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:  February 2, 2005

  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:

[  ]     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))

 


Page 2

Section 2 - Financial Information

      Item 2.02  Results of Operations and Financial Condition

On Wednesday, February 2, 2005, Cummins Inc. issued a press release announcing its earnings for the fourth quarter and year ended December 31, 2004.

Section 9 - Financial Statements and Exhibits

      Item 9.01  Financial Statements and Exhibits

      (c)  Exhibits.

            99.1   Press release dated February 2, 2005.

 

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: February 2, 2005

Cummins Inc.

 

 

By: /s/ Marsha L. Hunt
______________________________

Marsha L. Hunt
Vice President - Corporate Controller
Principle Accounting Officer

 


           Mark Land
           Director  - Public Relations
           (812) 377-7719 (office)
           (812) 350-9678 (mobile)
           mark.d.land@cummins.com

For Immediate Release
Feb. 2, 2005

Cummins reports record sales and earnings in 2004
Fourth-quarter sales, profits also hit all-time high

COLUMBUS, IND. - Cummins Inc. (NYSE: CMI) today reported record sales and earnings for 2004, fueled by strength across all business units and in most market segments.

For all of 2004, Cummins posted sales of $8.44 billion, a 34 percent increase from $6.30 billion in 2003.  Earnings before interest and taxes (EBIT) were $545 million, three times the $181 million the Company earned in 2003.

For the full year, Cummins reported net income of $350 million, or $7.39 per share on a diluted basis. By comparison, the Company recorded net income of $50 million, or $1.27 a share in 2003.

The Company also reported record sales of $2.35 billion in the fourth quarter, a 35 percent increase from $1.74 billion during the same period in 2003. The Company posted quarterly EBIT of $173 million -- or 7.4 percent of sales -- compared to $84 million, or 4.8 percent of sales, in 2003.

Net income in the fourth quarter was $119 million, or $2.41 a share, compared to $43 million -- $1.00 a share -- for the same period in 2003. 

"The Company ended its best year ever with a strong fourth quarter that saw all our business units report record sales," said Cummins Chairman and Chief Executive Officer Tim Solso. "The industry faced a number of obstacles during the year, but our people rose to the challenge and executed well. As a result, we continued to grow our business around the world and have positioned ourselves for an even better 2005."

The Company expects to grow its EBIT by at least 30 percent in 2005 - even as the revenue increase is expected to be only in the 7-8 percent range, Solso said.

In another sign of strong performance in 2004, the Company had record cash flow from operations and investment activities of $425 million, including $180 million in the fourth quarter.

"Our strong earnings have generated a significant amount of cash, which will allow us to reduce our debt further in the coming year - including paying down $255 million in debt during the first quarter," said Cummins Chief Financial Officer Jean Blackwell. "We're also now in a better position to fund key growth initiatives with cash from our operations."

The Company's fourth-quarter gains were led by continued robust performance in the North American heavy-duty truck engine segment, strong worldwide increases in the Power Generation segment and growing sales at nearly every Company-owned international distributor. Power Generation completed a turnaround year in which it posted EBIT of $69 million, compared to a loss of $15 million in 2003.

Cummins income from its joint ventures around the world was $111 million in 2004, a 59 percent increase from $70 million in 2003. Cummins income from Dongfeng Cummins Engine Company in Xiangfan, China, more than doubled in 2004. The Company also saw significant strength in its North American distributor joint ventures, its joint venture operations in India and the Cummins Mercruiser joint venture.

The Company's gross margin continued to improve to 19.9 percent for the full year - the highest figure since 1999. The Company posted strong results despite continued cost pressures on raw materials and persistent supply chain constraints due to rising sales volumes. The Company expects the rate of those increases to moderate in 2005.

The Company's fourth-quarter EPS of $2.41 exceeded its previous guidance of $2.15 -$2.25 a share and reflects a lower than anticipated effective income tax rate, primarily due to the current measurement of certain deferred tax assets.

Fourth quarter details:

Engine segment
Segment sales rose 55 percent in the fourth quarter to $1.5 billion, once again led by robust North American heavy duty truck engine shipments, which were up 89 percent from 2003. The Company's Chrysler business completed another record year by posting a 21 percent increase in shipments of engines for the Dodge Ram pickup truck.  The Company also experienced strong growth in all industrial markets, especially sales to the global mining equipment market, which rose 77 percent in the quarter.

