Cummins Announces Results for 2012, Revenues of $17.3 Billion and EBIT of 13.7 Percent Excluding Special Items07:30 EST Wednesday, February 06, 2013 COLUMBUS, Ind. (Business Wire) -- Cummins Inc. (NYSE: CMI) today reported results for the fourth quarter and full year of 2012. Fourth quarter revenue of $4.3 billion decreased 13 percent from the same quarter in 2011 reflecting weakness in most major markets and geographies. The decrease year-over-year was driven by weaker demand in truck, construction, and oil and gas markets in North America. The Company also experienced lower demand in international markets for power generation equipment and construction, truck and mining engines. Earnings before interest and taxes (EBIT) were $552 million for the fourth quarter or 12.9 percent of sales, excluding $52 million of restructuring costs. This compares to $677 million or 13.8 percent of sales a year ago, excluding special items. Net income attributable to Cummins in the fourth quarter was $381 million ($2.02 per diluted share). Results included restructuring costs of $0.19 per diluted share and one-time tax benefits of $0.21 per diluted share. Revenues for the full year were $17.3 billion, down 4 percent from 2011, with revenues in North America up 9 percent offset by international sales which declined by 15 percent, with the most significant declines in Brazil, China and Europe. EBIT for the year, excluding special items, was $2.37 billion or 13.7% of sales, compared to $2.6 billion or 14.2% of sales in 2011. Net income attributable to Cummins for the full year was $1.66 billion ($8.74 per diluted share), down from $1.85 billion ($9.55 per diluted share) in 2011. Excluding the costs of restructuring actions ($0.18 per diluted share), and the gain on the sale of the exhaust business ($0.02 per diluted share), the Company reported full year net income of $1.69 billion ($8.90 per diluted share). “After a strong start to the year, demand declined across most geographies and end markets in the second half of 2012 as the global economy slowed,” said Tom Linebarger, Chairman and Chief Executive Officer. “I am pleased that we were able to deliver improved gross margins in the fourth quarter and record gross margins for the full year despite the weakness in demand. The work we have undertaken to reduce costs and lower inventory should benefit the Company when the global economy improves, however there is uncertainty surrounding the timing and pace of improvement in end markets in 2013.” Based on the current forecast, Cummins expects full year 2013 revenues to be flat to down 5%, with EBIT in the range of 13 - 14 percent of sales. 2012 highlights: The Company increased its dividend by 25% in the third quarter; Fitch Rating Services raised its Long-term Issuer Default Rating and long-term debt ratings for Cummins to “A”; For the sixth consecutive year, Cummins was named one of the world's most ethical companies by The Ethisphere Institute; Cummins was awarded a perfect score in the 2013 Corporate Equality Index by the Human Rights Campaign as part of its Best Places to Work initiative; In December Cummins delivered its 2 millionth engine to Chrysler for the Ram pickup; Cummins was the first to receive certification from the EPA meeting both the 2013 regulations and the new greenhouse gas and fuel-efficiency rules for 2014; Cummins Power Generation received EPA Tier 4 interim certification for the North American market three years ahead of deadline; Cummins was ranked No. 1 among industrial companies in Newsweek's 2012 Green Rankings of business; and Cummins was named one of the Top 50 Companies for Diversity by Diversity Inc. for the sixth consecutive year. Fourth quarter 2012 detail (all comparisons to same period in 2011) Segment results below exclude special items in 2012 and 2011 Engine Segment Sales – $2.5 billion, down 18 percent. Segment EBIT – $272 million, or 10.9 percent of sales, compared to $368 million or 12.0 percent of sales. Strong demand for bus and light-duty engines in North America was more than offset by reduced demand in the truck market in Brazil, the North American heavy-duty truck, global construction, as well as North American oil and gas and international mining markets. Components Segment Sales - $939 million, down 14 percent. Segment EBIT - $84 million, or 8.9 percent of sales, compared to $132 million or 12.1 percent of sales. Reduced demand in the North American heavy-duty truck market and lower