Cummins Sales and Earnings Surge on Strong Global Demand across All Business Segments

Cummins Inc. (NYSE: CMI) today reported significantly higher revenues, net income and Earnings Before Interest and Taxes (EBIT) for the first quarter of 2008. All four business segments reported double-digit percentage sales increases during the quarter, with earnings growing at an even faster pace than sales. Sales of $3.47 billion were 23 percent higher than $2.82 billion in the first quarter 2007, due to a 25 percent increase in both the Engine and Components segments, a 44 percent increase in the Distribution business and a 17 percent rise in Power Generation sales. Net income rose 33 percent to $190 million, or 97 cents per share, compared to $143 million, or 71 cents per share, during the same period in 2007. EBIT of $315 million, or 9.1 percent of sales, was 30 percent higher than $243 million (8.6 percent of sales) a year ago. Cummins showed strength across all its business segments, both in the U.S. and in key international markets. Particularly strong performance in international markets – which accounted for 57 percent of the Company’s sales in the quarter – helped offset rising commodity prices and sluggishness in some U.S. consumer-related markets such as pick-up truck engines, recreational vehicle products and recreational marine engines. "Our strong performance in the first quarter, which came in the face of considerable economic uncertainty in the U.S., is further proof that our diversification and growth strategies are working,” said Cummins Chairman and Chief Executive Officer Tim Solso. "While we are monitoring the U.S. economy closely, we intend to continue investing in opportunities around the world to fuel further growth in the future.” Based on the Company’s performance in the first quarter and the outlook for the remainder of the year, Cummins affirmed its previous forecasts for revenues to grow by at least 12 percent from 2007 and that it expects to achieve its EBIT target of 10 percent of sales for the full year. The Company also reiterated its plans to invest between $550 and $600 million in capital expenditures globally, mostly to fund new product initiatives and to create product capacity in a multitude of global markets where emissions standards are changing. First-quarter demand was particularly strong for medium-duty truck engines in the United States; for commercial generator sets in India, the United Kingdom, Asia and the Middle East; and for turbochargers and exhaust aftertreatment products in North America and Europe. In addition, the Company’s distribution business saw considerable growth in Europe, the Middle East and Asia Pacific. In addition, the Company’s joint venture earnings increased 86 percent from the same period in 2007. The improvement was primarily driven by strength in emerging markets such as China and India, and at the Company’s North American distributors. Sales growth was led by the Engine business, the Company’s largest business segment. Heavy-duty and medium-duty truck engine shipments increased 36 percent and 68 percent, respectively, primarily due to increased market share in North America. Through February, the latest month for which statistics are available, Cummins owned a market-leading share of 43 percent of the North American Class 8 truck engine market – compared to 28 percent at the same time last year. Cummins’ share of the Class 7 medium-duty truck market was 55 percent through February, compared to 23 percent at the same time in 2007. As another sign of the Company’s strong financial performance, Standard & Poor’s upgraded Cummins’ investment-grade debt rating to ‘BBB' from 'BBB-' in March. In its announcement of the upgrade, the agency cited "improved operating performance over the past several years - including during the expected emissions-related downturn in (North American) heavy-duty truck demand in 2007 - combined with significant on- and off-balance-sheet debt reduction, reflective of moderate financial policies." First quarter details Engine Segment Sales of $2.21 billion were 25 percent higher than $1.77 billion for the same period in 2007. Segment EBIT increased 52 percent to $194 million, or 8.8 percent of sales, from $128 million (7.3 percent of sales). In addition to sales gains in the heavy- and medium-duty markets, sales to the commercial marine engine market rose 77 percent from 2007. Those gains, and others, more than offset a 20 percent drop in light duty automotive sales. Power Generation Sales increased 17 percent to $787 million from $675 million in the first quarter of 2007. Segment EBIT of $78 million (9.9 percent of sales), rose slightly from $77 million (11.4 percent of sales). Commercial generator sales rose 23 percent, led by strong gains in Europe/U.K., India and the Middle East. Alternator sales increased 18 percent, while consumer sales fell 16 percent, primarily due to softness in the recreational vehicle market. Components Sales increased 25 percent to $820 million from $657 during the same period in 2007. Segment EBIT rose 54 percent to $37 million, or 4.5 percent of sales, from $24 million (3.7 percent of sales). Sales gains were led by a 49 percent increase in the Company’s turbocharger business and a 63 percent increase in Emission Solutions. The turbocharger business saw significant improvement in both sales and profit contribution to the segment. Two of the segment’s businesses – filtration and fuel systems – performed at or above expectations. The Emission Solutions business remains an area of focus as the Company works to improve its profitability as sales continue to increase. Distribution Sales of $445 million were 44 percent higher than $309 million for the same period in 2007, led by strong engine and power generation sales in Europe, the Middle East and Asia Pacific. Segment EBIT rose 26 percent to $49 million (11 percent of sales) from $39 million (12.6 percent of sales) in 2007. Much of the improvement in sales came from organic growth in markets around the world and the acquisition of a distributor business in the United States during the first quarter of 2008, which accounted for approximately one-fourth of the year-over-year quarterly sales growth. Additionally, joint venture income rose 47 percent, led by strong performance at the Company’s North American distributors. 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 approximately 190 countries and territories through a network of more than 500 company-owned and independent distributor locations and approximately 5,200 dealer locations. Cummins reported net income of $739 million on sales of $13.05 billion in 2007. Press releases can be found on the Web at www.cummins.com. Presentation of Non-GAAP Financial Information EBIT is a non-GAAP 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 today at 10 a.m. EDT. 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. 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 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 SUBSIDIARIES   CONDENSED CONSOLIDATED STATEMENTS OF INCOME   (Unaudited) (a)   Three months ended March 30, April 1, December 31, 2008 2007 2007 Millions (except per share amounts) NET SALES $ 3,474 $ 2,817 $ 3,516 Cost of sales 2,767 2,265 2,834 GROSS MARGIN 707 552 682   OPERATING EXPENSES AND INCOME Selling, general and administrative expenses 351 283 359 Research, development and engineering expenses 103 80 93 Equity, royalty and interest income from investees 67 36 59 Other operating (expense) income, net (1 ) (2 ) 13     OPERATING INCOME 319 223 302   Interest income 6 11 9 Interest expense 11 16 14 Other (expense) income, net (10 ) 9 13 INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS 304 227 310   Income tax expense 102 75 97 Minority interest in income of consolidated subsidiaries 12 9 15 NET INCOME $ 190 $ 143 $ 198   EARNINGS PER COMMON SHARE Basic $ 0.97 $ 0.72 $ 1.01 Diluted $ 0.97 $ 0.71 $ 1.00   WEIGHTED AVERAGE SHARES OUTSTANDING Basic 195.1 200.0 195.7 Diluted 196.4 201.1 197.5   CASH DIVIDENDS DECLARED PER COMMON SHARE $ 0.125 $ 0.09 $ 0.125   (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)   