Cummins Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

INCOME TAXES (Tables)

INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2011

	Years ended December 31,

In millions	2011		2010		2009
Income (loss) before income taxes:
U.S. income	$	881	$	242	$	(47	)
Foreign income		1,790		1,375		687

Total	$	2,671	$	1,617	$	640

Income tax expense (benefit)

	Years ended December 31,

In millions	2011		2010		2009
Current
U.S. federal and state	$	116	$	11	$	4
Foreign		524		410		147

Total current		640		421		151
Deferred:
U.S. federal and state		69		49		(38	)
Foreign		16		7		43

Total deferred		85		56		5

Income tax expense	$	725	$	477	$	156

Reconciliation of the U.S. federal income tax rate to the actual effective tax rate

	Years ended December 31,

	2011			2010			2009
U.S. federal statutory rate		35.0	%		35.0	%		35.0	%
State income tax, net of federal effect		0.4			0.6			(0.3	)
Research tax credits		(4.7	)		(1.3	)		(2.4	)
Differences in rates and taxability of foreign subsidiaries and joint ventures		(4.6	)		(4.7	)		(5.5	)
Other, net		1.0			(0.1	)		(2.4	)

Effective tax rate		27.1	%		29.5	%		24.4	%

Net deferred tax assets

	December 31,

In millions	2011			2010
Deferred tax asset:
U.S. federal and state carryforward benefits	$	86		$	106
Foreign carryforward benefits		42			33
Employee benefit plans		334			342
Warranty and marketing expenses		302			300
Deferred research and development expenses		6			20
Accrued expenses		73			86
Other		47			37

Gross deferred tax assets		890			924
Valuation allowance		(71	)		(50	)

Total deferred tax assets		819			874

Deferred tax liabilities:
Property, plant and equipment		(158	)		(145	)
Unremitted income of foreign subsidiaries and joint ventures		(222	)		(217	)
Other		(22	)		(1	)

Total deferred tax liabilities		(402	)		(363	)

Net deferred tax assets	$	417		$	511

Reconciliation of the beginning and ending amount of unrecognized tax benefits

In millions

Balance at December 31, 2008	$	57
Additions based on tax positions related to the current year		1
Additions based on tax positions related to the prior years		4
Reductions for tax positions related to prior years		(3	)
Reductions for tax positions relating to settlements with taxing authorities		(5	)
Effects of foreign currency translations		2

Balance at December 31, 2009	$	56
Additions based on tax positions related to the current year		2
Additions based on tax positions related to the prior years		35
Reductions for tax positions related to prior years		(5	)
Reductions for tax positions relating to lapse of statute of limitations		(3	)

Balance at December 31, 2010	$	85
Additions based on tax positions related to the current year		5
Additions based on tax positions related to the prior years		44
Reductions for tax positions related to prior years		(3	)
Reductions for tax positions relating to settlements with taxing authorities		(39	)
Reductions for tax positions relating to lapse of statute of limitations		(6	)

Balance at December 31, 2011	$	86

- Definition

Tabular disclosure of tax positions taken in the tax returns filed or to be filed for which it is more likely than not that the tax position will not be sustained upon examination by taxing authorities (i.e., uncertain tax positions) and other types of income tax contingencies, including: (1) the policy on classification of interest and penalties; (2) a tabular reconciliation of the total amounts of unrecognized tax benefits at the beginning and end of the period; the total amount(s) of: (3) unrecognized tax benefits that, if recognized, would affect the effective tax rate, and (4) interest and penalties recognized in each of the income statement and balance sheet; (5) for positions for which it is reasonably possible that the total amounts unrecognized will significantly change within 12 months of the reporting date the: (i) nature of the uncertainty, (ii) nature of the event that could occur that would cause the change, and (iii) an estimate of the range of the reasonably possible change or a statement that an estimate of the range cannot be made; and (6) a description of tax years that remain subject to examination by major tax jurisdictions.

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