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product liability claims;



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the development of new technologies;



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obtaining customers for our new light-duty diesel engine platform and avoiding any related write-down in our investments in such platform;



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increasingly stringent environmental laws and regulations;



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the performance of our pension plan assets;



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labor relations;



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changes in accounting standards;



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our sales mix of products;



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our continued achievement of lower costs and expenses;



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domestic and foreign governmental and public policy changes, including environmental regulations;



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protection and validity of our patent and other intellectual property rights;



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our reliance on large customers;



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technological implementation and cost/financial risks in our increasing use of large, multi-year contracts;



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the cyclical nature of some of our markets;



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the outcome of pending and future litigation and governmental proceedings;



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continued availability of financing, financial instruments and financial resources in the amounts, at the times and on the terms required to support our future business;



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the overall stability of global economic markets and conditions; and



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other risk factors described in Item 1A of this annual reportIA under the caption "Risk Factors."

        In addition, such statements could be affected by general industry and market conditions and growth rates, general domestic and international economic conditions, including the price of crude oil (diesel fuel), interest rate and currency exchange rate fluctuations, commodity pricesShareholders, 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 annual report and we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future factors.events or otherwise.

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PART I

ItemITEM 1.    Business

OVERVIEW

        Cummins Inc. was founded in 1919 as a corporation in Columbus, Indiana, as one of the first diesel engine manufacturers. We are a global power leader that designs, manufactures, distributes and services diesel and natural gas engines electric power generation systems and engine-related component products, including filtration, exhaust aftertreatment, turbochargers, fuel systems, controls andsystems, air handling systems and electric power generation systems. We sell our products to original equipment manufacturers (OEMs), distributors and other customers worldwide. We serve our customers through a network of more than 500approximately 600 company-owned and independent distributor locations and approximately 5,2006,500 dealer locations in more than 190 countries and territories.

OPERATING SEGMENTS

        We have four complementary operating segments: Engine, Components, Power Generation Components and Distribution. These segments share technology, customers, strategic partners, brand recognition and our distribution network in order to gain a competitive advantagecompete more efficiently and effectively in their respective markets. In each of our operating segments, we compete worldwide with a number of other manufacturers and distributors that produce and sell similar products. Our products compete primarily compete on the basis of performance, fuel economy, speed of delivery, quality, customer support and price. Financial information about our operating segments, including geographic information, is incorporated by reference from Note 25,22, "OPERATING SEGMENTS," to ourConsolidated Financial Statements.

Engine Segment

        Engine segment sales and EBITearnings before interest and taxes (EBIT) as a percentage of consolidated results were:

        Our Engine segment manufactures and markets a broad range of diesel and natural gas powered engines under the Cummins brand name, as well as certain customer brand names, for the heavy- and medium-duty truck, bus, recreational vehicle (RV), light-duty automotive, agricultural, construction, mining, marine, oil and gas, rail and governmental equipment markets. We offer a wide variety of engine products including:

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Engines with a displacement range of 1.42.8 to 91 liters and horsepower ranging from 3148 to 3,500.3,500;



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New parts and service, as well as remanufactured parts and engines, through our extensive distribution network.network and



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The newly developed light-duty diesel engine, which will be sold through the light construction vehicle, pick-up, bus and certain medium-duty truck markets.

        Our Engine segment is organized by engine displacement size and serves these end-user markets:

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Heavy-Duty Truck—We manufacture diesel engines that range from 310 to 600620 horsepower serving global heavy-duty truck customers worldwide.

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Medium-Duty Truck and Bus—We manufacture medium-duty diesel engines ranging from 200150 to 400 horsepower serving medium-duty and inter-city delivery truck customers worldwide.worldwide, with key markets including North America, Latin America, Europe and Mexico. We also

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provide diesel or natural gas engines for school buses, transit buses and shuttle buses worldwide, with key markets including North America, Europe, Latin America Europe and Asia.





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Light-Duty Automotive and RVRV——We manufacture 305320 to 350385 horsepower diesel engines for Chrysler's heavy-duty and chassis cab and pickup trucks and 300 to 650600 horsepower diesel engines for Class A motor homes (RVs), primarily in North America.



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IndustrialIndustrial——We provide mid-range, heavy-duty and high horsepowerhigh-horsepower engines that range from 31 to 3,500 horsepower for a wide variety of equipment in the construction, agricultural, mining, rail, government, oil and gas, power generation and commercial and recreational marine applications throughout the world. Across these markets we have major customers in North America, China, Europe/Middle East/Africa (EMEA), India,China, Korea, Japan, Latin America, Korea,India, Russia, Southeast Asia, Russia, Japan, South Pacific and Mexico.

        The principal customers of our heavy- and medium-duty truck engines include truck manufacturers such as PACCAR Volvo Trucks North America,Inc (PACCAR), Daimler Trucks North America, Ford Motor Company, International Truck, MAN Latin America and Volkswagen AG.Volvo. We sell our industrial engines to manufacturers of construction, agricultural and marine equipment, including Case New Holland, Komatsu, Belaz, Hyundai, Hitachi Ingersoll Rand, Brunswick and Terex.JLG. The principal customers of our light-duty on-highway engines are Chrysler and manufacturers of RVs.

        In the markets served by our Engine segment, we compete with independent engine manufacturers as well as OEMs who manufacture engines for their own products. Our primary competitors in North America are Detroit Diesel Corporation, Volvo Powertrain, International Truck and Engine Corporation (Engine Division) and, Detroit Diesel Corporation, Caterpillar Inc. (CAT)., Volvo Powertrain, Ford Motor Company and Hino Power. Our primary competitors in international markets vary from country to country, with local manufacturers generally predominant in each geographic market. Other engine manufacturers in international markets include Volvo, Weichai Power Co. Ltd., GE Jenbacher, MAN Nutzfahrzeuge AG (MAN), Fiat Power Systems, GuangxiYuchai Group, GE Jenbacher, Tognum AG, GuangxiYuchai Group,CAT, Volvo, Yanmar Co., Ltd. and Deutz AG.

Components Segment

        Components segment sales and EBIT as a percentage of consolidated results were:

        Our Components segment supplies products which complement our Engine segment, including filtration products, turbochargers, aftertreatment systems and fuel systems for commercial diesel applications. We manufacture filtration systems for on- and off-highway heavy-duty and mid-range equipment, and we are a supplier of filtration products for industrial and passenger car applications. In addition, we develop aftertreatment systems and turbochargers to help our customers meet increasingly stringent emission standards and fuel systems which to date have primarily supplied our Engine segment and our joint venture partner Scania.

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        Our Components segment is organized around the following businesses:

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Emission solutions—Our emission solutions business is a global leader in designing, manufacturing and integrating aftertreatment technology and solutions for the commercial on-and off-highway medium-duty, heavy-duty and high-horsepower engine markets. Our emission solutions business develops and produces various emission solutions, including custom engineering systems and integrated controls, oxidation catalysts, particulate filters, oxides of nitrogen (NOx) reduction systems such as selective catalytic reduction and NOx adsorbers and engineered components such as dosers and sensors. Our emissions solutions business primarily serves markets in North America, Europe, Brazil and China and serves both OEM and engine first fit and retrofit customers.



