Cummins (CMI) 10-Q 30 Jul 09 2009 Q2 Quarterly report Financial data

CONDENSED CONSOLIDATED STATEMEN

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (USD $)
In Millions, except Per Share data	3 Months Ended Jun. 28, 2009		3 Months Ended Jun. 29, 2008		6 Months Ended Jun. 28, 2009		6 Months Ended Jun. 29, 2008
NET SALES (a)	$2,431	[1]	$3,887	[1]	$4,870	[1]	$7,361	[1]
Cost of sales	1,983		3,008		3,977		5,775
GROSS MARGIN	448		879		893		1,586
OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses	287		370		587		721
Research, development and engineering expenses	79		104		164		207
Equity, royalty and interest income from investees (Note 5)	57		69		90		136
Restructuring charges (Note 6)	7				73
Other operating (expense) income expense, net	(11)		(6)		(9)		(7)
OPERATING INCOME	121		468		150		787
Interest income	1		4		3		10
Interest expense	10		12		17		23
Other (expense) income, net	(13)		(3)		(16)		(13)
INCOME BEFORE INCOME TAXES	99		457		120		761
Income tax expense	29		147		36		249
NET INCOME	70		310		84		512
Less: net income attributable to noncontrolling interests	14		17		21		29
NET INCOME ATTRIBUTABLE TO CUMMINS INC.	$56		$293		$63		$483
EARNINGS PER COMON SHARE ATTRIBUTABLE TO CUMMINS INC.
Basic (in dollars per share)	0.28		1.5		0.32		2.47
Diluted (in dollars per share)	0.28		1.49		0.32		2.46
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic (in shares)	197.1		195.2		197		195.1
Dilutive effect of stock compensation awards (in shares)	0.3		1.4		0.2		1.4
Diluted (in shares)	197.4		196.6		197.2		196.5
CASH DIVIDENDS DECLARED PER COMMON SHARE (in dollars per share)	0.175		0.125		0.35		0.25
[1](a) Includes sales to nonconsolidated equity investees of $422 million and $851 million and $570 and $1,082 million for the three and six month periods ended June 28, 2009 and June 29, 2008, respectively.

CONDENSED CONSOLIDATED BALANCE

CONDENSED CONSOLIDATED BALANCE SHEETS (USD $)
In Millions	Jun. 28, 2009	Dec. 31, 2008
Current assets
Cash and cash equivalents	$534	$426
Marketable securities	17	77
Accounts and notes receivable, net
Trade and other	1,533	1,551
Nonconsolidated equity investees	192	231
Inventories (Note 7)	1,535	1,783
Deferred income taxes	364	347
Prepaid expenses and other current assets	198	298
Total current assets	4,373	4,713
Long-term assets
Property, plant and equipment	4,681	4,539
Accumulated depreciation	(2,821)	(2,698)
Property, plant and equipment, net	1,860	1,841
Investments and advances related to equity method investees	527	588
Goodwill	362	362
Other intangible assets, net	241	223
Deferred income taxes	499	491
Other assets	259	301
Total assets	8,121	8,519
Current liabilities
Current portion of long-term debt and loans payable	63	69
Accounts payable (principally trade)	773	1,009
Current portion of accrued product warranty (Note 8)	373	434
Accrued compensation, benefits and retirement costs	283	364
Other accrued expenses	622	763
Total current liabilities	2,114	2,639
Long-term liabilities
Long-term debt	617	629
Pensions	561	574
Postretirement benefits other than pensions	442	452
Other liabilities and deferred revenue	792	745
Total liabilities	4,526	5,039
Cummins Inc. shareholders' equity
Common stock, $2.50 par value, 500 shares authorized, 222.1 and 221.7 shares issued	1,796	1,793
Retained earnings	3,280	3,288
Treasury stock, at cost, 20.3 and 20.4 shares	(714)	(715)
Common stock held by employee benefits trust, at cost, 4.8 and 5.1 shares	(58)	(61)
Unearned compensation	(1)	(5)
Accumulated other comprehensive loss
Defined benefit postretirement plans	(794)	(798)
Other	(137)	(268)
Total accumulated other comprehensive loss	(931)	(1,066)
Total Cummins Inc. shareholders' equity	3,372	3,234
Noncontrolling interests	223	246
Total equity	3,595	3,480
Total liabilities and equity	$8,121	$8,519

