Cummins Inc. Cummins Reports Sharply Higher Net Income for First Quart

    Business Editors

    COLUMBUS, Ind.--(BUSINESS WIRE)--April 21, 2005--Cummins Inc. (NYSE:CMI) today reported sharply higher earnings for the first quarter as a result of better margins, strong joint venture performance and increased sales in each of its business units.
    For the three months ending March 27, Cummins posted net income of $97 million, or $1.96 a share on a diluted basis - nearly three times the $33 million ($0.76 a share) the Company earned in the first quarter of 2004 and well above the Company's previous guidance.
    Net sales of $2.21 billion were 25 percent higher than $1.77 billion for the same period a year ago. Earnings before interest and taxes (EBIT) were $163 million in the quarter, or 7.4 percent of sales. For the first quarter of 2004, Cummins reported EBIT of $78 million, or 4.4 percent of sales.
    "We continued to build off our record performance in 2004 with an excellent first quarter," said Cummins Chairman and CEO Tim Solso. "Our markets across the world remain strong and these results reflect our ability to take a greater percentage of revenue to the bottom line. Our people are executing well and those efforts are paying off."
    As a result of the Company's improved performance, Cummins today is raising its earnings and sales guidance for 2005. The Company now expects to earn between $9.00 and $9.20 a share for the year, up from its previous guidance of $8.00 - $8.30 a share. The Company expects to earn between $2.25 and $2.35 a share in the second quarter. The Company is now forecasting sales for the year to be 10-12 percent greater than last year, compared to its previous forecast of a 7-8 percent increase.
    The Company's first quarter performance was led by the Engine Business, which saw sales rise 31 percent from a year ago and Segment EBIT nearly triple, driven by significant strength in the North American heavy duty truck market and its global mining, marine and construction markets.
    The Company's Power Generation and International Distributor Business Units posted sharply higher Segment EBIT when compared to the first quarter of 2004. Likewise, Cummins continues to see strong earnings from its joint venture operations, especially in China. For the first quarter, Cummins profits from its unconsolidated joint ventures around the world were $31 million, up from $18 million for the same period a year ago. Cummins consolidated operations in China also performed extremely well, with the markets for generators, turbochargers and filtration products remaining strong.
    The Company continued to strengthen its balance sheet in the first quarter by reducing its debt by $259 million.
    "We're extremely proud to have been able to pay down a substantial portion of debt," said Cummins Chief Financial Officer Jean Blackwell. "Reducing our debt is a central part of Cummins strategy to strengthen its balance sheet and improve liquidity. We believe that these efforts have resulted in metrics sufficient to justify a return to investment grade."
    The Company received national recognition in the first quarter for its financial performance as well as for its efforts to be a responsible corporate citizen. In addition to being named to Business Week magazine's list of top 50 performing companies for 2004, Cummins was recognized by Business Ethics magazine as its top corporate citizen for 2005. Cummins, which has made the list each of the six years it has been compiled by the magazine, previously was ranked as high as No. 2 in 2003. Cummins also was named the best company for Asian-Americans to work by Diversity Inc. magazine.
    "Cummins core values go beyond delivering superior results, and we take our commitment to employees and the communities in which we operate very seriously," Solso said. "This type of recognition is gratifying, and it speaks well to the values created at Cummins over decades - values that our 28,000 employees strive to live every day."

    First quarter details

    Engine segment

    Segment EBIT of $114 million was a 185 percent increase over $40 million for the same period in 2004. EBIT margin was 7.6 percent, compared to 3.5 percent in the first quarter 2004. Sales rose 31 percent to $1.50 billion in the first quarter.
    Heavy duty truck engine revenues grew 47 percent from the first quarter of 2004. The Company also saw robust performance in its industrial engine markets, especially the mining segment. Industrial sales increased 57 percent compared to the same period last year.

    Power Generation segment

    Segment EBIT of $17 million was nearly three times the $6 million reported for the first quarter of 2004. Power Generation reported sales of $439 million, the best first quarter ever for the segment and 19 percent higher than first quarter 2004.
    Commercial demand continues to grow, especially in the Middle East, Europe and North America, where capital spending increased in the first quarter. Overall market conditions in Asia, most notably China, are strong. Expectations for summer power shortages in China continue to drive demand for large generator sets (above 500 kva).

    Filtration and Other segment

    Segment sales were $403 million in the quarter, up 16 percent from the same period in 2004, while Segment EBIT was $20 million, compared to $24 million in 2004. Strong product demand in North America and Holset turbocharger sales in China helped fuel the segment's performance.
    Segment EBIT declined compared to first quarter 2004 as the business continues to face commodity price pressures and supply chain inefficiencies. Margins improved, resulting in a 33 percent increase in Segment EBIT from the fourth quarter 2004, despite only a 1 percent increase in revenues quarter-to-quarter.

    International Distributors segment

    Segment EBIT of $12 million was a 50 percent increase from $8 million in the first quarter 2004, while sales for the quarter were 26 percent higher than the same period in 2004.
    The segment posted record first quarter revenues of $215 million, led by especially strong distributor performance in Europe and the Middle East.

