday, May 01, 2012

Cummins Announces Strong First Quarter Results with Revenue Growth of 16 Percent and EBIT Increasing 24 Percent07:30 EDT Tuesday, May 01, 2012 COLUMBUS, Ind. (Business Wire) -- Cummins Inc. (NYSE: CMI) today reported strong sales and profits for the first quarter of 2012. First quarter revenue of $4.5 billion increased 16 percent from the same quarter in 2011. The increase year-over-year was driven by higher demand in truck, power generation and construction markets in North America and strong growth in global mining markets. Growth in these markets offset weaker demand in the truck market in Brazil, the construction market in China and construction and power generation markets in Europe. Earnings before interest and taxes (EBIT) was $658 million or 14.7 percent of sales compared to $532 million or 13.8 percent of sales in the first quarter of 2011. EBIT increased by 24 percent, continuing the company's trend of growing earnings faster than sales. Net income attributable to Cummins in the first quarter of 2012 was $455 million ($2.38 per diluted share) compared to $343 million in the same period a year ago ($1.75 per diluted share). “Cummins continues to benefit from its geographic diversification and its leadership position in a number of end markets as evidenced by our very strong first quarter results,” said Tom Linebarger, Chairman and Chief Executive Officer. “Revenues in North America grew 40 percent in the first quarter, offsetting near-term softness in some emerging markets. I am delighted that through close coordination with our key OEM partners and strong execution from our manufacturing and supply chain teams, we have been able to quickly increase our production in North America to meet strong demand for our products.” Based on the current forecast, Cummins reaffirms that total Company revenues are expected to increase 10 percent in 2012, with EBIT in the range of 14.5 to 15 percent of sales. Other recent highlights: Cummins announced at the Mid-America Truck Show in March that it has commenced development of a new 15-liter spark-ignited natural gas engine for the U.S. heavy-duty truck market. Also at the Mid-America Truck Show, Cummins unveiled its product solutions that will allow the Company's engines for U.S. truck customers to meet 2014 fuel efficiency and green house gas standards in 2013. Cummins announced plans to develop a new master site for its operations in Brazil. For the fifth consecutive year, Cummins has been named one of the world's most ethical companies by The Ethisphere Institute. First quarter detail (all comparisons to same period in 2011)Engine Segment Sales – $2.9 billion, up 20 percent Segment EBIT – $381 million, or 13.3 percent of sales, compared to $290 million or 12.1 percent of sales Improved demand in North American heavy duty truck, medium duty truck and light duty truck and construction markets offsetting lower sales to the China construction and Brazilian truck markets Strong demand for mining engines globally Components Sales - $1.1 billion, an increase of 19 percent Segment EBIT - $143 million, or 13.0 percent of sales, compared to $105 million or 11.4 percent of sales Record quarter driven by increased demand in North America and Brazil more than offsetting lower demand in Europe and China Power Generation Sales – $780 million, down 2 percent Segment EBIT – $76 million, or 9.7 percent of sales, compared to $89 million or 11.2 percent of sales Improved demand in North America and Brazil offsetting lower revenues in the Middle East and Europe Distribution Sales – $775 million, up 21 percent Segment EBIT – $94 million, or 12.1 percent of sales, compared to $89 million or 13.9 percent of sales Revenue increase driven by strong growth in Asia Pacific region, North and Central America, Europe and Africa 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, expectations, hopes, beliefs and intentions on strategies regarding the future. 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 InformationEBIT 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 informationCummins 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 SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF INCOME(Unaudited) (a)         Three months endedApril 1,December 31,March 27,In millions, except per share amounts201220112011NET SALES$4,472 $ 4,921 $ 3,860 Cost of sales   3,274   3,680   2,903 GROSS MARGIN1,198 1,241 957   OPERATING EXPENSES AND INCOME Selling, general and administrative expenses 475 496 389 Research, development and engineering expenses 181 179 129 Equity, royalty and interest income from investees (Note 1) 104 101 96 Gain on sale of business - 53 - Other operating income (expense), net   2   25   (6) OPERATING INCOME648 745 529   Interest income 8 9 6 Interest expense 8 10 10 Other income (expense), net   2   14   (3) INCOME BEFORE INCOME TAXES650 758 522   Income tax expense (Note 2)   175   186   157 CONSOLIDATED NET INCOME475 572 365   Less: Net income attributable to noncontrolling interests   20   24   22 NET INCOME ATTRIBUTABLE TO CUMMINS INC.