March 30, December 31, 2008 2007 Millions,(except par value) ASSETS   Current assets Cash and cash equivalents $ 446 $ 577 Marketable securities 108 120 Accounts and notes receivable, net 2,224 1,998 Inventories 1,877 1,692 Deferred income taxes 288 276 Prepaid expenses and other current assets 189 152 Total current assets 5,132 4,815 Long-term assets Property, plant and equipment 4,377 4,313 Accumulated depreciation (2,705 ) (2,668 ) Property, plant and equipment, net 1,672 1,645 Investments and advances related to equity method investees 588 514 Goodwill and other intangible assets, net 555 538 Deferred income taxes and other assets 678 683 Total assets $ 8,625 $ 8,195 LIABILITIES Current liabilities Current portion of long-term debt and loans payable $ 119 $ 119 Accounts payable (principally trade) 1,454 1,263 Current portion of accrued product warranty 347 337 Accrued compensation, benefits and retirement costs 286 441 Other accrued expenses 656 551 Total current liabilities 2,862 2,711 Long-term liabilities Long-term debt 578 555 Pensions and other postretirement benefits 629 633 Other liabilities and deferred revenue 635 594 Total liabilities 4,704 4,493 MINORITY INTERESTS 313 293 SHAREHOLDERS’ EQUITY Common stock, $2.50 par value, 300 shares authorized, 203.1 and 220.4 shares issued 1,726 1,719 Retained earnings 2,820 2,660 Treasury stock, at cost, 18.4 and 18.2 shares (603 ) (593 ) Common stock held by employee benefits trust, at cost, 6.5 and 6.5 shares (79 ) (79 ) Unearned compensation (8 ) (11 ) Accumulated other comprehensive loss Defined benefit postretirement plans (373 ) (378 ) Other 125 91 Total accumulated other comprehensive loss (248 ) (287 ) Total shareholders’ equity 3,608 3,409 Total liabilities, minority interests and shareholders’ equity $ 8,625 $ 8,195   (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)   Three months ended March 30,   April 1, 2008 2007 CASH FLOWS FROM OPERATING ACTIVITIES Millions Net income $ 190 $ 143 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 75 68 Net loss on disposal of property, plant and equipment — 2 Deferred income taxes (7 ) 31 Equity in earnings of investees, net of dividends (39 ) (12 ) Minority interest in income of consolidated subsidiaries 12 9 Pension expense 18 24 Pension contributions (17 ) (61 ) Other post-retirement benefits expense, net of cash payments (6 ) (1 ) Stock-based compensation expense 8 6 Excess tax benefits on stock-based awards (10 ) (9 ) Translation and hedging activities 6 (5 ) Changes in current assets and liabilities, net of acquisitions and dispositions: Accounts and notes receivable (193 ) (153 ) Inventories (165 ) (165 ) Other current assets (5 ) (6 ) Accounts payable 164 126 Accrued expenses (23 ) (140 ) Changes in long-term liabilities 25 15 Other, net 4 15 Net cash provided by (used in) operating activities 37 (113 ) CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (90 ) (48 ) Investments in internal use software (14 ) (13 ) Proceeds from disposals of property, plant and equipment 1 2 Investments in and advances to equity investees (20 ) (17 ) Acquisition of businesses, net of cash acquired (29 ) (20 ) Investments in marketable securities—acquisitions (60 ) (68 ) Investments in marketable securities—liquidations 69 94 Other, net (9 ) (3 ) Net cash used in investing activities (152 ) (73 ) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from borrowings 42 4 Payments on borrowings and capital lease obligations (47 ) (101 ) Net borrowings under short-term credit agreements 14 (2 ) Distributions to minority shareholders (6 ) (6 ) Dividend payments on common stock (25 ) (19 ) Repurchases of common stock (11 ) (13 ) Excess tax benefits on stock-based awards 10 9 Other, net 1 (7 ) Net cash used in financing activities (22 ) (135 ) EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 6 2 Net decrease in cash and cash equivalents (131 ) (319 ) Cash and cash equivalents at beginning of year 577 840 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 446 $ 521   (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)             