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Turbo technologies—Our turbo technologies business designs, manufactures and markets turbochargers for light-duty, mid-range, heavy-duty and high-horsepower diesel markets with manufacturing facilities in five countries and sales and distribution worldwide. Our turbo technologies business provides critical air handling technologies for engines, including variable geometry turbochargers, to meet challenging performance requirements and worldwide emission standards. Our turbo technologies business primarily serves markets in North America, Europe and Asia.



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Filtration—Our filtration business designs and manufactures filtration, coolant and chemical products. The filtration business offers over 7,000 products including air filters, fuel filters, fuel water separators, lube filters, hydraulic filters, coolant, diesel exhaust fluid, fuel additives and other filtration systems to OEMs, dealers/distributors and end users. Our filtration business supports a wide customer base in a diverse range of markets including on-highway, off-highway, oil and gas, agriculture, marine, industrial and light-duty automotive. We produce and sell globally recognized Fleetguard® branded products in over 160 countries including countries in North America, Europe, South America, Asia, Australia and Africa. Fleetguard products are available through thousands of distribution points worldwide.



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Fuel systems—Our fuel systems business designs and manufactures new and replacement fuel systems primarily for heavy-duty on-highway diesel engine applications and also remanufactures fuel systems and engine control modules. Scania and Komatsu are our fuel systems business' primary external customers. Scania is also our partner in two joint ventures within our fuel systems business. The Cummins-Scania High Pressure Injection, LLC joint venture currently manufactures fuel systems used internally and by Scania while the Cummins-Scania XPI joint venture currently produces advanced technology fuel systems for medium- and heavy-duty engines used internally and by Scania.

        Customers of our Components segment generally include our Engine and Distribution segments, truck manufacturers and other OEMs, many of which are also customers of our Engine segment, such as PACCAR, Daimler, Volvo, Komatsu, Ford and other manufacturers that use our components in their product platforms.

        Our Components segment competes with other manufacturers of filtration, turbochargers and fuel systems. Our primary competitors in these markets include Robert Bosch GmbH, Donaldson Company, Inc., Deutz AGClarcor Inc., Mann+Hummel Group, Honeywell International, Borg-Warner, Tenneco Inc., Eberspacher Holding GmbH & Co. KG and CAT.Denso Corporation.

        On July 18, 2012, we acquired the doser technology business assets from Hilite Germany GmbH (Hilite) in a $176 million cash transaction. The acquisition was accounted for as a business combination with the majority of the purchase price being allocated to goodwill and technology and customer related intangible assets. The results of the acquired entity for 2012 were included in the Components

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operating segment. See Note 2, "ACQUISITIONS AND DIVESTITURES," to ourConsolidated Financial Statements for additional detail.

        In the second quarter of 2011, we sold certain assets and liabilities of our exhaust business which manufactures exhaust products and select components for emission systems for a variety of applications not core to our other product offerings. This business was historically included in our Components segment. The sales price was $123 million. We recognized a gain on the sale of $68 million ($37 million after-tax), which included a goodwill allocation of $19 million. The gain was excluded from segment results as it was not considered in our evaluation of operating results for the year ended December 31, 2011.

        During the fourth quarter of 2011, we sold certain assets and liabilities of our light-duty filtration business which manufactures light-duty automotive and industrial filtration solutions. The sales price was $90 million and included a note receivable from the buyer of approximately $1 million. There are no earnouts or other contingencies associated with the sales price. We recognized a gain on the sale of $53 million ($33 million after-tax), which included a goodwill allocation of $6 million. The gain was excluded from segment results as it was not considered in our evaluation of operating results for the year ended December 31, 2011.

Power Generation Segment

        Power Generation segment sales and EBIT as a percentage of consolidated results were:

        Our Power Generation segment designs and manufactures most of the components that make up power generation systems, including engines, controls, alternators, transfer switches and switchgear. This segment is a global provider of power generation systems, components and services for a diversified customer base, and includesincluding the following:

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Standby power solutions for customers who rely on uninterrupted sources of power to meet the needs of their customers.



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Distributed generation power solutions for customers with less reliable electrical power infrastructures, typically in developing countries. In addition, our power solutions provide an alternative source of generating capacity located close to its point of use, which is purchased by

utilities, independent power producers and large power customers for use as prime or peaking power.





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Mobile power providessolutions, which provide a secondary source of power (other than drivetrain power) for mobile applications.

        In 2009,the first quarter of 2012, our Power Generation segment reorganized its reporting structure and now reportsto include the following businesses:

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CommercialPower products—CommercialOur power products business manufactures generators for commercial and consumer applications ranging from 5two kilowatts (kW) to 2.75 megawatts.one megawatt (MW) under the Cummins Power Generation and Cummins Onan brands.

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Power systems—Our power systems business manufactures and sells diesel fuel-based generator sets over one MW, paralleling systems and transfer switches for critical protection and distributed generation applications. We also offer integrated systems that consist of generator sets, power transfer and paralleling switchgear for applications such as data centers, health care facilities and waste water treatment plants.



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AlternatorsGenerator technologies—AlternatorsOur generator technologies business designs, manufactures, sells and sells itsservices A/C generator/alternator products internally as well as to other generator set assemblers. Our products are sold under the Stamford, AVK and Markon brands and range in output from 0.6kVA0.6 kilovolt-amperes (kVA) to 30,000 kVA.



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Commercial projectsPower solutions—Commercial projects includes all of our natural gas-fired generators, ourOur power generation rentalsolutions business and other services including: installation, operation and maintenance services. Some projects are administered jointly with the Distribution segment.



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Power electronics—Power electronics builds controls for our generators in-house. We also sell switch gear and transfer switches to both internal and external customers. This business integrates well with commercial products to provide a complete solution to customers.



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Consumer—Consumer manufactures and sells consumer products under the Cummins Onan brand name including diesel,provides natural gas gasolinefuel-based turnkey solutions for distributed generation and alternative-fuel electricalenergy management applications in the range of 300-2000 kW products. The business also serves the oil and gas segment and a global rental account for diesel and gas generator sets for use in RVs, commercial vehicles and recreational marine applications.sets.

        For revised sales data by product category for 2008 and 2007 see "Management's Discussion and Analysis of Financial Condition and Results of Operations."

        This segment continuously explores emerging technologies such as fuel cells, wind and hybrid solutions and provides integrated power generation products utilizingusing technologies other than reciprocating engines. We use our own research and development capabilities as well as leveragethose of our business partnerships to develop cost-effective and environmentally sound power solutions.

        Our customer base for our power generation products is highly diversified, with customer groups varying based on their power needs. India, China, the United Kingdom (U.K.), Western Europe, Latin America and the Middle East Western Europe and East Asia, are our largest geographic markets outside of North America.

