Edgar Filing: CUMMINS INC

UNITED STATES

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of Report: July 27, 2010

CUMMINS INC.

(Exact name of registrant as specified in its charter)

Indiana

(State or other Jurisdiction of

Incorporation)

1-4949

(Commission File Number)

35-0257090

(I.R.S. Employer Identification

No.)

500 Jackson Street

P. O. Box 3005

Columbus, IN 47202-3005

(Principal Executive Office) (Zip Code)

Registrant's telephone number, including area code: (812) 377-5000

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions ( see General Instruction A.2. below):

[ ]	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ]	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ]	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ]	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02. Results of Operations and Financial Condition.

On July 27, 2010, Cummins Inc. issued a press release regarding its release of second quarter results.

Item 7.01. Regulation FD Disclosure

The following information is furnished pursuant to Item 2.02, "Results of Operations

and Financial Condition" and Item 7.01, "Regulation FD Disclosure."

On July 27, 2010, Cummins Inc. ("Cummins," "the Company," "the registrant," "we," "our," or "us") issued the attached press release reporting its financial results for the second quarter of 2010. A copy of Cummins' press release is attached hereto as Exhibit 99 and hereby incorporated by reference.

Item 9.01. Financial Statements and Exhibits.

(d)

The following exhibit is furnished herewith:

99-Press Release dated July 27, 2010

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: July 27, 2010

CUMMINS INC.

/s/ Marsha L. Hunt

______________________________

Marsha L. Hunt

Vice President - Corporate Controller

(Principal Accounting Officer)

CUMMINS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited) (a)

	Three months ended
	June 27,		March 28,		June 28,
In millions, except per share amounts	2010		2010		2009
NET SALES	$	3,208	$	2,478	$	2,431
Cost of sales	2,455		1,877		1,983
GROSS MARGIN	753		601		448

OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses	354		335		287
Research, development and engineering expenses	96		92		79
Equity, royalty and interest income from investees	97		76		57
Restructuring charges	―		―		7
Other operating expense, net	4		4		11

OPERATING INCOME	396		246		121

Interest income	5		3		1
Interest expense	9		9		10
Other income (expense), net	―		17		(13		)
INCOME BEFORE INCOME TAXES	392		257		99

Income tax expense	122		87		29
CONSOLIDATED NET INCOME	270		170		70

Less: net income attributable to noncontrolling interests	24		21		14
NET INCOME ATTRIBUTABLE TO CUMMINS INC.	$	246	$	149	$	56

EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
Basic	$	1.25	$	0.75	$	0.28
Diluted	$	1.25	$	0.75	$	0.28

WEIGHTED AVERAGE SHARES OUTSTANDING
Basic		196.9		198.4		197.1
Diluted		197.3		198.7		197.4

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 STATEMENTS OF INCOME

(Unaudited) (a)

	Six months ended
	June 27,		June 28,
In millions, except per share amounts	2010		2009
NET SALES	$	5,686	$	4,870
Cost of sales	4,332		3,977
GROSS MARGIN	1,354		893

OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses	689		587
Research, development and engineering expenses	188		164
Equity, royalty and interest income from investees	173		90
Restructuring charges	―		73
Other operating expense, net	8		9

OPERATING INCOME	642		150

Interest income	8		3
Interest expense	18		17
Other income (expense), net	17		(16		)
INCOME BEFORE INCOME TAXES	649		120

Income tax expense	209		36
CONSOLIDATED NET INCOME	440		84

Less: net income attributable to noncontrolling interests	45		21
NET INCOME ATTRIBUTABLE TO CUMMINS INC.	$	395	$	63

EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
Basic	$	2.00	$	0.32
Diluted	$	2.00	$	0.32