demand in Europe was partially offset by increased demand for aftertreatment systems in Brazil. Power Generation Segment Sales – $765 million, down 17 percent. Segment EBIT – $54 million, or 7.1 percent of sales, compared to $87 million or 9.5 percent of sales. Lower revenues in several international markets including Europe, Middle East, Latin America and China were partially offset by increased demand in North America. Distribution Segment Sales – $907 million, up 9 percent, flat excluding acquisitions. Segment EBIT – $98 million, or 10.8 percent of sales, compared to $87 million or 10.4 percent of sales. Higher revenues were primarily driven by acquisitions. Stronger demand for power generation equipment in the U.S. and Africa was largely offset by weaker demand in North American oil and gas markets and Europe. 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 currently employs approximately 44,000 people worldwide and serves customers in approximately 190 countries and territories through a network of approximately 600 company-owned and independent distributor locations and approximately 6,500 dealer locations. Cummins earned $1.66 billion on sales of $17.3 billion in 2012. Press releases can be found on the Web at www.cummins.com. Follow Cummins on Twitter at @Cummins and on YouTube at CumminsInc. 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 full year of 2013. 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. EST. 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 endedDecember 31,September 30,December 31,In millions, except per share amounts201220122011NET SALES$4,292 $ 4,118 $ 4,921 Cost of sales   3,234   3,076   3,680 GROSS MARGIN1,058 1,042 1,241   OPERATING EXPENSES AND INCOME Selling, general and administrative expenses 482 456 496 Research, development and engineering expenses 174 186 179 Equity, royalty and interest income from investees (Note 1) 82 94 101 Gain on sale of businesses - - 53 Other operating income (expense), net   1   (1)   25 OPERATING INCOME485 493 745   Interest income 5 5 9 Interest expense 7 9 10 Other income (expense), net   10   (2)   14 INCOME BEFORE INCOME TAXES493 487 758   Income tax expense (Note 3)   83   117   186 CONSOLIDATED NET INCOME410 370 572   Less: Net income attributable to noncontrolling interests   29   18   24 NET INCOME ATTRIBUTABLE TO CUMMINS INC.$381 $ 352 $ 548   EARNINGS PER COMMON SHARE ATTRIBUTABLETO CUMMINS INC. Basic $2.02 $ 1.87 $ 2.87 Diluted $2.02 $ 1.86 $ 2.86   WEIGHTED AVERAGE SHARES OUTSTANDING Basic 188.4 188.6 190.9 Diluted 188.8 189.0 191.5   CASH DIVIDENDS DECLARED PER COMMON SHARE$0.50 $ 0.50 $ 0.40   (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 INCOMEUnaudited (a)       For the years endedDecember 31,December 31,In millions, except per share amounts20122011NET SALES$17,334 $ 18,048 Cost of sales   12,826   13,459 GROSS MARGIN4,508 4,589   OPERATING EXPENSES AND INCOME Selling, general and administrative expenses 1,900 1,837 Research, development and engineering expenses 728 629 Equity, royalty and interest income from investees (Note 1) 384 416 Gain on sale of businesses 6 121 Other operating income, net   4   21 OPERATING INCOME2,274 2,681   Interest income 25 34 Interest expense 32 44 Other income, net   24   - INCOME BEFORE INCOME TAXES2,291 2,671   Income tax expense (Note 3)   541   725 CONSOLIDATED NET INCOME1,750 1,946   Less: Net income attributable to noncontrolling interests   93   98 NET INCOME ATTRIBUTABLE TO CUMMINS INC.$1,657 $ 1,848   EARNINGS PER COMMON SHARE ATTRIBUTABLETO CUMMINS INC. Basic $8.75 $ 9.58 Diluted $8.74 $ 9.55   WEIGHTED AVERAGE SHARES OUTSTANDING Basic 189.3 193.0 Diluted 189.7 193.6   CASH DIVIDENDS DECLARED PER COMMON SHARE$1.80 $ 1.325   (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)               December 31,December 31,In millions, except par value20122011ASSETS Current assets Cash and cash equivalents $1,369 $ 1,484 Marketable securities   247   277 Total cash, cash equivalents and marketable securities 1,616 1,761 Accounts and notes receivable, net 2,475 2,526 Inventories 2,221 2,141 Prepaid expenses and other current assets   855   663 Total current assets   7,167   7,091 Long-term assets Property, plant and equipment, net 2,724 2,288 Investments and advances related to equity method investees 897 838 Goodwill and other intangibles, net 814 566 Other assets   939   885 Total assets $12,541 $ 11,668   LIABILITIES Current liabilities Loans payable $16 $ 28 