$455 $ 548 $ 343   EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC. Basic $2.39 $ 2.87 $ 1.75 Diluted $2.38 $ 2.86 $ 1.75   WEIGHTED AVERAGE SHARES OUTSTANDING Basic 190.4 190.9 195.5 Diluted 190.8 191.5 196.1   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 (GAAP). CUMMINS INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS(Unaudited) (a)               In millions, except par valueApril 1, 2012December 31, 2011ASSETS Current assets Cash and cash equivalents $1,317 $ 1,484 Marketable securities   252   277 Total cash, cash equivalents and marketable securities 1,569 1,761 Accounts and notes receivable, net 2,684 2,526 Inventories 2,382 2,141 Prepaid expenses and other current assets   682   663 Total current assets   7,317   7,091 Long-term assets Property, plant and equipment 5,416 5,245 Accumulated depreciation   (3,025)   (2,957) Property, plant and equipment, net   2,391   2,288 Investments and advances related to equity method investees 903 838 Goodwill 342 339 Other intangible assets, net 250 227 Other assets   916   885 Total assets $12,119 $ 11,668   LIABILITIES Current liabilities Loans payable $33 $ 28 Accounts payable (principally trade) 1,731 1,546 Current portion of accrued product warranty 418 422 Accrued compensation, benefits and retirement costs 289 511 Deferred revenue 211 208 Taxes payable (including taxes on income) 297 282 Other accrued expenses   651   660 Total current liabilities   3,630   3,657 Long-term liabilities Long-term debt 650 658 Pensions 157 205 Postretirement benefits other than pensions 428 432 Other liabilities and deferred revenue   896   885 Total liabilities   5,761   5,837   EQUITY Cummins Inc. shareholders' equity Common stock, $2.50 par value, 500 shares authorized, 222.4 and 222.2 shares issued 2,017 2,001 Retained earnings 6,416 6,038 Treasury stock, at cost, 30.2 and 30.2 shares (1,590) (1,587) Common stock held by employee benefits trust, at cost, 1.7 and 1.8 shares (20) (22) Accumulated other comprehensive loss Defined benefit postretirement plans (713) (724) Other   (100)   (214) Total accumulated other comprehensive loss   (813)   (938) Total Cummins Inc. shareholders' equity 6,010 5,492 Noncontrolling interests   348   339 Total equity   6,358   5,831 Total liabilities and equity $12,119 $ 11,668   (a) Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America (GAAP). CUMMINS INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited) (a)         Three months endedIn millionsApril 1, 2012March 27, 2011CASH FLOWS FROM OPERATING ACTIVITIES Consolidated net income $475 $ 365 Adjustments to reconcile consolidated net income to net cash provided by operating activities Depreciation and amortization 85 79 Deferred income taxes (27) 21 Equity in income of investees, net of dividends (59) (62) Pension contributions in excess of expense (27) (24) Other post-retirement benefits payments in excess of expense (4) (5) Stock-based compensation expense 7 5 Excess tax benefits on stock-based awards (11) (2) Translation and hedging activities 10 4 Changes in current assets and liabilities, net of acquisitions Accounts and notes receivable (135) (306) Inventories (209) (210) Other current assets (28) (2) Accounts payable 148 251 Accrued expenses (196) (28) Changes in other liabilities and deferred revenue 29 24 Other, net   (37)   (22) Net cash provided by operating activities   21   88   CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (126) (91) Investments in internal use software (16) (10) Investments in and advances to equity investees (5) (21) Acquisition of businesses, net of cash acquired (5) - Investments in marketable securities—acquisitions (146) (101) Investments in marketable securities—liquidations 184 134 Cash flows from derivatives not designated as hedges 11 4 Other, net   1   7 Net cash used in investing activities   (102)   (78)   CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from borrowings 12 38 Payments on borrowings and capital lease obligations (38) (45) Net borrowings (payments) under short-term credit agreements - 1 Distributions to noncontrolling interests (22) (21) Dividend payments on common stock (77) (51) Repurchases of common stock (8) (190) Excess tax benefits on stock-based awards 11 2 Other, net   9   4 Net cash used in financing activities   (113)   (262) EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS   27   8 Net increase (decrease) in cash and cash equivalents (167) (244) Cash and cash equivalents at beginning of year   1,484   1,023 CASH AND CASH EQUIVALENTS AT END OF PERIOD$1,317 $ 779   (a) Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America (GAAP).   