The Engine segment recorded Segment EBIT of $114 million, or 7.5 percent of sales, compared to $32 million (3.3 percent of sales) during the same period in 2003.

Power Generation segment
Sales jumped 37 percent to $538 million in the Company's Power Generation segment, leading to a doubling in Segment EBIT to $27 million in the quarter. The Company experienced strong demand worldwide for alternators and commercial generator sets.

Alternator sales rose 38 percent, while sales of commercial generator sets rose 31 percent with orders in North America hitting their highest levels since 2001.  In addition to strong North American sales, the segment also enjoyed growth in most international markets, notably in the Middle East, Europe and Asia.

International Distributor segment
The Company's International Distributor segment reported record sales of $250 million and record Segment EBIT of $17 million. Nearly all the company-owned international distributors reported an increase in sales during the quarter, led by particularly strong sales in Europe, the Middle East and Southeast Asia.  Sales in the Middle East rose 73 percent; Southeast Asia sales jumped 72 percent and sales in Europe increased 56 percent.

Filtration and Other segment
Sales in the Filtration and Other segment rose 41 percent to $399 million, but Segment EBIT fell to $15 million, from $25 million during the same period in 2003, due to persistent rising raw materials costs and a challenging supply chain environment.  The Company also continued to make incremental investments in its Emission Solutions business to develop aftertreatment products to meet future emissions requirements.

The Company's Filtration business continues to benefit from sales growth associated with its long-term agreement partners and the Holset turbocharger division had a strong quarter paced by demand in the North American heavy-duty market and sales in China.

2005 guidance
The Company expects to earn between $1.50 -$1.60 a share in the first quarter of 2005 and between $8.00 - $8.30 a share for the full year. In addition, the Company expects to invest between $220 million and $240 million in capital expenditures in 2005 to increase manufacturing capacity and fund growth.

Presentation of Non-GAAP Financial Information
EBIT is a non-GAAP financial measure used in this release. EBIT 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 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.

About Cummins
Cummins Inc., a global power leader, is a corporation of complementary business units that design, manufacture, distribute and service engines and related technologies, including fuel systems, controls, air handling, filtration, emission solutions and electrical power generation systems. Headquartered in Columbus, Indiana, (USA) Cummins serves customers in more than 160 countries through its network of 550 distributor facilities and more than 5,000 dealer locations. With more than 24,000 employees worldwide, Cummins reported sales of $8.4 billion in 2004. Press releases can be found on the Web at www.cummins.com.

Forward Looking Statement Disclosure
Information provided and statements in this release and on the accompanying webcast that are not purely historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding the company's expectations, hopes, beliefs and intentions or strategies regarding the future. It is important to note that the company's actual future results could differ materially from those projected in such forward-looking statements because of a number of factors, including, but not limited to, general economic, business and financing conditions, labor relations, governmental action, competitor pricing activity, expense volatility and other risks detailed from time to time in Cummins Securities and Exchange Commission filings. 


CUMMINS INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS


 

                           
 Three Months Ended

                
For the Years Ended

  Three Months Ended

Dec. 31, 2004

Dec. 31, 2003

Dec. 31, 2004

Sept. 26, 2004

Millions, except per share amounts

Unaudited (a)

Unaudited (a)

Unaudited (a)

Dec. 31,2003 

Unaudited (a)

 

Net sales.....................................................................

$2,349

$1,736

$8,438

$6,296

$2,194

Cost of sales.........................................................

  1,876

  1,400

  6,758

  5,173

  1,760

 

Gross margin............................................................

     473

     336

  1,680

  1,123

     434

 

Expense and other income:

   Selling and administrative expenses.....................

     281

     227

  1,015

     830

     260

   Research and engineering expenses.....................

       66

       52

     241

     200

       60

   Equity, royalty and other income from investees.....

       (38)

       (26)

     (111)

       (70)

       (26)

   Interest expense....................................................

        31

       25

     113

       90

       28

   Other income, net....................................................

         (9)

        (1)

       (10)

       (18)

        (6)

 

Earnings before income taxes, minority interests,
dividends on preferred securities of subsidiary
trust and cumulative effect of change in
accounting principle....................