Accounts payable (principally trade) 1,339 1,546 Accrued expenses   1,761   2,083 Total current liabilities   3,116   3,657 Long-term liabilities Long-term debt 698 658 Other liabilities   1,741   1,522 Total liabilities   5,555   5,837   EQUITY Cummins Inc. shareholders' equity Common stock, $2.50 par value, 500 shares authorized, 222.4 and 222.2 shares issued 2,058 2,001 Retained earnings 7,355 6,038 Treasury stock, at cost, 32.6 and 30.2 shares (1,830) (1,587) Common stock held by employee benefits trust, at cost, 1.5 and 1.8 shares (18) (22) Accumulated other comprehensive loss   (950)   (938) Total Cummins Inc. shareholders' equity 6,615 5,492 Noncontrolling interests   371   339 Total equity   6,986   5,831 Total liabilities and equity $12,541 $ 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)         For the years endedDecember 31,December 31,In millions20122011NET CASH PROVIDED BY OPERATING ACTIVITIES$1,532 $ 2,073   CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (690) (622) Investments in internal use software (87) (60) Proceeds from disposals of property, plant and equipment 11 8 Investments in and advances to equity investees (70) (81) Acquisition of businesses, net of cash acquired (215) - Proceeds from sale of businesses, net of cash sold 10 199 Investments in marketable securities-acquisitions (561) (729) Investments in marketable securities-liquidations 585 750 Proceeds from sale of equity investment 23 - Cash flows from derivatives not designated as hedges 12 (18) Other, net   -   1 Net cash used in investing activities   (982)   (552)   CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from borrowings 64 127 Payments on borrowings and capital lease obligations (145) (237) Net borrowings under short-term credit agreements 11 6 Distributions to noncontrolling interests (62) (56) Dividend payments on common stock (340) (255) Repurchases of common stock (256) (629) Excess tax benefits on stock-based awards 14 5 Other, net   20   14 Net cash used in financing activities   (694)   (1,025) EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS   29   (35) Net increase (decrease) in cash and cash equivalents (115) 461 Cash and cash equivalents at beginning of year   1,484   1,023 CASH AND CASH EQUIVALENTS AT END OF PERIOD$1,369 $ 1,484   (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)Total   Three months ended December 31, 2012 External sales $2,177$662$549$904$-$4,292 Intersegment sales   329   277   216   3   (825)   -   Total sales 2,506939765907(825)4,292 Depreciation and amortization(2)50231311-97 Research, development and engineering expenses 9260202-174 Equity, royalty and interest income from investees 276841-82 Interest income 2-21-5 Segment EBIT 25278428444500 Add back restructuring charges(3)   20   6   12   14   -   52 Segment EBIT excluding restructuring charges 27284549844552   Segment EBIT as a percentage of total sales 10.1%8.3%5.5%9.3%11.6% Segment EBIT excluding restrucutring charges as a percentage of total sales 10.9%8.9%7.1%10.8%12.9%   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   Segment EBIT as a percentage of total sales 9.5% 9.5% 9.0% 12.4% 12.0%   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   Segment EBIT as a percentage of total sales 12.0% 12.1% 9.5% 10.4% 15.6%   (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 December 31, 2012 and September 30, 2012. The three months ended December 31, 2011 includes a $53 million gain ($33 million after-tax) recorded for the sale of certain assets and liabilities of our light-duty filtration business from the 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. 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." (3) See Note 2, "RESTRUCTURING CHARGES," for more details.               CUMMINS INC. AND SUBSIDIARIESSEGMENT INFORMATION(Unaudited)   In millionsEngineComponentsPowerGenerationDistributionNon-segmentItems(1)Total   For the year ended December 31, 2012 External sales $9,101$2,809$2,163$3,261$-$17,334 Intersegment sales   1,632   1,203   1,105   16   (3,956)   -   Total sales 10,7334,0123,2683,277(3,956)17,334 Depreciation and amortization(2)192824734-355 Research, development and engineering expenses 433213766-728 Equity, royalty and interest income from investees 1272940188-384 Interest income 11392-25 Segment EBIT 1,248426285369(5)2,323 Add back restructuring charges(3)   20   6   12   14   -   52 Segment EBIT excluding restructuring charges 1,268432297383(5)2,375   Segment