CUMMINS INC. AND SUBSIDIARIESSEGMENT INFORMATION(Unaudited)             In millionsEngineComponentsPowerGenerationDistributionNon-segmentItems(1)TotalThree months ended April 1, 2012 External sales $2,412$774$516$770$-$4,472 Intersegment sales 4473252645(1,041)   -   Total sales 2,8591,099780775(1,041)4,472 Depreciation and amortization(2)4719117-84 Research, development and engineering expenses 11151181-181 Equity, royalty and interest income from investees 3881048-104 Interest income 4121-8 Segment EBIT 3811437694(36)658   Three months ended December 31, 2011 External sales $ 2,628 $ 781 $ 682 $ 830 $ - $ 4,921 Intersegment sales 433   311   238   4   (986)   - Total sales 3,061 1,092 920 834 (986) 4,921 Depreciation and amortization(2) 46 18 10 8 - 82 Research, development and engineering expenses 112 49 17 1 - 179 Equity, royalty and interest income from investees 40 7 10 44 - 101 Interest income 4 2 2 1 - 9 Segment EBIT 368 132 87 87 94 768   Three months ended March 27, 2011 External sales $ 2,006 $ 660 $ 557 $ 637 $ - $ 3,860 Intersegment sales 385 264 238 5 (892)   - Total sales 2,391 924 795 642 (892) 3,860 Depreciation and amortization(2) 45 18 10 6 - 79 Research, development and engineering expenses 80 37 11 1 - 129 Equity, royalty and interest income from investees 42 8 8 38 - 96 Interest income 3 1 1 1 - 6 Segment EBIT 290 105 89 89 (41) 532   (1)   Includes intersegment sales and profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the three month periods ended April 1, 2012 and March 27, 2011. For the three months ended December 31, 2011, unallocated corporate expenses include a $53 million gain ($33 million after-tax) recorded for the sale of certain assets and liabilities of our light-duty filtration business from our Components segment and a $38 million gain ($24 million after-tax) related to flood damage recoveries from the insurance settlement regarding a June 2008 flood in Southern Indiana. (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.”   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 endedApril 1,   December 31,   March 27,In millions201220112011 Segment EBIT $658 $ 768 $ 532 Less Interest expense   8   10   10 Income before income taxes $650 $ 758 $ 522   CUMMINS INC. AND SUBSIDIARIESSELECTED 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 endedApril 1,   December 31,   March 27,In millions201220112011Distribution Entities North American distributors $40 $ 34 $ 30 Komatsu Cummins Chile, Ltda. 5 6 4 All other distributors 1 1 1 Manufacturing Entities Chongqing Cummins Engine Company, Ltd. 18 17 12 Dongfeng Cummins Engine Company, Ltd. 16 16 23 Cummins Westport, Inc. 5 6 1 Tata Cummins, Ltd. 4 5 4 Shanghai Fleetguard Filter Co., Ltd. 3 3 4 Valvoline Cummins, Ltd. 2 1 2 Komatsu manufacturing alliances (1) 2 2 Beijing Foton Cummins Engine Co., Ltd. (2) (2) (2) All other manufacturers   1   2   6 Cummins share of net income 92 91 87 Royalty and interest income   12   10   9 Equity, royalty and interest income from investees $104 $ 101 $ 96   NOTE 2.INCOME TAXES Our effective tax rate for the year is expected to approximate 27 percent, absent any discrete period activity. Our tax rate is generally less than the 35 percent U.S. statutory income tax rate primarily due to lower tax rates on foreign income. The tax rate for the three month period ended April 1, 2012, was 27 percent. Our effective tax rate for the three months ended March 27, 2011, was 30 percent. The decrease in the 2012 effective tax rate compared to 2011 is due primarily to our assertion that income earned after 2011 by our China operations is permanently reinvested, as well as certain tax planning strategies implemented in our U.K. subsidiaries. CUMMINS INC. AND SUBSIDIARIESFINANCIAL MEASURES THAT SUPPLEMENT GAAP(Unaudited)Net income and diluted earnings per share (EPS) attributable to Cummins Inc. excluding special items We believe this is a useful measure of our operating performance for the period presented as it illustrates our operating performance without regard to special items including the gains related to the sale of certain assets and liabilities and flood insurance recovery. 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. to net income attributable to Cummins Inc. excluding special items for the quarters ended April 1, 2012, December 31, 2011 and March 27, 2011.         