WEIGHTED AVERAGE SHARES OUTSTANDING
Basic		197.6		197.0
Diluted		197.9		197.2

CASH DIVIDENDS DECLARED PER COMMON SHARE	$	0.35	$	0.35

(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 27,			December 31,
In millions, except par value	2010			2009
ASSETS
Current assets
Cash and cash equivalents	$	924		$	930
Marketable securities		269			190
Accounts and notes receivable, net		2,052			2,004
Inventories		1,652			1,341
Deferred income taxes		312			295
Prepaid expenses and other current assets		236			243
Total current assets		5,445			5,003
Long-term assets
Property, plant and equipment		4,705			4,765
Accumulated depreciation		(2,867	)		(2,879	)
Property, plant and equipment, net		1,838			1,886
Investments and advances related to equity method investees		622			574
Goodwill		363			364
Other intangible assets, net		225			228
Deferred income taxes		377			436
Other assets		340			325
Total assets	$	9,210		$	8,816
LIABILITIES
Current liabilities
Loans payable	$	87		$	37
Accounts payable (principally trade)		1,213			957
Current portion of accrued product warranty		407			426
Accrued compensation, benefits and retirement costs		346			366
Deferred revenue		142			128
Other accrued expenses		612			518
Total current liabilities		2,807			2,432
Long-term liabilities
Long-term debt		669			637
Pensions		370			514
Postretirement benefits other than pensions		461			453
Other liabilities and deferred revenue		743			760
Total liabilities		5,050			4,796
EQUITY
Cummins Inc. shareholders’ equity
Common stock, $2.50 par value, 500 shares authorized, 221.9 and 222.0 shares issued		1,868			1,860
Retained earnings		3,900			3,575
Treasury stock, at cost, 23.1 and 20.7 shares		(890	)		(731	)
Common stock held by employee benefits trust, at cost, 2.9 and 3.0 shares		(35	)		(36	)
Accumulated other comprehensive loss
Defined benefit postretirement plans		(786	)		(788	)
Other		(174	)		(107	)
Total accumulated other comprehensive loss		(960			(895	)
Total Cummins Inc. shareholders’ equity		3,883			3,773
Noncontrolling interests		277			247
Total equity		4,160			4,020
Total liabilities and equity	$	9,210		$	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)

	Six months ended
	June 27,			June 28,
In millions	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net income	$	440		$	84
Adjustments to reconcile consolidated net income to net cash provided by operating activities:
Restructuring charges, net of cash payments	―			20
Depreciation and amortization	161			154
Gain on fair value adjustment for consolidated investee	(12		)	―
Deferred income taxes	43			20
Equity in income of investees, net of dividends	(49		)	60
Pension expense, net of pension contributions	(116		)	(15		)
Other post-retirement benefits expense, net of cash payments	(7		)	(16		)
Stock-based compensation expense	11			12
Translation and hedging activities	3			51
Changes in current assets and liabilities, net of acquisitions and divestitures:
Accounts and notes receivable	(57		)	86
Inventories	(301		)	282
Other current assets	1			22
Accounts payable	239			(253		)
Accrued expenses	(14		)	(242		)
Changes in long-term liabilities	66			73
Other, net	19			(17		)
Net cash provided by operating activities	427			321
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(91		)	(139		)
Investments in internal use software	(22		)	(19		)
Proceeds from disposals of property, plant and equipment	42			7
Investments in and advances (to) from equity investees	(1		)	1
Acquisition of businesses, net of cash acquired	(71		)	(2		)
Investments in marketable securities—acquisitions	(358		)	(69		)
Investments in marketable securities—liquidations	278			133
Cash flows from derivatives not designated as hedges	(18		)	(21		)
Other, net	(2		)	―
Net cash used in investing activities	(243		)	(109		)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings	85			10
Payments on borrowings and capital lease obligations	(37		)	(44		)
Net borrowings under short-term credit agreements	(1		)	(5		)
Distributions to noncontrolling interests	(4		)	(10		)
Dividend payments on common stock	(70		)	(71		)
Repurchases of common stock	(162		)	―
Other, net	16			1
Net cash used in financing activities	(173		)	(119		)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	(17		)	15
Net (decrease) increase in cash and cash equivalents	(6		)	108
Cash and cash equivalents at beginning of year	930			426
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	924		$	534

(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 27, 2010
External sales	$		1,595		$	518		$		522		$	573		$		―		$	3,208
Intersegment sales	304				190			207				3			(704			)	―
Total sales	1,899				708			729				576			(704			)	3,208
Depreciation and amortization(2)	42				11			21				7			―				81
Research, development and engineering expenses	62				8			26				―			―				96
Equity, royalty and interest income from investees	52				9			6				30			―				97
Interest income	2				1			1				1			―				5
Segment EBIT	197				76			75				69			(16			)	401

Three months ended March 28, 2010
External sales	$		1,173		$	378		$		453		$	474		$		―		$	2,478
Intersegment sales	250				139			177				2			(568			)	―
Total sales	1,423				517			630				476			(568			)	2,478
Depreciation and amortization(2)	41				10			20				7			―				78
Research, development and engineering expenses	60				7			25				―			―				92
Equity, royalty and interest income from investees	35				6			5				30			―				76
Interest income	2				1			―				―			―				3
Segment EBIT	133				34			57				72			(30			)	266

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 expenses	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

Six months ended June 27, 2010
External sales	$	2,768			$		896	$	975			$		1,047	$		―		$	5,686
Intersegment sales	554				329			384				5			(1,272			)	―
Total sales	3,322				1,225			1,359				1,052			(1,272			)	5,686
Depreciation and amortization(2)	83				21			41				14			―				159
Research, development and engineering expenses	122				15			51				―			―				188
Equity, royalty and interest income from investees	87				15			11				60			―				173
Interest income	4				2			1				1			―				8
Segment EBIT	330				110			132				141			(46			)	667