EBIT as a percentage of total sales 11.6%10.6%8.7%11.3%13.4% Segment EBIT excluding restrucutring charges as a percentage of total sales 11.8%10.8%9.1%11.7%13.7%   For the year ended December 31, 2011 External sales $ 9,649 $ 2,886 $ 2,492 $ 3,021 $ - $ 18,048 Intersegment sales   1,658   1,177   1,006   23   (3,864)   - Total sales 11,307 4,063 3,498 3,044 (3,864) 18,048 Depreciation and amortization (2) 181 73 42 25 - 321 Research, development and engineering expenses 397 175 54 3 - 629 Equity, royalty and interest income from investees 166 31 47 172 - 416 Interest income 18 5 8 3 - 34 Segment EBIT 1,384 470 373 386 102 2,715   Segment EBIT as a percentage of total sales 12.2% 11.6% 10.7% 12.7% 15.0%   (1)   Includes intersegment sales and profit in inventory eliminations and unallocated corporate expenses.  The year ended December 31, 2012 includes a $6 million gain ($4 million after-tax) related to adjustments from our 2011 divestitures.  The year ended December 31, 2011, includes a $121 million gain ($70 million after-tax) related to the sale of certain assets and liabilities of our exhaust business and light-duty filtration business, both from the 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.  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." (3) See Note 2, "RESTRUCTURING CHARGES," for more details.   CUMMINS INC. AND SUBSIDIARIESRECONCILIATION 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   For the years endedDecember 31,   September 30,   December 31,December 31,   December 31,In millions20122012201120122011 Segment EBIT excluding restructuring charges $552 $ 496 $ 768 $2,375 $ 2,715 Add: Restructuring charges   (52)   -   -   (52)   - Segment EBIT 500 496 768 2,323 2,715 Less: Interest expense   7   9   10   32   44 Income before income taxes $493 $ 487 $ 758 $2,291 $ 2,671   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 ended   For the years endedDecember 31,   September 30,   December 31,December 31,   December 31,In millions20122012201120122011Distribution Entities North American distributors $32 $ 37 $ 34 $147 $ 134 Komatsu Cummins Chile, Ltda. 6 9 6 26 22 All other distributors 1 - 1 4 4 Manufacturing Entities Chongqing Cummins Engine Company, Ltd. 12 14 17 61 68 Dongfeng Cummins Engine Company, Ltd. 10 9 16 52 80 Tata Cummins, Ltd. 4 - 5 11 14 Cummins Westport, Inc. 3 2 6 14 14 Shanghai Fleetguard Filter Co., Ltd. 3 3 3 13 15 Valvoline Cummins, Ltd. 2 2 1 8 7 Beijing Foton Cummins Engine Co., Ltd. 2 3 (2) 5 (7) Komatsu manufacturing alliances (2) (1) 2 (3) 3 All other manufacturers   2   7   2   9   21 Cummins share of net income 75 85 91 347 375 Royalty and interest income   7   9   10   37   41 Equity, royalty and interest income from investees $82 $ 94 $ 101 $384 $ 416   NOTE 2.RESTRUCTURING CHARGES We have executed restructuring actions primarily in the form of involuntary separation programs in the fourth quarter of 2012. These actions were in response to deterioration in our U.S. businesses and most key markets around the world in the second half of 2012, as well as a reduction in orders in most U.S. and global markets for 2013. We reduced our worldwide professional workforce by approximately 650 employees, or 3 percent. We also reduced our hourly workforce by approximately 650 employees. During 2012, we incurred a pre-tax charge related to the professional and hourly workforce reductions of approximately $49 million. Employee termination and severance costs were recorded based on approved plans developed by the businesses and corporate management which specified positions to be eliminated, benefits to be paid under existing severance plans or statutory requirements and the expected timetable for completion of the plan. Estimates of restructuring were made based on information available at the time charges were recorded. Due to the inherent uncertainty involved, actual amounts paid for such activities may differ from amounts initially recorded and we may need to revise previous estimates. We incurred $1 million of restructuring expenses for lease terminations and $2 million of restructuring expenses for asset impairments and other non-cash charges. During 2012, we recorded a total pre-tax restructuring charge of $52 million. These restructuring actions included:       Year endedIn millionsDecember 31, 2012 Workforce reductions $ 49 Exit activities 1 Other   2 Total restructuring charges $ 52   If the 2012 restructuring actions are successfully implemented, we expect the annualized savings from the professional actions to be approximately $39 million. At December 31, 2012, of the approximately 1,300 employees to be affected by this plan, 1,130 had been terminated. Restructuring charges were included in each segment in our operating results. The table below summarizes where the restructuring costs are located in our Condensed Consolidated Statements of Income for the year ended December 31, 2012.     