Cummins Announces Results for 2012, Revenues of $17.3 Billion and EBIT of 13.7 Percent Excluding Special Items

• Fourth quarter revenues of $4.3 billion, EBIT of 12.9 percent of sales excluding restructuring costs
• Expects 2013 revenue to be flat to down 5 percent and EBIT to be in the range of 13 to 14 percent of sales

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 Information

EBIT 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 information

Cummins 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.

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

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

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

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

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:

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:

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:

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.

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:

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 SUBSIDIARIES
FINANCIAL 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.

CUMMINS INC. AND SUBSIDIARIES
FINANCIAL 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:

Unit shipments by engine classification (including unit shipments to Power Generation)

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:

Cummins Inc.
Carole Casto, 317-610-2480
Executive Director - Corporate Communications
carole.casto@cummins.com

Source: Cummins Inc.

Released February 6, 2013