        This operating segmentPower Generation competes with a variety of engine manufacturers and generator set assemblers across the world. Our primary compeitiors are CAT, Tognum (MTU) and Mitsubishi (MHI) remain our primary competitors,Kohler/SDMO (Kohler Group), but we also compete with GE Jenbacher, FG Wilson (Caterpillar(CAT group), Kohler, SDMO (Kohler group), Generac, Mitsubishi (MHI) and numerous regional generator set assemblers. Our Alternatorgenerator technologies business competes globally with Emerson Electric Co., Marathon Electric and Meccalte, among others.

Components Segment

        Components segment sales and EBIT as a percentage of consolidated results were:

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        Our Components segment supplies products which complement our Engine segment, including filtration products, turbochargers, aftertreatment systems, intake and exhaust systems and fuel systems for commercial diesel applications. We manufacture filtration and exhaust systems for on- and off-highway heavy-duty and mid-range equipment, and we are a supplier of filtration products for industrial and passenger car applications. In addition, we develop aftertreatment and exhaust systems to help our customers meet increasingly stringent emissions standards and fuel systems which to date have primarily supplied our Engine segment and our partner Scania.

        Our Components segment is organized around the following businesses:

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Filtration—Our filtration business offers over 14,000 products including air, lube, fuel, hydraulic, coolant, diesel exhaust fluid/Adblue and fuel additives. Products are sold through Cummins Distribution, OEMs, OEM dealers, independent distributors, dealers and end users. The globally recognized aftermarket brand Fleetguard is an industry leader in the key segments served. Cummins filtration supports a wide customer base including on-highway, off-highway, oil and gas, agriculture, marine, industrial and light-duty automotive applications. These products are produced and sold across 160 countries at over 30,000 distribution points.



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Turbo technologies—Our turbo technologies business designs, manufactures and markets turbochargers for light-duty, mid-range, heavy-duty and high horsepower diesel applications with manufacturing facilities in five countries and sales and distribution worldwide. Turbo technologies provides critical technologies for engines, including variable geometry turbochargers, to meet challenging performance requirements and worldwide emissions standards. We primarily serve markets in North America, Europe and Asia.



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Emission solutions—Our emission solutions business designs and manufactures aftertreatment and exhaust systems to help our customers meet increasingly stringent emissions standards. Emission solutions expanded its international manufacturing capabilities with new manufacturing facilities leases signed in 2007 in Beijing, China and Sao Paulo, Brazil, which are intended for use on both Cummins and external customer engines meeting Euro IV and Euro V emissions standards, with production beginning in 2011 and 2012, respectively.



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Fuel systems—Our fuel systems business designs and manufactures new and replacement fuel systems primarily for heavy-duty on-highway diesel engine applications and also remanufactures fuel systems and engine control modules. Scania and Komatsu are the primary external customers. Scania is also our partner in two joint ventures within our fuel systems business. The Cummins-Scania High Pressure Injection, LLC joint venture currently manufactures fuel systems used by Cummins and Scania while the Cummins-Scania XPI joint venture currently produces advanced technology fuel systems for medium-and heavy-duty engines.

        Customers of our Components segment generally include our Engine and Distribution segments, truck manufacturers and other OEMs, many of which are also customers of our Engine segment, such as PACCAR, CNH Global N.V., International Truck and Engine, Volvo, Iveco and other manufacturers that use our filtration products in their product platforms. Our customer base for replacement filtration parts is highly fragmented and primarily consists of various end-users of on- and off-highway vehicles and equipment.

        Our Components segment competes with other manufacturers of filtration, exhaust and fuel systems and turbochargers. Our primary competitors in these markets include Donaldson Company, Inc., Clarcor Inc., Mann+Hummel Group, Tokyo Roki Co., Ltd., Borg-Warner, Bosch, Tenneco and Honeywell International.

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Distribution Segment

        Distribution segment sales and EBIT as a percentage of consolidated results were:

        Our Distribution segment consists of 1923 company-owned and 18 joint venture distributors that service and distribute the full range of our products and services to end-users at approximately 300400 locations in approximately 7080 distribution territories. Our company-owned distributors are located in key markets, including India, China, Japan,North America, Australia, Europe, the Middle East, SouthIndia, China, Africa, Russia, Japan, Brazil, Singapore and Central America, while our joint venture distributors are located in North America, South America, Africa, China, Thailand, Singapore and Russia.Vietnam.

        The Distribution segment consists of the following businesses which service and/or distribute the full range of our products and services:

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Parts and filtration,



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Power generation,

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Engines and



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Service.

        The Distribution segment is organized into fourfive primary geographic regions:

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Asia Pacific,



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Europe and the Middle East (EME),



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North and Central America,



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South America,



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EMEAAfrica and



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Asia Pacific.South America.

        EMEAAsia Pacific and Asia PacificEME are composed of sevensix smaller regional distributor organizations (Greater(South Pacific, Greater Europe, Africa, the Middle East, China, India China,and Northeast/Southeast Asia and the South Pacific)Asia) which allow us to better manage these vast geographic territories.

        Our largest market, North and Central America isare mostly comprised of a network of partially-owned distributors. Internationally, our network consists of independent, partially-owned and wholly-owned distributors. Through this network,these networks, we provide parts and service to our customers. These full-service solutions include maintenance contracts, engineering services and integrated products, where we customize our products to cater to specific needs of end-users. Our distributors also serve and develop dealers, predominantly OEM dealers, in their territories by providing new products, technical support, tools, training, parts and product information.

        In addition to managing our investments ininvolvement with our wholly-owned and partially-owned distributors, our Distribution segment is responsible for managing the performance and capabilities of our independent distributors. Our distributors collectively serveDistribution segment serves a highly diverse customer base with approximately 4445 percent of their 2009 revenuesits 2012 sales being generated from the sale of new engines and power generation equipment, compared to 5047 percent in 2008, and the2011, with its remaining revenuesales generated by parts and filtration and service revenue.

        Financial information about our distributors accounted for under the equity method are incorporated by reference from Note 1, "SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES," and Note 2,3, "INVESTMENTS IN EQUITY INVESTEES," to ourConsolidated Financial Statements.

        During 2008, we purchased a majority interest in three previously independent North American distributors in order to increase our ownership interests in key portions of the distribution channel. The acquisitions were accounted for under the purchase method of accounting and resulted in an aggregate purchase price of $81 million which we funded with $54 million of borrowings and $27 million of cash.

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The assets of the acquired businesses were primarily accounts receivable, inventory and fixed assets. There was less than $1 million of goodwill generated from these transactions.

        Our distributors compete with distributors or dealers that offer similar products. In many cases, these competing distributors or dealers are owned by, or affiliated with the companies that are listed above as competitors of our Engine, Components or Power Generation or Components segments. These competitors vary by geographical location.

        In July 2012, we acquired an additional 45 percent interest in Cummins Central Power from the former principal for consideration of approximately $20 million. The acquisition was accounted for as a business combination, with the results of the acquired entity included in the Distribution operating segment in the third quarter of 2012. Distribution segment results also included a $7 million gain, as we were required to re-measure our pre-existing 35 percent ownership interest in Cummins Central Power to fair value in accordance with accounting principles generally accepted in the United State of America (GAAP). See Note 2, "ACQUISITIONS AND DIVESTITURES," to ourConsolidated Financial Statements for additional detail.