    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 Company-owned and independent distributor facilities and more than 5,000 dealer locations. With more than 28,000 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 on the webcast and in this release 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 on 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 (Unaudited) (a)

Three Months Three Months Ended Ended Millions, except per share Mar. 27, Mar. 28, Dec. 31, amounts 2005 2004 2004 -------------------------- ---------- --------- -------------

Net sales $2,208 $1,771 $2,349 Cost of sales 1,752 1,426 1,876 ---------- --------- -------------

Gross margin 456 345 473

Expense and other income Selling and administrative expenses 259 223 281 Research and engineering expenses 63 56 66 Equity, royalty and other income from investees (31) (18) (38) Interest expense 28 27 31 Other (income) expense, net 2 6 (9) ---------- --------- ------------- Earnings before income taxes and minority interests 135 51 142 Provision for income taxes 34 14 12 Minority interests in earnings of consolidated subsidiaries 4 4 11 ---------- --------- ------------- Net earnings $97 $33 $119 ========== ========= =============

Earnings per share Basic $2.20 $0.81 $2.73 Diluted 1.96 0.76 2.41

Cash dividends declared per share $0.30 $0.30 $0.30

Weighted average shares outstanding Basic 43.9 40.5 43.6 Diluted 50.8 47.3 50.7

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

CUMMINS INC. AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) (a)

Millions, except par value -------------------------- Mar. 27, Dec. 31, 2005 2004 --------- --------- ASSETS Current assets Cash and cash equivalents $261 $611 Marketable securities 48 62 Receivables, net 1,437 1,160 Inventories 1,065 1,016 Deferred income taxes 289 301 Prepaid expenses and other current assets 102 106 --------- --------- Total current assets 3,202 3,256 Long-term assets Property, plant and equipment, net 1,606 1,648 Investments in and advances to equity investees 303 286 Goodwill 354 355 Other intangible assets, net 91 93 Deferred income taxes 689 689 Other assets 180 183 --------- --------- Total assets $6,425 $6,510 ========= =========

LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Short-term borrowings $113 $327 Accounts payable 942 823 Accrued product coverage and marketing expenses 308 279 Other accrued expenses 644 751 --------- --------- Total current liabilities 2,007 2,180 Long-term liabilities Long-term debt 1,255 1,299 Pensions 487 466 Postretirement benefits other than pensions 570 570 Other long-term liabilities 396 386 --------- --------- Total liabilities 4,715 4,901

Minority interests 216 208

Shareholders' equity Common stock, $2.50 par value, 48.4 and 48.2 shares issued 121 121 Additional contributed capital 1,176 1,167 Retained earnings 948 866 Accumulated other comprehensive loss Minimum pension liability (499) (499) Other components, net (50) (41) Common stock in treasury, at cost, 2.1 and 2.2 shares (83) (88) Common stock held in trust for employee benefit plans, 2.1 and 2.2 shares (102) (104) Unearned compensation (17) (21) --------- --------- Total shareholders' equity 1,494 1,401 --------- --------- Total liabilities and shareholders' equity $6,425 $6,510 ========= =========

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

Certain reclassifications have been made to 2004 amounts to conform to the 2005 presentation.

CUMMINS INC. AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (a)

Millions ------- Three Months Ended Mar. 27, Mar. 28, 2005 2004 --------- --------- Cash flows from operating activities Net earnings $97 $33 Adjustments to reconcile net earnings to net cash (used in) provided by operating activities: Depreciation and amortization 72 60 (Gain) loss on disposal of property, plant and equipment (1) 1 Deferred income tax provision 16 -- Equity in earnings of investees, net of dividends (19) (12) Minority interests in earnings of consolidated subsidiaries 4 4 Pension expense 26 22 Pension contributions (11) (23) Stock-based compensation expense 3 9 Tax benefit on stock options exercised 1 3 Amortization of gain on terminated interest rate swaps (1) (2) Translation and hedging activities (1) (13) Changes in assets and liabilities: Receivables (283) (119) Inventories (53) (83) Accounts payable 120 172 Accrued expenses (74) (6) Other, net 42 10 --------- --------- Net cash (used in) provided by operating activities (62) 56 --------- ---------

Cash flows from investing activities Capital expenditures (31) (9) Investments in internal use software (6) (8) Proceeds from disposals of property, plant and equipment 10 1 Investments in and advances to equity investees (5) (18) Investments in marketable securities - acquisitions (26) (25) Investments in marketable securities - liquidations 39 30 Other, net 1 -- --------- --------- Net cash used in investing activities (18) (29) --------- ---------

Cash flows from financing activities Proceeds from borrowings 25 2 Payments on borrowings and capital lease obligations (294) (15) Net borrowings under short-term credit agreements 10 1 Distributions to minority shareholders (5) -- Proceeds from issuing common stock 7 22 Dividend payments on common stock (14) (13) Other, net 3 -- --------- --------- Net cash used in financing activities (268) (3) --------- --------- Effect of exchange rate changes on cash and cash equivalents (2) (1) --------- ---------

Net (decrease) increase in cash and cash equivalents (350) 23 Cash and cash equivalents at beginning of the year 611 108 --------- --------- Cash and cash equivalents at end of the period $261 $131 ========= =========

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

Certain reclassifications have been made to 2004 amounts to conform to the 2005 presentation.