   
     142



      
       59



    
      432

       

      
        91



  
     118

 

Provision (benefit) for income taxes...................

      12

        7

          56    

        12

        (4)

Minority interests in earnings of consolidated
    subsidiaries ....................

      
      11

       
       5

          
           26     

       
      14

       
        6

Dividends on preferred securities of subsidiary
    trust......


         -


         -


         -


       11


        -

Earnings before cumulative effect of change in
    accounting principle................

     119

       47

     350

      54

    116

Cumulative effect of change in accounting
   principle, net of tax........................................

         -

         (4)

         -

         (4)

       -

Net earnings ................................................

$     119
=======    

$      43
=======

$    350
=======   

$      50
=======

$  116
=======

 

   Basic earnings per share of common stock:

          

     

       Earnings before cumulative effect of

             change in accounting principle.............

$ 2.73

$ 1.17

$ 8.30

$ 1.37

$     2.71

        Cumulative effect of change in accounting

               principle, net of tax.............

       -

    (.09)

        -

   (.09)

            -

        Net earnings per share - basic

$ 2.73
======

$ 1.08
======

$ 8.30
======

$ 1.28
======

$     2.71
=======

 

   Diluted earnings per share of common stock:

        Earnings before cumulative effect of

            change in accounting principle...............

$ 2.41

$ 1.07

$ 7.39

$ 1.36

$     2.40    

        Cumulative effect of change in accounting

            principle, net of tax.............

        -

      (.07)

        -

     (.09)

            -

        Net earnings per share - diluted

$ 2.41
======

$ 1.00
======

$ 7.39
======

$ 1.27
======

$     2.40
=======

 

Cash dividends declared per share.........................

$ 0.30

$ 0.30

$ 1.20

$ 1.20

$     0.30

 

Weighted average shares outstanding:

   Basic.....................

     43.6

     40.1

     42.2

     39.3

 42.8

   Diluted.....................

     50.7

     46.7

     49.2

     39.5

    49.8    

 


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

CUMMINS INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

Millions, except par value

Dec. 31, 2004

 

 

Unaudited (a)

Dec. 31, 2003

ASSETS

Current assets:

 

 

  Cash and cash equivalents..........................................................

$   611

$   108

  Marketable securities..................

       79

       87

  Receivables, net .........................

 1,160

     929

  Inventories..................................................................................

 1,016

     733

  Deferred income taxes................................................................

     301

     192

  Other current assets....................................................................

     106

      81

      Total current assets..................

 3,273

 2,130

Long-term assets:

  Property, plant and equipment, net............

 1,648

 1,347

  Investments in and advances to equity investees...........

     286

     339

  Goodwill.................................

     355

     344

  Other intangible assets, net.................

       93

       92

  Deferred income taxes......................

     689

     663

  Other assets..............................

     183

     211

Total assets.................................................................................

$6,527
======

$5,126
======

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

Current liabilities:

 

 

  Short-term borrowings...................................................................

$   346

$     49

  Accounts payable...........................................................................

     823

     557

  Accrued product coverage and marketing expenses.......

     279

     246

  Other current liabilities..................................................................

     749

     539

      Total current liabilities................

   2,197

   1,391

Long-term liabilities:

  Long-term debt.........................................................................

 1,299

 1,380

  Pensions.......................

     466

     446

  Postretirement benefits other than pensions..........

     570

     577

  Other liabilities.........................................................................

     386

     260

     Total liabilities...................

 4,918

 4,054

 

 

 

Minority interests.....................

     208

     123

 

 

 

Shareholders' equity:

 

 

  Common stock, $2.50 par value, 48.2 and 48.3 shares issued...

     121

     121

  Additional contributed capital.....................................................

 1,167

 1,113

  Retained earnings.....................................................................

     866

     569

  Accumulated other comprehensive loss

     Minimum pension liability................

     (499)

     (434)

     Other components, net....................

       (41)

       (58)

  Common stock in treasury, at cost, 2.2 and 5.6 shares............

       (88)

     (225)

  Common stock held in trust for

     employee benefit plans, 2.2 and 2.3 shares..........

     (104)

     (113)

  Unearned compensation..........................

       (21)

       (24)

      Total shareholders' equity.................