JOINT VENTURES, ALLIANCES AND NON-WHOLLY-OWNED SUBSIDIARIES

        We have entered into a number of joint venture agreements and alliances with business partners around the world. Our joint ventures are either distribution or manufacturing entities. We also own a controlling interestinterests in a non-wholly-owned manufacturing subsidiary.and distribution subsidiaries. Seven entities, in

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which we own more than a 50 percent equity interest, are consolidated in our Distribution segment results as well as several manufacturing joint ventures in the other operating segments.

        In the event of a change of control of either party to certain of these joint ventures and other strategic alliances, certain consequences may result including automatic termination and liquidation of the venture, exercise of "put" or "call" rights of ownership by the non-acquired partner, termination or transfer of technology license rights to the non-acquired partner and increases in component transfer prices to the acquired partner. We will continue to evaluate joint venture and partnership opportunities in order to penetrate new markets, develop new products and generate manufacturing and operational efficiencies.

        Financial information about our investments in joint ventures and alliances is incorporated by reference from Note 1, "SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES," Note 2,3, "INVESTMENTS IN EQUITY INVESTEES," and Note 23, "VARIABLE INTEREST ENTITIES," to theConsolidated Financial Statements.

        Our equity income from these investees was as follows:

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Distribution Entities

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North American Distributors—Our distribution channel in North America includes 1311 unconsolidated partially-owned distributors. Our equity interests in these nonconsolidated entities range from 30 percent to 50 percent. We also have more than a 50 percent ownership interest in four partially owned distributors which we consolidate. While each distributor is a separate legal entity, the business of each is substantially the same as that of our wholly-owned distributors based in other parts of the world. All of our distributors, irrespective of their legal structure or ownership, offer the full range of our products and services to customers and end-users in their respective markets.



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Komatsu Cummins Chile, Ltda.—Komatsu Cummins Chile, Ltda. is a joint venture with Komatsu America Corporation. The joint venture is a distributor that offers the full range of our products and services to customers and end-users in the Chilean market.and Peruvian markets.

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        Our licensingdistribution agreements with independent and partially-owned distributors generally have a renewable three-year term and are restricted to specified territories. Our distributors develop and maintain a network of dealers with which we have no direct relationship. TheOur distributors are permitted to sell other, noncompetitive products only with our consent. We license all of our distributors to use our name and logo in connection with the sale and service of our products, with no right to assign or sublicense the marks,trademarks, except to authorized dealers, without our consent. Products are sold to the distributors at standard domestic or international distributor net prices, as applicable. Net prices are wholesale prices we establish to permit our distributors an adequate margin on their sales. Subject to local laws, we can generally refuse to renew these agreements at will and we mayupon expiration or terminate them upon 90-daywritten notice for inadequate sales, change in principal ownership and certain other reasons. Distributors also have the right to terminate the agreements upon 60-day notice without cause, or 30-day notice for cause. Upon termination or failure to renew, we are required to purchase the distributor's current inventory, signage and special tools, and may, at our option purchase other assets of the distributor, but are under no obligation to do so.

        See further discussion of our distribution network under the Distribution segment section above.

Manufacturing Entities

        ManufacturingOur manufacturing joint ventures arehave generally been formed with customers and generally are intended to allow us to increase our market penetration in geographic regions, reduce capital spending, streamline our supply chain management and develop technologies. Our largest manufacturing joint ventures are based in China and are included in the list below. Our engine manufacturing joint ventures are supplied by our Components segment in the same manner as they supplyit supplies our wholly-owned Engine segment and Power Generation segment manufacturing facilities. Our Components segment joint ventures and wholly owned entities provide fuel system, filtration and turbocharger products that are used in our engines as well as some competitors' products. TheseThe results and investments in our joint ventures in which we have 50 percent or less ownership interest are not included in "Equity, royalty and interest income from investees" and "Investments and advances related to equity method investees" in ourConsolidated Financial Statements of Income. andConsolidated Balance Sheets, respectively.

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Chongqing Cummins Engine Company, Ltd.——Chongqing Cummins Engine Company, Ltd. (CCEC) is a joint venture in China with Chongqing Heavy Duty Vehicle Group thatMachinery and Electric Co. Ltd. This joint venture manufactures several models of our heavy-duty and high-horsepower diesel engines, primarily serving the industrial and stationary power markets in China.



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Dongfeng Cummins Engine Company, Ltd.——Dongfeng Cummins Engine Company, Ltd. (DCEC) is a joint venture in China with Dongfeng Automotive Corporation,Co. Ltd., a subsidiary of Dongfeng Motor CompanyCorporation (Dongfeng), one of the largest medium-duty and heavy-duty truck manufacturers in China. DCEC produces Cummins four-4- to nine-liter13-liter mechanical engines, full-electronic diesel engines, with a power range from 100125 to 370545 horsepower, and natural gas engines.



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Valvoline Cummins Ltd.Westport, Inc.——Valvoline Cummins Ltd.Westport, Inc. is a joint venture in Canada with AshlandWestport Innovations Inc., USA. The to market and sell medium-duty automotive spark-ignited natural gas engines worldwide and to participate in joint venture manufactures and distributes lubricant—oil products in India which are usedtechnology projects on low-emission technologies.

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in automotive and industrial applications. Products include transmission fluids, hydraulic lubricants, automotive filters, cooling system products, greases and specialty products.

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Shanghai Fleetguard Filter Co., Ltd.—Shanghai Fleetguard Filter Co., Ltd. is a joint venture in China with Dongfeng that manufactures filtration and exhaust systems.



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Tata Cummins, Ltd.—Tata Cummins Ltd. is a joint venture in India with Tata Motors Ltd., the largest automotive company in India and a member of the Tata group of companies. This joint venture manufactures the engines in India for use in trucks manufactured by Tata Motors, as well as for various industrial and power generation applications.

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Valvoline Cummins, Ltd.—Valvoline Cummins, Ltd. is a joint venture in India with Ashland Inc., USA. This joint venture manufactures and distributes lubricants and oil related products in India which are used in automotive and industrial applications. Products include transmission fluids, hydraulic lubricants, automotive filters, cooling system products, greases and specialty products.



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Beijing Foton Cummins Engine Co., Ltd.—Beijing Foton Cummins Engine Co., Ltd. is a joint venture in China with Beijing Foton Motor Co., Ltd., a commercial vehicle manufacturer, which produces ISF 2.8 liter and ISF 3.8 liter families of Cummins high performance light-duty diesel engines in Beijing. These engines are used in light-duty commercial trucks, pickup trucks, multipurpose and sport utility vehicles in China, Brazil and Russia. Certain types of marine, small construction equipment and industrial applications are also served by these engine families.