CUMMINS INC. AND CONSOLIDATED SUBSIDIARIES SEGMENT INFORMATION (Unaudited)

Filtrat- Internat- Power ion ional Gener- and Distri- Eliminat- Total Millions Engine ation Other butor ions -------- ------- ------ -------- --------- --------- ------

Three Months Ended Mar. 27, 2005 ------------------

Net sales $1,495 $439 $403 $215 $(344) $2,208 Segment EBIT 114 17 20 12 -- 163 Net assets 1,358 623 808 205 -- 2,994

Three Months Ended Mar. 28, 2004 ------------------

Net sales $1,139 $369 $347 $171 $(255) $1,771 Segment EBIT 40 6 24 8 -- 78 Net assets 1,069 507 767 196 -- 2,539

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

Three Months Ended Mar. 27, Mar. 28, Millions 2005 2004 -------- --------- ---------

Segment EBIT $163 $78 Less: Interest expense 28 27 Provision for income taxes 34 14 Minority interest in earnings of consolidated subsidiaries 4 4 --------- --------- Net earnings $97 $33 ========= =========

Net assets for operating segments $2,994 $2,539 Liabilities deducted in computing net assets 3,252 2,811 Minimum pension liability excluded from net assets (826) (698) Deferred tax assets not allocated to segments 978 858 Debt-related costs not allocated to segments 27 69 --------- --------- Total assets $6,425 $5,579 ========= =========

NON-GAAP FINANCIAL MEASURES (Unaudited)

Earnings before interest, taxes and minority interests (EBIT)

We define EBIT as earnings before interest expense, provision for income taxes and minority interests in earnings of consolidated subsidiaries. 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 Three Months Ended Ended Mar. 27, Mar. 28, Dec. 31, Millions 2005 2004 2004 -------- --------- --------- ---------- Earnings before interest, income taxes and minority interests $163 $78 $173

EBIT as a percentage of net sales 7.4% 4.4% 7.4%

Less: Interest expense 28 27 31 Provision for income taxes 34 14 12 Minority interests in earnings of consolidated subsidiaries 4 4 11 --------- --------- ---------- Net earnings $97 $33 $119 ========= ========= ========== Net earnings as a percentage of net sales 4.4% 1.9% 5.1%

-- 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.

Supplemental Data -----------------

Sales $Millions Q1 Q2 Q3 Q4 YTD -------- -------- -------- -------- --------

2005 Engine Business Heavy-Duty Truck 502 502 Medium Duty Truck+Bus 195 195 Light Duty Auto+RV 260 260 Industrial 408 408 Stationary Power 130 130 -------- -------- -------- -------- -------- TOTAL ENGINE BUSINESS 1,495 - - - 1,495 Power Generation 439 439 Filtration / Other 403 403 Int'l. Distributors 215 215 Eliminations (344) (344) -------- -------- -------- -------- -------- TOTAL 2,208 - - - 2,208 ======== ======== ======== ======== ========

2004 Engine Business Heavy-Duty Truck 341 445 466 491 1,743 Medium Duty Truck+Bus 165 192 195 221 773 Light Duty Auto+RV 274 304 299 299 1,176 Industrial 260 324 334 368 1,286 Stationary Power 99 128 144 151 522 -------- -------- -------- -------- -------- TOTAL ENGINE BUSINESS 1,139 1,393 1,438 1,530 5,500 Power Generation 369 468 502 538 1,877 Filtration / Other 347 369 369 399 1,484 Int'l. Distributors 171 220 215 250 856 Eliminations (255) (326) (330) (368) (1,279) -------- -------- -------- -------- -------- TOTAL 1,771 2,124 2,194 2,349 8,438 ======== ======== ======== ======== ========

Engine Shipments Units Q1 Q2 Q3 Q4 YTD -------- -------- -------- -------- --------

2005 Midrange 90,900 90,900 Heavy-duty 24,900 24,900 High Horsepower 3,100 3,100 -------- -------- -------- -------- -------- TOTAL 118,900 0 0 0 118,900 ======== ======== ======== ======== ========

2004 Midrange 79,700 91,400 88,200 88,700 348,000 Heavy-duty 15,900 22,100 23,200 26,000 87,200 High Horsepower 2,200 3,100 3,200 3,600 12,100 -------- -------- -------- -------- -------- TOTAL 97,800 116,600 114,600 118,300 447,300 ======== ======== ======== ======== ========

--30--SLB/cl*

CONTACT: Cummins Inc. Mark Land, 317-610-2456 812-350-9678 (mobile)

KEYWORD: INDIANA INDUSTRY KEYWORD: TRANSPORTATION AUTOMOTIVE ENERGY UTILITIES EARNINGS SOURCE: Cummins Inc.

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