   1,401

      949

Total liabilities and shareholders' equity.................................

 $6,527

  $5,126

 

======

=====

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


CUMMINS INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended

Millions

Dec. 31, 2004

 

 

Unaudited (a)

Dec. 31, 2003

Cash flows from operating activities:

 

 

  Net earnings ....................................................................

$      350

$      50

  Adjustments to reconcile net earnings to net cash

     provided by operating activities:

       Depreciation and amortization..............................................

       272

       223

       Loss on disposal of property, plant and equipment....................

         11

           4

       Deferred income tax benefit...................................

         (50)

         (48)

       Equity in earnings of investees, net of dividends........

         (28)

         (33)

       Minority interests in earnings of consolidated subsidiaries.....

         26

         14

       Pension expense...................

         89

         61

       Pension contributions.................

       (135)

       (118)

       Stock-based compensation expense.............

         16

           5

       Tax benefit on stock options exercised............

         27

           5

       Amortization of gain on swap unwind..........

           (6)

           (7)

       Translation and hedging activities..............

           (8)

         (18)

       Cumulative effect of change in accounting principle............

           -

           4

  Changes in assets and liabilities:

       Receivables...................................................................

     (163)

         (64)

       Inventories................................................................................

      (204)

         (63)

       Accounts payable.......................................

       210

       100

       Accrued expenses.....................................................................

       236

         22

  Other, net..............................................................................

       (29)

          21

Net cash provided by operating activities.......................................

       614

       158

 

 

 

Cash flows from investing activities:

  Capital expenditures.....................

       (151)

       (111)

  Investments in internal use software..............

         (33)

         (29)

  Proceeds from disposals of  property, plant and equipment...........

         12

         13

  Investments in and advances to equity investees.....

         (19)

           (4)

  Acquisition of businesses, net of cash acquired.........

         (18)

           -

  Investments in marketable securities - acquisitions......

       (152)

       (137)

  Investments in marketable securities - liquidations..................

       171

       134

  Other, net.......................

          1

          (1)

Net cash used in investing activities.......................................

       (189)

      (135)

 

 

 

Cash flows from financing activities:

  Proceeds from borrowings.........................................................

         43

         19

  Payments on borrowings and capital lease obligations.............

         (73)

       (150)

  Net borrowings under short-term credit agreements........

         20

           7

  Distributions to minority shareholders...........

           (8)

         (15)

  Proceeds from issuing common stock...............

       148

         52

  Dividend payments on common stock.........................................

         (53)

         (50)

  Other, net...................................................................................

           (3)

          (8)

Net cash provided by (used in) financing activities.........

         74

      (145)

Effect of exchange rate changes on cash and cash equivalents....

           4

           6

 

 

 

Net increase (decrease) in cash and cash equivalents........................

        503

       (116)

Cash and cash equivalents at beginning of the year..............

        108

       224

Cash and cash equivalents at end of the year.........

$      611
========

$     108
=======

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


CUMMINS INC. AND CONSOLIDATED SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)

                                           Millions

      Engine

Power Generation

Filtration And Other

International Distributor

     Eliminations

           Total

             
Three Months Ended Dec. 31, 2004            

Net sales (1)

$  1,530

$      538

$   399

$   250

$   (368)

$  2,349

Segment EBIT

       114

          27

       15

       17

        -

       173

Net assets

    1,492

       720

     788

     168

        -

    3,168

             
Three Months Ended Dec. 31, 2003            

Net sales

$     984

$      392

$   282

$   190

$   (112)

$  1,736

Segment EBIT

         32

         14

       25

       13

        -

         84

Net assets

    1,061

       499

     644

     180

        -

    2,384

             
For the Year Ended Dec. 31, 2004            

Net sales (1)

$  5,500

$    1,877

$   1,484

$   856

$  (1,279)

$  8,438

Segment EBIT

       341

          69

          84

       51

       -

       545

             
For the Year Ended Dec. 31, 2003            

Net sales

$  3,631

$    1,329

$   1,056

$   669

$    (389)

$  6,296

Segment EBIT

         70

           (15)

         86

       40

       -

       181

The table below reconciles the segment information to the corresponding amounts in the Consolidated Financial Statements.