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Komatsu manufacturing alliances—Komatsu manufacturing alliances consists of two manufacturing joint ventures and one design joint venture including Komatsu Cummins Engine Company (KCEC) in Japan and Cummins Komatsu Engine Company (CKEC) in the United States (U.S.) with Komatsu Ltd. These joint ventures manufacture Cummins-designed medium-duty engines in Japan and Komatsu-designed high-horsepower engines in the U.S. The industrial engine design joint venture is located in Japan.



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Cummins-Scania XPI Manufacturing, LLC—Cummins-Scania XPI Manufacturing, LLC is a joint venture in the United States with Scania Holding, Inc. This joint venture manufactures several models of advanced fuel systems for heavy-duty and midrange diesel engines.



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Cummins Olayan Energy Ltd.—Cummins Olayan Energy Ltd. is a joint venture in the Kingdom of Saudi Arabia with General Contracting Company to operate certain rental power generation equipment, which is primarily utilized within the Kingdom of Saudi Arabia.



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Guangxi Cummins Industrial Power Co., Ltd.—Guangxi Cummins Industrial Power Co., Ltd. is a joint venture in China with Guangxi LiuGong Machinery Co. This joint venture manufactures 6.7 liter and 9.3 liter diesel engines for use in various construction equipment.



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Fleetguard Filters Private, Ltd.—Fleetguard Filters Private, Ltd. is a joint venture in India with Perfect Sealing System Private Limited that manufactures and sells filtration systems primarily for commercial vehicle applications.



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Cummins MerCruiser Diesel Marine, LLC—Cummins MerCruiser Diesel Marine, LLC is(CMD) was a joint venture in the United States (U.S.)U.S. with Mercury Marine, a division of Brunswick Corporation, to develop, manufacture and sell recreational marine diesel products, including engines, sterndrive packages, inboard packages, instrument and controls, service systems and replacement and service parts and assemblies, complete integration systems and other related products.



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Beijing Foton Cummins Engine Co., Ltd.—Beijing Foton Cummins Engine Co., Ltd. is a 50/50 In April 2012, we executed our plans to dissolve the joint venture and to transition to a strategic supply arrangement between the two companies to more effectively and efficiently serve customers in Chinathe global diesel marine market. All business activities were moved from CMD to the parent companies at the time of the dissolution. We will continue to use Mercury Marine drives and control systems in conjunction with Beijing Foton Motor Co., Ltd.,its extensive offering of mid-range and heavy-duty marine engines. The dissolution of the joint venture did not have a commercial vehicle manufacturer, to produce two new families of Cummins high performance light-duty, diesel engines in Beijing. The engines will be used in light-duty commercial trucks, pickup trucks, multipurpose and sport utility vehicles. Certain types of marine, small construction equipment and industrial applications will also be served by these engine families.significant impact on our financial results.

Non-Wholly-Owned Manufacturing Subsidiary

        We have a controlling interest in Cummins India Ltd. (CIL), which is a publicly listed company on various stock exchanges in India. CIL produces mid-range, heavy-duty and high-horsepower engines, as well as generators for the Indian and export markets. CIL also produces compressedmarkets and natural gas spark-ignited engines licensed from anotherfor power generation, automotive and industrial applications. CIL also has distribution and power generation

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operations. CIL's net income attributable to Cummins was $28$42 million, $36$44 million and $26$46 million for 2009, 20082012, 2011 and 2007,2010, respectively.

SUPPLY

        The performance of the end-to-end supply chain, extending through to our suppliers, is foundational to our ability to meet customers' expectations and support long-term growth. In order to ensure we meet the needs of our customers, we are committed to having a robust strategy for how we select and manage our suppliers.

We source our materialshave a strategic sourcing policy that guides decisions on what we make, when we establish supplier partnerships and manufactured components from leading suppliers both domestically and internationally. Wewhat we purchase. Today we machine and assemble some of thestrategic components used in our engines and power generation units, including blocks, heads, turbochargers, connecting rods, camshafts, crankshafts, filters, exhaust systems, alternators and fuel systems. We single source externally purchased material and manufactured components from leading suppliers both domestically and internationally. Many suppliers are managed though long-term agreements that assure capacity, delivery, quality and cost requirements are met over an extended period. We have a "take or pay" contract with an emission solutions business supplier requiring us to purchase approximately 70$73 million annually through 2018. Approximately 60 to 8070 percent of the total types of parts in our product designs. We have long-term agreements with critical suppliers whodesigns are the sole source for specific products or supply items.single sourced. Although we elect to source a relatively high proportion of our total raw materials and component requirementscomponents from sole suppliers, we have an established aannual sourcing strategy process to annuallythat evaluates risk. This annual review our sourcing strategies with a focus on the reduction of risk, whichprocess has led us to begin increasing our use of dual source critical components, where possible. We are also developingsourcing to both minimize risk and increase supply chain responsiveness.

        Other important elements of our sourcing strategy include:

•

working with suppliers to measure and improve their environmental footprint;



•

selecting and managing suppliers to comply with our supplier code of conduct and



•

assuring our suppliers do not use restricted or prohibited materials in many global or emerging markets to serve our businesses across the globe and provide alternative sources in the event of disruption from existing suppliers.

products.

PATENTS AND TRADEMARKS

        We own or control a significant number of patents and trademarks relating to the products we manufacture. These patents and trademarks have beenwere granted and registered over a period of years. Although these patents and trademarks are generally considered beneficial to our operations, we do not believe any patent, group of patents, or trademark (other than our leading brand house trademarks) is considered significant to our business.

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SEASONALITY

        While individual product lines may experience modest seasonal declinesvariation in production, there is no material effect on the demand for the majority of our products on a quarterly basis with the exception that our Power Generation segment normally experiences seasonal declines in the first quarter due to general declines in construction spending during this period and our Distribution segment normally experiences seasonal declines in its first quarter business activity due to holiday periods in Asia and Australia.

LARGEST CUSTOMERS

        We have thousands of customers around the world and have developed long-standing business relationships with many of them. PACCAR is our largest customer, accounting for approximately 13 percent of our consolidated net sales in 2012, compared to approximately 12 percent in 2011 and 7 percent in 2010. We have long-term supply agreements with PACCAR for our heavy-duty ISX 15 liter

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and ISX 11.9 liter engines and our ISL 9 liter mid-range engine. While a significant number of our sales to PACCAR are under long-term supply agreements, these agreements provide for particular engine requirements for specific vehicle models and not a specific volume of engines. PACCAR is our only customer accounting for more than 10 percent of our net sales in 2012. The loss of this customer or a significant decline in the production level of PACCAR vehicles that use our engines would have an adverse effect on our results of operations and financial condition. We have been an engine supplier to PACCAR for over 68 years. A summary of principal customers for each operating segment is included in our segment discussion.