Three months endedApril 1, 2012   December 31, 2011   March 27, 2011In millionsNet Income   Diluted EPSNet Income   Diluted EPSNet Income   Diluted EPS Net income attributable to Cummins Inc. $455$2.38 $ 548 $ 2.86 $ 343 $ 1.75 Subtract Gain on sale of business (1)-- 33 0.17 - - Flood insurance recovery (1)-- 24 0.13 - -                         Net income attributable to Cummins Inc. excluding special items $455$2.38 $ 491 $ 2.56 $ 343 $ 1.75   (1)The gains have been excluded from operating results as they were not considered in our evaluation of performance for the quarter ended December 31, 2011. CUMMINS INC. AND SUBSIDIARIESFINANCIAL MEASURES THAT SUPPLEMENT GAAP(Unaudited)Earnings before interest expense, taxes and noncontrolling interests 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 “Net income attributable to Cummins Inc.,” for each of the applicable periods:         Three months endedApril 1,   December 31,   March 27,In millions201220112011 Earnings before interest expense, income taxes and special items $658 $ 677 $ 532   Earnings before interest expense, income taxes and special items as a percentage of net sales14.7%13.8%13.8%   Add Gain on sale of business - 53 - Flood insurance recovery   -   38   -   Earnings before interest expense and income taxes $658 $ 768 $ 532   EBIT as a percentage of net sales14.7%15.6%13.8%   Less Interest expense 8 10 10 Income tax expense   175   186   157 Consolidated net income   475   572   365   Less Net income attributable to noncontrolling interests   20   24   22 Net income attributable to Cummins Inc. $455 $ 548 $ 343   Net income attributable to Cummins Inc. as a percentage of net sales10.2%11.1%8.9%   CUMMINS INC. AND SUBSIDIARIESSEGMENT INFORMATION(Unaudited) Engine segment net sales by market 2012           In millionsQ1Q2Q3Q4YTD Heavy-duty truck $892 $ - $ - $ - $ 892 Medium-duty truck and bus 526 - - - 526 Light-duty automotive and RV 286 - - - 286 Industrial 861 - - - 861 Stationary power   294   -   -   -   294   Total sales $2,859 $ - $ - $ - $ 2,859   2011In millionsQ1Q2Q3Q4YTD Heavy-duty truck $ 485 $ 693 $ 748 $ 865 $ 2,791 Medium-duty truck and bus 474 608 640 598 2,320 Light-duty automotive and RV 296 310 271 299 1,176 Industrial 855 988 977 1,030 3,850 Stationary power   281   301   319   269   1,170 Total sales $ 2,391 $ 2,900 $ 2,955 $ 3,061 $ 11,307   Unit shipments by engine classification (including unit shipments to Power Generation) 2012           UnitsQ1Q2Q3Q4YTD Midrange 109,000 - - - 109,000 Heavy-duty 36,000 - - - 36,000 High-horsepower 5,500 - - - 5,500   Total units 150,500 - - - 150,500   2011UnitsQ1Q2Q3Q4YTD Midrange 109,400 131,300 130,600 138,100 509,400 Heavy-duty 20,000 29,900 31,100 35,300 116,300 High-horsepower 4,900 5,700 5,600 5,400 21,600 Total units 134,300 166,900 167,300 178,800 647,300   CUMMINS INC. AND SUBSIDIARIESSEGMENT INFORMATION(Unaudited) Component segment sales by business 2012           In millionsQ1Q2Q3Q4YTD Emission solutions $404 $ - $ - $ - $ 404 Turbo technologies 298 - - - 298 Filtration 270 - - - 270 Fuel systems   127   -   -   -   127   Total sales $1,099 $ - $ - $ - $ 1,099   2011In millionsQ1Q2Q3Q4YTD Emission solutions $ 273 $ 311 $ 306 $ 372 $ 1,262 Turbo technologies 297 314 298 314 1,223 Filtration 255 287 288 283 1,113 Fuel systems   99   120   123   123   465 Total sales $ 924 $ 1,032 $ 1,015 $ 1,092 $ 4,063   In the first quarter of 2012, our Power Generation segment reorganized its reporting structure to include the following businesses: power products, power systems, generator technologies and power solutions. Sales for our Power Generation segment by business (including 2011 and 2010 reorganized balances) were as follows: 2012           In millionsQ1Q2Q3Q4YTD Power products $375 $ - $ - $ - $ 375 Power systems 188 - - - 188 Generator technologies 141 - - - 141 Power solutions   76   -   -   -   76   Total sales $780 $ - $ - $ - $ 780   2011In millionsQ1Q2Q3Q4YTD Power products $ 377 $ 415 $ 433 $ 411 $ 1,636 Power systems 189 210 188 228 815 Generator technologies 154 189 166 164 673 Power solutions   75   95   87   117   374 Total sales $ 795 $ 909 $ 874 $ 920 $ 3,498   2010In millionsYTD Power products $ 1,465 Power systems 616 Generator technologies 550 Power solutions   288 Total sales $ 2,919 CUMMINS INC. AND SUBSIDIARIESSEGMENT INFORMATION(Unaudited) Distribution segment sales by product 2012           In millionsQ1Q2Q3Q4YTD Parts and filtration $288 $ - $ - $ - $ 288 Power generation 186 - - - 186 Engines 166 - - - 166 Service   135   -   -   -   135   Total sales $775 $ - $ - $ - $ 775   2011In millionsQ1Q2Q3Q4YTD Parts and filtration $ 235 $ 271 $ 283 $ 296 $ 1,085 Power generation 145 195 191 191 722 Engines 140 186 171 206 703 Service   122   133   138   141   534 Total sales $ 642 $ 785 $ 783 $ 834 $ 3,044 Cummins Inc.Carole Casto, Executive Director - Corporate Communications, 317-610-2480carole.casto@cummins.com