Year endedIn millionsDecember 31, 2012 Cost of sales $ 29 Selling, general and administrative expenses 20 Research, development and engineering expenses   3 Total restructuring charges $ 52   NOTE 3.INCOME TAXES Our income tax rates are generally less than the 35 percent U.S. income tax rate primarily because of lower taxes on foreign earnings and research tax credits. Our effective tax rate for the fourth quarter and full year of 2012 was 16.8 percent and 23.6 percent, respectively. The tax rate for the fourth quarter and full year includes one-time tax items that total a benefit of $39 million ($0.21 per diluted share) and $55 million ($0.29 per diluted share), respectively. The one-time tax items for the fourth quarter and full year related primarily to benefits resulting from transactions entered into and elections made with respect to our U.K. operations. Our effective tax rate for the fourth quarter and full year of 2011 was 24.5 percent and 27.1 percent, respectively. Excluding the gain on sale of certain assets and liabilities of the businesses and the flood insurance recovery, our effective tax rate for the fourth quarter and full year of 2011 was 22.8 percent and 26.3 percent, respectively. A reconciliation of the U.S. federal income tax rate of 35 percent to the actual effective tax rate is as follows:     Years ended December 31,2012   2011 U.S. federal statutory rate 35.0% 35.0 % State income tax, net of federal effect 1.0 0.4 Research tax credits (0.4) (4.7) Differences in rates and taxability of foreign subsidiaries and joint ventures (12.0) (4.6) Other, net - 1.0 Effective tax rate 23.6% 27.1 %   On January 2, 2013, the American Taxpayer Relief Act of 2012 was enacted. This legislation retroactively extended the U.S. federal research credit for two years, from January 1, 2012 through December 31, 2013. We expect our 2013 effective tax rate, which will include an estimated 1 percent benefit for the 2013 research credit, to be 26 percent excluding any one-time tax items that may arise. Additionally, we anticipate that our first quarter 2013 results will include a one-time tax benefit of approximately $28 million representing the net benefit attributable to the 2012 research credit. NOTE 4.DEPRECIATION AND AMORTIZATION Depreciation and amortization expense included in operating activities of the Condensed Consolidated Statements of Cash Flows for the years ended December 31, 2012 and 2011, was $361 million and $325 million, respectively. 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 restructuring charges, one-time income tax items, the sale of certain assets and liabilities and a 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 December 31, 2012, September 30, 2012 and December 31, 2011 and for the years ended December 31, 2012 and December 31, 2011.     Three months endedDecember 31, 2012   September 30, 2012   December 31, 2011In millionsNet Income   Diluted EPSNet Income   Diluted EPSNet Income   Diluted EPS Net income attributable to Cummins Inc. $381$2.02 $ 352 $ 1.86 $ 548 $ 2.86 Add Restructuring charges 350.19 - - - - Less One-time tax benefits(1)390.21 16 0.08 - - Gain on sale of business(2)-- - - 33 0.17 Flood insurance recovery(3)-- - - 24 0.13 Net income attributable to Cummins Inc. excluding                         special items $377$2.00 $ 336 $ 1.78 $ 491 $ 2.56   For the years endedDecember 31, 2012December 31, 2011In millionsNet IncomeDiluted EPSNet IncomeDiluted EPS Net income attributable to Cummins Inc. $1,657$8.74 $ 1,848 $ 9.55 Add Restructuring charges 350.18 - - Less One-time tax benefits(1)550.29 - - Gain on sale of business(2)40.02 70 0.36 Flood insurance recovery(3)-- 24 0.12 Net income attributable to Cummins Inc. excluding                 special items $1,633$8.61 $ 1,754 $ 9.07   (1)   The one-time tax benefits for the three months ended December 31, 2012, and the year ended December 31, 2012, related primarily to benefits resulting from transactions entered into and elections made with respect to our U.K. operations. The