        In addition to our agreement with PACCAR, we have long-term heavy-duty engine supply agreements with PACCAR and Volvo Trucks North America. We haveAmerica and Navistar International Corporation and long-term mid-range supply agreements with PACCAR, as its exclusive engine supplier, as well as with Daimler Trucks North America, (formerly Freightliner LLC), Ford and MAN (formerly Volkswagen).MAN. We also have an agreement with Chrysler to supply engines for supplying the engine for use in Dodgeits Ram trucks. In our off-highway markets, we have various engine and component supply agreements ranging across our midrange and high-horsepower businesses with Komatsu Ltd., as well as various joint ventures and other license agreements in our Engine, Component and Distribution segments. Collectively, our net sales to these sixseven customers, including PACCAR, was approximately 2233 percent of our consolidated net sales in 2009,2012, compared to approximately 2131 percent in 20082011 and 2725 percent in 2007 and individually was2010. Excluding PACCAR, net sales to individual customers were less than nine8 percent of our consolidated net sales to any single customer in 2009,2012, compared to less than eight6 percent in both 20082011 and 2007.less than 4 percent in 2010. These agreements contain standard purchase and sale agreement terms covering engine and engine parts pricing, quality and delivery commitments, as well as engineering product support obligations. The basic nature of our agreements with OEM customers is that they are long-term price and operations agreements that help assure the availability of our products to each customer through the duration of the respective agreements. Agreements with most OEMs contain bilateral termination provisions giving either party the right to terminate in the event of a material breach, change of control or insolvency or bankruptcy of the other party.

BACKLOG

        As a result ofOur 2012 lead times for the current recessed economic conditions manymajority of our order lead times have decreased significantlybusinesses improved from lead times in prior years.their 2011 levels. While we have supply agreements with some truck and off-highway equipment OEMs, most of our business is transacted through open purchase orders. These open orders are historically subject to month-to-month releases and are subject to cancellation on reasonable notice without cancellation charges and therefore are not considered firm.

RESEARCH AND DEVELOPMENT EXPENSE

        In 2012, we increased our research, development and engineering expenses as we continued to invest in future critical technologies and products. We will continue to make investments to improve our current technologies, continue to meet the future emission requirements around the world and improve fuel economy.

Our research and development program is focused on product improvements, innovations and cost reductions for our customers. We expense researchResearch and development expenditures include salaries, contractor fees, building costs, utilities, administrative expenses and allocation of corporate costs and are expensed, net of contract reimbursements, when incurred. Research and development expenses, net of contract reimbursements, were $362$721 million in 2009, $4222012, $621 million in 20082011 and $318$402 million in 2007.2010. Contract reimbursements were $92$86 million in 2009, $612012, $75 million in 20082011 and $52$68 million in 2007.2010.

        For 20092011 and 2008,2010, approximately 42 percent, or $151$1 million and approximately 27$38 million or less than 1 percent or $116 million,and 9 percent, respectively, of our research and development expenditures were directly related to compliance with 2010 EPA emissionsEnvironmental Protection Agency (EPA) emission standards. For 2007, 17 percent, or $55 million, was related to compliance with2012, 2011 and 2010, EPA emissions standards. In 2009, we reduced research, development and engineering expenses but continued to invest in critical technologies and products for 2010 and beyond. We will continue to make investments to improve our current technologies, to continue to meet the future emissions requirements around the world and improve fuel economy.

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approximately $101 million, $104 million and $36 million or 14 percent, 17 percent and 9 percent, of our research and development expenditures were directly related to compliance with 2013 EPA emission standards.

ENVIRONMENTAL COMPLIANCESUSTAINABILITY

        Our Environmental Sustainability

        In 2009, principles attempt to positively impact the environment through the products that we continuedmake, how we use our facilities and how we impact communities where we live and work. Our newly formed Corporate Action Committee for Environmental Sustainability is developing a global plan to be a leader in sustainable business development.more fully integrate environmental stewardship across all of our businesses and functions. We have investedcontinue to invest significantly in new products and technologies designed to further lower exhaustreduce emissions from and increase the efficiency of our products. We have increased our commitmentattempt to addressingwork collaboratively with customers to improve their fuel economy, reduce their carbon footprints and conserve other resources. Over the global impact of climate change and have introduced our first set of 10 climate change principles that address wayspast four years, we believe that we planhave reduced company-wide water usage intensity by approximately 45 percent, U.S.-wide process-derived hazardous waste generation by approximately 52 percent and company-wide landfill waste by approximately 28 percent, all normalized to become a greater part of the solution andtotal work hours. We also have articulated our positions on key public policy issues surrounding climate change.and on a wide range of environmental issues. We are actively engaged with regulatory, industry and other stakeholder groups around the world as GHG and fuel efficiency standards become more prevalent globally. For the fourtheighth consecutive year, we were named to the Dow Jones World Sustainability index,Index, which recognizes the top 10 percent of the world's largest 2,500 companies in economic, environmental and social leadership. We were also named the top environmentally conscious industrial company in the U.S. in Newsweek's Green Rankings. Our sustainability reportSustainability Report for 20092011/2012 as well as an addendum of more detailed environmental data is available on our website at www.cummins.com.www.cummins.com, although such report and addendum are not incorporated into this Form 10-K.

ENVIRONMENTAL COMPLIANCE

Product Environmental Compliance

        Our engines are subject to extensive statutory and regulatory requirements that directly or indirectly impose standards governing emissionsemission and noise. We have substantially increased our global environmental compliance presence and expertise to better prepare for, understand and ultimately meet emerging product environmental regulations around the world. Our products comply with all current emissionsemission standards that the Environmental Protection Agency (EPA)European Union (EU), EPA, the California Air Resources Board (CARB) and other state and international regulatory agencies have established for heavy-duty on-highway diesel and gas engines and off-highway engines. Our ability to comply with these and future emissionsemission standards is an essential element in maintaining our leadership position in regulated markets. We have made, and will continue to make, significant capital and research expenditures to comply with these standards. FailureOur failure to comply with these standards could result in adverse effects on our future financial results.

EU and EPA Engine Certifications

        The current on-highway emissionsemission standards came into effect in the U.S.EU on October 1, 2008 (Euro V) and on January 1, 2010.2010 for the EPA. To meet the 2010 U.S. EPAmore stringent heavy-duty on-highway emissionsemission standards, we are usingused an evolution of our proven 2007selective catalytic reduction (SCR) and exhaust gas recirculation (EGR) technology solutionsolutions and refined them for the EU and EPA certified engines to maintain power and torque with substantial fuel economy improvement and maintenance intervals comparable with our 2007previous compliant engines. We will offer a complete lineup of on-highway engines to meet the near-zero emissionsemission standards. Mid-range and heavy-duty engines for EU and EPA 2010 require nitrogen oxide (NOx)NOx aftertreatment. NOx reduction is achieved by an integrated technology solution comprised of the XPI High Pressure Common Rail fuel system, selective catalytic reduction (SCR)SCR technology, next-generation cooled exhaust gas recirculation (EGR),EGR, advanced

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electronic controls, proven air handling and the Cummins Diesel Particulate Filter.Filter (DPF). The EU, EPA, and CARB have certified that our engines meet the 2010current emission requirements. EmissionsEmission standards in international markets, including Europe, Japan, Mexico, Australia, Brazil, Russia, India and China are becoming more stringent. We believe that our experience in meeting U.S. emissionsthe EU and EPA emission standards leaves us well positioned to take advantage of opportunities in these markets as the need for emissionsemission control capability grows.