Engine PowerGeneration Components Distribution Non-segment items(1) Total Millions Three months ended March 30, 2008 External sales $ 1,885 $ 581 $ 567 $ 441 $ — $ 3,474 Intersegment sales   324   206   253   4   (787 )   — Total sales 2,209 787 820 445 (787 ) 3,474 Depreciation and amortization(2) 44 11 15 4 — 74 Research, development and engineering expense 70 10 23 — — 103 Equity, royalty and interest income from investees 33 5 4 25 — 67 Interest income 3 1 1 1 — 6 Segment EBIT 194 78 37 49 (43 ) 315   Three months ended April 1, 2007 External sales $ 1,522 $ 531 $ 455 $ 309 $ — $ 2,817 Intersegment sales   243   144   202   —   (589 )   — Total sales 1,765 675 657 309 (589 ) 2,817 Depreciation and amortization(2) 41 10 14 2 — 67 Research, development and engineering expense 52 8 20 — — 80 Equity, royalty and interest income from investees 17 3 (1 ) 17 — 36 Interest income 8 2 1 — — 11 Segment EBIT 128 77 24 39 (25 ) 243   Three months ended December 31, 2007 External sales $ 1,862 $ 645 $ 542 $ 467 $ — $ 3,516 Intersegment sales   293   195   235   1   (724 )   — Total sales 2,155 840 777 468 (724 ) 3,516 Depreciation and amortization(2) 44 11 16 3 — 74 Research, development and engineering expense 63 9 21 — — 93 Equity, royalty and interest income from investees 26 5 3 25 — 59 Interest income 6 2 1 — — 9 Segment EBIT 120 86 47 56 15 324   (1) Includes intersegment sales and profit in inventory eliminations and unallocated corporate expenses.   (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. 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 March 30,   April 1,   December 31, 2008 2007 2007 Millions Segment EBIT $ 315 $ 243 $ 324 Less: Interest expense 11 16 14 Income before income taxes and minority interests $ 304 $ 227 $ 310 CUMMINS INC. AND SUBSIDIARIES FINANCIAL MEASURES THAT SUPPLEMENT GAAP (Unaudited)   Earnings before interest, taxes and minority interests (EBIT)   We define EBIT as earnings before interest expense, income taxes and minority interest in income 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 income, for each of the applicable periods:   Three Months Ended   March 30,   April 1,   December 31, 2008 2007 2007 Millions Earnings before interest expense, income taxes and minority interests $ 315 $ 243 $ 324   EBIT as a percentage of net sales 9.1 % 8.6 % 9.2 %   Less: Interest expense 11 16 14 Income tax expense 102 75 97 Minority interest in income of consolidated subsidiaries 12 9 15 Net income $ 190 $ 143 $ 198   Net income as a percentage of net sales 5.5 % 5.1 % 5.6 %   We believe EBIT is a useful measure of our operating performance for the period 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. Sales           $Millions Q1 Q2 Q3 Q4 YTD   2008 Engine Business Heavy-Duty Truck 536 536 Medium Duty Truck+Bus 397 397 Light Duty Auto+RV 275 275 Industrial 733 733 Stationary Power 268                 268   TOTAL ENGINE BUSINESS 2,209 0 0 0 2,209 Power Generation 787 787 Components 820 820 Distributors 445 445 Eliminations (787 )               (787 ) TOTAL 3,474     0     0     0     3,474       2007 Engine Business Heavy-Duty Truck 424 473 520 531 1,948 Medium Duty Truck+Bus 206 320 359 398 1,283 Light Duty Auto+RV 288 418 388 247 1,341 Industrial 617 665 661 733 2,676 Stationary Power 230     233     225     246     934   TOTAL ENGINE BUSINESS 1,765 2,109 2,153 2,155 8,182 Power Generation 675 769 776 840 3,060 Components 657 757 741 777 2,932 Distributors 309 368 395 468 1,540 Eliminations (589 )   (660 )   (693 )   (724 )   (2,666 ) TOTAL 2,817     3,343     3,372     3,516     13,048                                                       Engine Shipments Units Q1 Q2 Q3 Q4 YTD   2008 Midrange 114,200 114,200 Heavy-duty 24,700 24,700 High Horsepower 4,600                 4,600   TOTAL 143,500     0     0     0     143,500     2007 Midrange 107,200 133,500 130,500 115,600 486,800 Heavy-duty 19,000 23,800 24,800 23,800 91,400 High Horsepower 4,300     4,700     4,600     4,900     18,500   TOTAL 130,500     162,000     159,900     144,300     596,700