three month period ended September 30, 2012, included a $16 million one-time tax benefit for third quarter 2012, $6 million of which related to a dividend distribution of accumulated foreign income earned in prior years. These one-time tax adjustments also included a one-time tax benefit of $13 million for prior year tax return true-up adjustments and a one-time tax charge of $3 million related to the third quarter enactment of U.K. tax law changes. (2) In the second and fourth quarter of 2011 we sold certain assets and liabilities of our exhaust business and our light-duty filtration business. In the second quarter of 2011 we recognized a gain on the sale of $68 million ($37 million after-tax). In the fourth quarter of 2011 we recognized a gain on the sale of $53 million ($33 million after-tax). In the second quarter of 2012 we recognized a $6 million gain ($4 million after-tax) related to adjustments from our 2011 divestitures. (3) In the fourth quarter of 2011 we recognized a gain of $38 million ($24 million after-tax) on a flood settlement with our insurance carriers to settle 2008 flood claims.   CUMMINS INC. AND SUBSIDIARIESFINANCIAL MEASURES THAT SUPPLEMENT GAAP(Unaudited)Earnings before interest expense, income 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 and EBIT excluding restructuring and other charges, non-GAAP financial measures, to “Net income attributable to Cummins Inc.,” for each of the applicable periods:     Three months ended   For the years endedDecember 31,   September 30,   December 31,December 31,   December 31,In millions20122012201120122011 Earnings before interest expense, income taxes and special items $552 $ 496 $ 677 $2,369 $ 2,556   Earnings before interest expense, income taxes andspecial items as a percentage of net sales12.9%12.0%13.8%13.7%14.2%   Less Restructuring charges 52 - - 52 - Add Gain on sale of businesses - - 53 6 121 Flood insurance recovery   -   -   38   -   38   Earnings before interest expense and income taxes $500 $ 496 $ 768 $2,323 $ 2,715   EBIT as a percentage of net sales11.6%12.0%15.6%13.4%15.0%   Less Interest expense 7 9 10 32 44 Income tax expense   83   117   186   541   725 Consolidated net income   410   370   572   1,750   1,946   Less Net income attributable to noncontrolling interests   29   18   24   93   98 Net income attributable to Cummins Inc. $381 $ 352 $ 548 $1,657 $ 1,848   Net income attributable to Cummins Inc.as a percentage of net sales8.9%8.5%11.1%9.6%10.2%             CUMMINS INC. AND SUBSIDIARIESBUSINESS UNIT SALES DATA(Unaudited)   Engine segment net sales by market   2012In millionsQ1Q2Q3Q4YTD Heavy-duty truck $ 892 $ 807 $ 656 $609 $ 2,964 Medium-duty truck and bus 526 512 478 575 2,091 Light-duty automotive and RV 286 297 353 343 1,279 Industrial 861 859 766 747 3,233 Stationary power   294   366   274   232   1,166   Total sales $ 2,859 $ 2,841 $ 2,527 $2,506 $ 10,733   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 Mid-range 109,000 110,000 113,000 108,500 440,500 Heavy-duty 36,000 33,000 26,000 24,100 119,100 High horsepower   5,500   5,800   4,600   3,900   19,800   Total units   150,500   148,800   143,600   136,500   579,400   2011UnitsQ1Q2Q3Q4YTD Mid-range 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 SUBSIDIARIESBUSINESS UNIT SALES DATA(Unaudited)   Component segment sales by business   2012In millionsQ1Q2Q3Q4YTD Emission solutions $ 404 $ 349 $ 325 $337 $ 1,415 Turbo technologies 298 297 257 254 1,106 Filtration 270 266 260 252 1,048 Fuel systems   127   124   96   96   443   Total sales $ 1,099 $ 1,036 $ 938 $939 $ 4,012   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 operating 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 reorganized balances) were as follows: 2012           In millionsQ1Q2Q3Q4YTD Power products $ 375 $ 459 $ 425 $395 $ 1,654 Power systems 188 217 174 178 757 Generator technologies 141 160 138 127 566 Power solutions   76   73   77   65   291   Total sales $ 780 $ 909 $ 814 $765 $ 3,268   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             Distribution segment sales by business   2012In millionsQ1Q2Q3Q4YTD Parts and filtration $ 288 $ 302 $ 326 $319 $ 1,235 Power generation 186 201 178 242 807 Engines 166 147 157 195 665 Service   135   144   140   151   570   Total sales $ 775 $ 794 $ 801 $907 $ 3,277   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, 317-610-2480Executive Director - Corporate Communicationscarole.casto@cummins.com