        FederalWe have received certification from the EPA that we have met both the EPA 2013 and California2014 GHG regulations require manufacturersand rules. The EPA 2013 regulations add the requirement of On-Board Diagnostics, which were introduced on the ISX15 in 2010, across the full on-highway product line in 2013 in addition to report failuresmaintaining the same near-zero emission levels of emissions-related components toNOx and Particulate Matter (PM) required in 2010. On-Board Diagnostics provide enhanced service capability with standardized diagnostic trouble codes, service tool interface, in-cab warning lamp and service information availability. The new GHG and fuel-efficiency regulations will be required for all heavy-duty diesel and natural gas engines beginning in January 2014. Our GHG certification is the first engine certificate issued by the EPA and CARB whenuses the failure rate reaches a specified level. At higher failure rates, a product recall may be required. In 2009, we submitted three reports tosame proven base engine with the EPA relating to two different defects affecting oxidation catalystsXPI fuel system, Variable Geometry Turbocharger (VGT™), Cummins Aftertreatment System with DPF and vehicle labels. The oxidation catalyst defect necessitated the campaign of approximately 360 engines.SCR technology and fully integrated electronics.

Other Environmental Statutes and Regulations

        Expenditures for environmental control activities and environmental remediation projects at our facilities in the U.S. have not been a substantial portion of our annual capital outlays and are not

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expected to be material in 2010. Except as follows, we2013. We believe we are in compliance in all material respects with laws and regulations applicable to our plants and operations.

        In the U.S., pursuant to notices received from federal and state agencies and/or defendant parties in site environmental contribution actions, we have been identified as a Potentially Responsible Partypotentially responsible party (PRP) under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended or similar state laws, at approximately 1920 waste disposal sites. Based upon our experiences at similar sites we believe that our aggregate future remediation costs will not be significant. We have established accruals that we believe are adequate for our expected future liability with respect to these sites.

        In addition, we have fourseveral other sites where we are working with governmental authorities on remediation projects. The costs for these remediation projects are not expected to be material.

EMPLOYEES

        As of December 31, 2009,2012, we employed approximately 34,90046,000 persons worldwide. Approximately 13,20015,750 of our employees worldwide are represented by various unions under collective bargaining agreements that expire between 20102013 and 2014. For a discussion of the effects of our 2008 and 2009 restructuring actions on employment, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 3, "RESTRUCTURING AND OTHER CHARGES," to ourConsolidated Financial Statements in this Form 10-K.2015.

AVAILABLE INFORMATION

        We file annual, quarterly and current reports, proxy statements and other information electronically with the Securities and Exchange Commission (the "SEC"). You may read and copy any document we file with the SEC at the SEC's public reference room at 100 F Street, N.E., Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 for information on the public reference room. The SEC maintains an internet site that contains annual, quarterly and current reports, proxy and information statements and other information that issuers (including Cummins) file electronically with the SEC. The SEC's internet site is www.sec.gov.

        Our internet site is www.cummins.com. You can access our Investors and Media webpage through our internet site, by clicking on the heading "Investors and Media."Media" followed by the "Investor

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Relations" link. We make available, free of charge, on or through our Investors and Media webpage, our proxy statements, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934 or the Securities Act of 1933, as amended, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC.

        We also have a Corporate Governance webpage. You can access our Governance Documents webpage through our internet site, www.cummins.com, by clicking on the heading "Investors and Media," followed by the "Investor Relations" link and then the topic heading of "Governance Documents" within the "Corporate Governance" heading. Code of Conduct, Committee Charters and other governance documents are included at this site. CumminsOur Code of Conduct applies to all employees, regardless of their position or the country in which they work. It also applies to the employees of any entity owned or controlled by us. We will post any amendments to the Code of Conduct and any waivers that are required to be disclosed by the rules of either the SEC or the New York Stock Exchange LLC (NYSE), on our internet site. The information on Cumminsour internet site is not incorporated by reference into this report.

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        In accordance with NYSE Rules, on May 21, 2009, we filed the annual certification by our CEO that, as of the date of the certification, he was unaware of any violation by the company of the NYSE's corporate governance listing standards.

EXECUTIVE OFFICERS OF THE REGISTRANT

        Following are the names and ages of theour executive officers, of Cummins Inc., their positions with us as of January 31, 2010,2013, and summaries of their backgrounds and business experience:

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        Our Chairman and Chief Executive Officer is elected annually by our Board of Directors and holds office until the first meeting of the Board of Directors following the annual meeting of the shareholders.at which his election is next considered. Other officers are appointed by the Chairman and Chief Executive Officer, are ratified by our Board of Directors and hold office for such period as the Chairman and Chief Executive Officer or the Board of Directors may prescribe.

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ItemITEM 1A.    Risk Factors

        Set forth below and elsewhere in this Annual Report on Form 10-K are some of the principal risks and uncertainties that could cause our actual business results to differ materially from any forward-looking statements contained in this Report and could individually, or combinedin combination, have a material adverse effect on our results of operations, financial position andor cash flows. In addition, future results could be materially affected by general industry and market conditions, changes in laws or accounting rules, general U.S. and non-U.S. economic and political conditions, including a global economic slow-down, fluctuation of interest rates or currency exchange rates, terrorism, political unrest or international conflicts, political instability, major health concerns, natural disasters, commodity prices or other disruptions of expected economic and business conditions. These risk factors should be considered in addition to our cautionary comments concerning forward-looking statements in this Report, including statements related to markets for our products and trends in our business that involve a number of risks and uncertainties. Our separate section above, "CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION," should be considered in addition to the following statements.

Although the global economy showed mild signs of recoveryA sustained slowdown or significant downturn in late 2009, a further downturnour markets could materially and adversely affect our results of operations, financial condition andor cash flows againflows..

        Although we began to see some signs of improvement in late 2009, theThe global economy remains fragile.continued to slow throughout 2012 as we experienced declining demand in emerging markets, including Brazil and China, and a decline in India as the result of foreign currency fluctuations. The global economic recession that began in late 2008developed economies, including the U.S. economy, experienced slowing demand as the year progressed and continued through 2009 had a significant adverse impact on our business, customersto experience economic uncertainty driven by unresolved federal tax and suppliers.budget issues, while Europe continued to struggle as the result of lingering high unemployment, concerns over European sovereign debt issues and the tightening of government budgets. If the global economy wereor some of our significant markets encounter a sustained slowdown or our emerging markets, particularly China and Brazil, don't recover to take another significant downturn,stronger growth rates; depending upon the length, duration and severity of such a so-called "double-dip" recession,slowdown, our results of operations, financial condition and cash flow would almost certainly be materially adversely affected again.affected. Specifically, our revenues would likely decrease, we may be forced to consider further restructuring actions, we may need to increase our allowance for doubtful accounts, our days sales outstanding may increase and we could experience impairments to assets of certain of our businesses.