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 expenses	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
(1) Includes intersegment sales and profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the three and six months ended June 27, 2010 or the three months ended March 28, 2010. 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, respectively.
(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 27,		March 28,		June 28,		June 27,		June 28,
In millions	2010		2010		2009		2010		2009
Segment EBIT	$	401	$	266	$	109	$	667	$	137
Less:
Interest expense	9		9		10		18		17
Income before income taxes	$	392	$	257	$	99	$	649	$	120

FINANCIAL MEASURES THAT SUPPLEMENT GAAP

(Unaudited)

Earnings before interest, taxes, noncontrolling interests and restructuring and other 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 “Net income attributable to Cummins Inc.,” for each of the applicable periods:

	Three months ended									Six months ended
	June 27,			March 28,			June 28,			June 27,			June 28,
In millions	2010			2010			2009			2010			2009
Earnings before interest expense, income taxes and restructuring charges	$	401		$	266		$	116		$	667		$	210

Earnings before interest expense, income taxes and restructuring and other charges as a percentage of sales	12.5		%	10.7		%	4.8		%	11.7		%	4.3		%
Less:
Restructuring charges	―			―			7			―			73

Earnings before interest and income taxes	$	401		$	266		$	109		$	667		$	137

EBIT as a percentage of net sales	12.5		%	10.7		%	4.5		%	11.7		%	2.8		%

Less:
Interest expense	9			9			10			18			17
Income tax expense	122			87			29			209			36
Consolidated net income	270			170			70			440			84

Less:
Net income attributable to noncontrolling interests	24			21			14			45			21
Net income attributable to Cummins Inc.	$	246		$	149		$	56		$	395		$	63

Net income attributable to Cummins Inc. as a percentage of net sales	7.7		%	6.0		%	2.3		%	6.9		%	1.3		%

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 periods 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 “Net income attributable to Cummins Inc.” for the three and six months ended June 28, 2009. There were no restructuring actions taken in the three or six months ended June 27, 2010 or three months ended March 28, 2010.

	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 actions, which resulted in a pretax charge of $7 million and $73 million, respectively. These charges included employee-related liabilities for severance and benefits of approximately $8 million and $68 million, net of changes in estimate and exit costs of approximately zero and $6 million, for the three and six months ended, respectively.

CUMMINS INC. AND SUBSIDIARIES

SELECTED FOOTNOTE DATA

(Unaudited)

NOTE 1. EQUITY, ROYALTY AND INTEREST INCOME FROM INVESTEES

Equity, royalty and interest income from investees included in our Condensed Consolidated Statements of Income for the interim reporting periods was as follows:

	Three months ended						Six months ended
	June 27,		March 28,		June 28,		June 27,		June 28,
In millions	2010		2010		2009		2010		2009
Distribution Entities
North American distributors	$	23	$	23	$	23	$	46	$	49
All other distributors	4		4		4		8		7

Manufacturing Entities
Dongfeng Cummins Engine Company, Ltd.	34		18		7		52		7
Chongqing Cummins Engine Company, Ltd.	13		10		12		23		20
All other manufacturers	15		14		7		29		―
Cummins share of net income	89		69		53		158		83
Royalty and interest income	8		7		4		15		7
Equity, royalty and interest income from investees	$	97	$	76	$	57	$	173	$	90

NOTE 2. OTHER INCOME (EXPENSE)

Other income (expense) included the following:

	Three months ended										Six months ended
In millions	June 27, 2010				March 28, 2010			June 28, 2009			June 27, 2010			June 28, 2009
Foreign currency gains (losses), net	$	2			$	7		$	(10	)	$	9		$	(18	)
Gain on acquisition of Cummins Western Canada	―				12			―			12			―
Other, net	(2			)	(2		)	(3)			(4		)	2
Total other income (expense), net	$		―		$	17		$	(13	)	$	17		$	(16	)

NOTE 3. INCOME TAXES

Our effective tax rate for the year is expected to approximate 31 percent, absent any additional discrete period activity. Our tax rate is generally less than the 35 percent U.S. income tax rate primarily due to lower tax rates on foreign income. The tax rates for the three and six month periods ended June 27, 2010, were 31 percent and 32 percent. The tax rate for the six month period includes a discrete tax charge of $7 million (one percent) related to the enactment of the “Patient Protection and Affordable Care Act.” The tax rate for the three month period ended March 28, 2010, was 34 percent and also included a discrete charge of $7 million (3 percent) related to the enactment of the “Patient Protection and Affordable Care Act.’

Our effective tax rates for the comparable prior year periods were 29 percent and 30 percent, respectively. These rates were less than the 35 percent U.S. income tax rate primarily due to lower tax rates on foreign income.