 

Three Months Ended

For the Year Ended

Millions

Dec. 31, 2004

Dec. 31, 2003

Dec. 31, 2004

Dec. 31, 2003

 

Segment EBIT........................................................................

$ 173

$   84

$ 545

$ 181

  Less:

    Interest expense.........................................................

     31

     25

   113

    90

    Provision for income taxes...............................

     12

       7

     56

    12

    Minority interest in earnings of consolidated subsidiaries...

     11

       5

     26

    14

    Dividends on preferred securities...............

        -

        -

        -

     11

    Cumulative effect of change in accounting principle........

                   -

       4

        -

      4

Consolidated net earnings ...................

$  119
======

$   43
=====

 $ 350
======

 $  50
=====

 

Net assets for operating segments................................

$3,168

 $2,384

Liabilities deducted in computing net assets.............

  3,168

   2,559

Minimum pension liability excluded from net assets........

     (826)

     (698)

Deferred tax assets not allocated to segments...........

      990

      855

Debt-related costs not allocated to segments................

        27

        26

 

 

Consolidated assets.....................

 $6,527
======

 $5,126
======

 

 

(1) Prior to January 1, 2004, intersegment transactions between the Engine segment and the Power Generation segment and   between the Filtration and Other segment and the Engine segment were reported at cost and no sale reported by the transferor segment.  Beginning January 1, 2004, this inter-segment activity is reflected in the sales and unit shipments of the transferor segments at a market based transfer price discounted for certain items; further, certain intersegment cost allocations to the transferor segments have been eliminated.  In addition, certain engines made by the Engine segment and sold to International Distributors through Power Generation were previously recorded as a sale to Power Generation; however under the new methodology Power Generation records a sales commission.  We believe the methodology change allows our segment management to focus on those pricing decisions and cost structuring actions that are within their control.  As a result of the change in methodology in the three and twelve months ended December 31, 2004, sales in the Engine segment increased $139 million and $496 million, respectively, sales in the Power Generation segment increased $1 million and decreased $30 million, respectively, sales in the Filtration and Other segment increased $52 million and $205 million, respectively and eliminations increased $192 million and $671 million, respectively.   The impact on segment EBIT was immaterial for each segment in both periods.

NON-GAAP FINANCIAL MEASURES (Unaudited)

Earnings before interest, taxes, minority interests and preferred dividends (EBIT)

We define EBIT as earnings before interest, taxes, minority interests, preferred dividends and the cumulative effect of any accounting changes.  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 our consolidated net earnings, for each of the applicable periods:

 

Three Months Ended

For the Year Ended

Three Months Ended

Millions

Dec. 31, 2004

Dec. 31, 2003

Dec. 31, 2004

Dec. 31, 2003

Sept. 26, 2004

 Earnings before interest, income taxes, minority interest and dividends on preferred securities of subsidiary trust.......

 

$ 173

 

$    84

 

$  545



$    181

 

$  146

EBIT as a percentage of net sales

      7.4%

      4.8%

       6.5%

    2.9%

      6.7%

Less:

   Interest expense................................................

       31

       25

      113

       90

       28

   Provision (benefit) for income taxes.................

       12

         7

        56

       12

         (4)

   Minority interests in earnings of consolidated 

         
      subsidiaries......................

        11

         5

        26

       14

         6

   Dividends on preferred securities of subsidiary

      trust......................

         -

         -

         -

        11

         -

   Cumulative effect of change in accounting

      principle......................

         -

         4

         -

         4

         -

Net earnings .................................................

$    119
======

$     43
======

$   350
======

$      50
======

$   116
======

Net earnings as a percentage of net sales

      5.1%

      2.5%

       4.1%

    0.8%

      5.3%

*      Interest expense between accounting periods is not comparable due to the issuance of a new accounting standard.  In May 2003, the FASB issued SFAS 150 which required that dividends on our Convertible Preferred Securities of Subsidiary Trust be classified as interest expense after July 1, 2003.  This reclassification results in interest expense not being comparable for the periods presented. 

*      We believe EBIT is a useful measure of our operating performance for the periods presented as it illustrates our operating performance without regard to financing methods, capital structure or income taxes.  This measure is not in accordance with, or an alternative for, accounting principles generally accepted in the United States of America (GAAP) and may not be consistent with measures used by other companies.  It should be considered supplemental data.