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The discovery of any significant problems with our new EPA compliant engine platformsA slowdown in North America could materially adversely impact our results of operations, financial condition and cash flows.

        We have received EPA and CARB certification for our heavy-duty ISX15 and mid-range ISB6.7, ISC8.3 and ISL9 engines which went into commercial production in early 2010. Certification of these engines confirms that our 2010 engine line-up for on-highway applications meets the near zero emissions levels required for all engines manufactured in 2010. The launch of these new platforms, which includes the introduction of SCR technology, will impact a number of our operating segments and is crucial to our success in North America. Although these engine platforms have undergone extensive testing and we believe that they are ready for production, the discovery of any significant problems in these platforms could result in delays in our product launches, recall campaigns, increased warranty costs, reputational risk and brand risk.

We may need to write off significant investments in our new light-duty diesel engine platforms if customer commitments further deteriorate.

        We beganinfrastructure development of a new light-duty diesel engine platform in July 2006 to be used in a variety of on- and off-highway applications. Since that time, and as of December 31, 2009, we have capitalized investments of approximately $216 million. Market uncertainty due to the global recession has resulted in some customers delaying or cancelling their vehicle programs, while others remain on schedule. If customer expectations or volume projections further deteriorate from our current levels and we do not identify new customers, we may need to recognize an impairment charge and write the asset down to net realizable value.

We are vulnerable to supply shortages from single-sourced suppliers.

        For 2009, we single sourced approximately 70 to 80 percent of the total types of parts in our product designs. Any delay in our suppliers' deliveries may adversely affect our operations at multiple manufacturing locations, forcing us to seek alternative supply sources to avoid serious disruptions. Delays may be caused by factors affecting our suppliers, including capacity constraints, labor disputes, economic downturns, availability of credit, the impaired financial condition of a particular supplier, suppliers' allocations to other purchasers, weather emergencies or acts of war or terrorism. Any extended delay in receiving critical supplies could impair our ability to deliver products to our customers.

Government regulation could adversely affect our businessbusiness.

        Infrastructure development has been a significant driver of our business in recent years, especially in the emerging markets of China and Brazil. In 2012, infrastructure spending in emerging markets steadily declined throughout the year. General weakness in economic growth or the perception that infrastructure has been overbuilt could lead to a further decline in infrastructure spending. Any sustained downturns in infrastructure development that result from these or other circumstances could adversely affect our business.

.Unpredictability in the adoption, implementation and enforcement of increasingly stringent emission standards by multiple jurisdictions around the world could adversely affect our business.

        Our engines are subject to extensive statutory and regulatory requirements governing emissionsemission and noise, including standards imposed by the EPA, the European Union, state regulatory agencies such(such as the California Air Resources Board ("CARB")CARB) and other regulatory agencies around the world. We have made, and will be required to continue to make, significant capital and research expenditures to comply with these regulatoryemission standards. Developing engines to meet numerous changing government regulatory requirements, with different implementation timelines and emissionsemission requirements, makes developing engines efficiently for multiple markets complicated and could result in substantial additional costs that may be difficult to recover in certain markets. In some cases, we may be required to develop new products to comply with new regulations, particularly those relating to air emissions. For example, we were required to develop new engines to comply with stringent emissions standards in the U.S. by January 1, 2010.emission. While we were able to meet this andhave met previous deadlines, our ability to comply with other existing and future regulatory standards will be essential for us to maintain our position in the engine markets we serve. Further, theThe successful development and introduction of new and enhanced products in order to comply with new regulatory requirements are subject to other risks, such

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as delays in product development, cost over-runs and unanticipated technical and manufacturing difficulties.

        In addition to these risks, the nature and timing of government implementation and enforcement of increasingly stringent emission standards around the world is unpredictable and subject to change, or delays which could result in the products we developed or modified to comply with these standards becoming unnecessary or becoming necessary later than expected and in some cases negating our competitive advantage. This in turn can delay, diminish or eliminate the expected return on capital and research expenditures that we have invested in such products and may adversely affect our perceived competitive advantage in being an early, advanced developer of compliant engines.

We derive significant income from investees that we do not directly control.

        Our net income includes significant equity, royalty and interest income from investees that we do not directly control. For 2012, we recognized $384 million of equity, royalty and interest income from investees, compared to $416 million in 2011. The majority of our equity, royalty and interest income from investees is from our 11 unconsolidated North American distributors and from two of our joint ventures in China, Dongfeng Cummins Engine Company, Ltd. (DCEC) and Chongqing Cummins Engine Company, Ltd. (CCEC). Our equity ownership interests in our unconsolidated North American distributors generally range from 30 percent to 50 percent. We have 50 percent equity ownership interests in DCEC and CCEC. As a result, although a significant percentage of our net income is derived from these unconsolidated entities, we do not unilaterally control their management or their operations, which puts a substantial portion of our net income at risk from the actions or inactions of these other entities. A significant reduction in the level of contribution by these entities to our net income would likely have a material adverse effect on our results of operations.

Our truck manufacturers and original equipment manufacturers (OEMs) customers may not continue to outsource their engine supply needs.

        Several of our engine customers, including PACCAR, Volvo AB, Navistar International Corporation and Chrysler, are truck manufacturers or OEMs that manufacture engines for some of their own products. Despite their own engine manufacturing abilities, these customers have historically chosen to outsource certain types of engine production to us due to the quality of our engine products, our emission capabilities, our systems integration, their customers' preferences, their desire for cost reductions, their desire for eliminating production risks and their desire to maintain company focus. However, there can be no assurance that these customers will continue to outsource, or outsource as much of, their engine production in the future. Increased levels of OEM vertical integration could result from a number of factors, such as shifts in our customers' business strategies, acquisition by a customer of another engine manufacturer, the inability of third-party suppliers to meet product specifications and the emergence of low-cost production opportunities in foreign countries. Any significant reduction in the level of engine production outsourcing from our truck manufacturer or OEM customers could have a material adverse effect on our results of operations.

A downturn in the North American truck industry or other factors negatively affecting any of our truck OEM customers could materially adversely impact our results of operations.

        We make significant sales of engines and components to a few large truck OEMs in North America. If the North American truck market suffers a significant downturn, or if one of our large truck OEM customers experienced financial distress or bankruptcy, such circumstance would likely lead to significant reductions in our revenues and earnings, commercial disputes, receivable collection issues, and other negative consequences that could have a material adverse impact on our results of operations.

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Greenhouse gas legislation or regulation could adversely affect our business.

        There is growing consensus that some form of U.S. federal legislation and/or regulation may be forthcoming with respect to regulating manufacturers' greenhouse gas emissions. Any such regulation could result in the imposition on us of significant additional costs in the form of taxes, manufacturing restrictions and/or emission allowances. The impactdiscovery of any future mandatory greenhouse gas legislative, regulatory and/or product standard requirements on our global businesses is dependent on the design, terms and applicability of the mandate or standard. We are unable to predict whether and/or the extent to which any of these potential requirements will be enacted or imposed upon us.

Our products are exposed to variability in material and commodity costs.