1_CONDENSED CONSOLIDATED BALANC

CONDENSED CONSOLIDATED BALANCE SHEETS ( Parenthetical) (USD $)
Share data in Millions, except Per Share data	Jun. 28, 2009	Dec. 31, 2008
BALANCE SHEETS
Common stock, $2.50 par value (in dollars per share)	2.5	2.5
Common stock, shares authorized (in shares)	500	500
Common stock, shares issued (in shares)	222.1	221.7
Treasury stock, shares (in shares)	20.3	20.4
Common stock, shares held by employee benefits trust (in shares)	4.8	5.1

2_CONDENSED CONSOLIDATED STATEM

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Millions	6 Months Ended Jun. 28, 2009	6 Months Ended Jun. 29, 2008
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$84	$512
Adjustments to reconcile net income to net cash provided by operating activities:
Restructuring charges, net of cash payments (Note 6)	20
Depreciation and amortization	154	158
Deferred income taxes	20	14
Equity in income of investees, net of dividends	60	(62)
Pension expense, net of pension contributions (Note 4)	(15)	(3)
Other post-retirement benefits expense, net of cash payments (Note 4)	(16)	(5)
Stock-based compensation expense	12	17
Excess tax deficiencies (benefits) on stock-based awards	2	(12)
Translation and hedging activities	51	8
Changes in current assets and liabilities, net of acquisitions and dispositions:
Accounts and notes receivable	86	(316)
Inventories	282	(202)
Other current assets	22	(16)
Accounts payable	(253)	172
Accrued expenses	(242)	102
Changes in long-term liabilities	73	47
Other, net	(19)	(8)
Net cash provided by operating activities	321	406
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(139)	(201)
Investments in internal use software	(19)	(36)
Proceeds from disposals of property, plant and equipment	7	10
Investments in and advances (to) from equity investees	1	(41)
Acquisition of businesses, net of cash acquired	(2)	(76)
Investments in marketable securities - acquisitions	(69)	(158)
Investments in marketable securities - liquidations	133	159
Cash flows from derivatives not designated as hedges	(21)	(18)
Other, net		5
Net cash used in investing activities	(109)	(356)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings	10	77
Payments on borrowings and capital lease obligations	(44)	(101)
Net borrowings under short-term credit agreements	(5)	1
Distributions to noncontrolling interests	(10)	(6)
Dividend payments on common stock	(71)	(51)
Repurchases of common stock		(45)
Excess tax (deficiencies) benefits on stock-based awards	(2)	12
Other, net	3	2
Net cash used in financing activities	(119)	(111)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	15	6
Net increase (decrease) in cash and cash equivalents	108	(55)
Cash and cash equivalents at beginning of year	426	577
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$534	$522

3_CONDENSED CONSOLIDATED STATEM

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (USD $)
In Millions	Common Stock	Additional paid-in Capital	Retained Earnings	Accumulated Other Comprehensive Loss		Treasury Stock	Common Stock Held in Trust	Unearned Compensation	Total Cummins Inc. Shareholders' Equity	Noncontrolling Interests	Total
BALANCE AT BEGINNING OF PERIOD at Dec. 31, 2007	$551	$1,168	$2,660	($286)		($593)	($79)	($11)	$3,410	$292	$3,702
Comprehensive income:
Net income			483						483	29	512
Other comprehensive income (loss):
Unrealized loss on marketable securities				(2)					(2)	(2)	(4)
Unrealized gain on derivatives				18					18		18
Foreign currency translation adjustments				(6)					(6)	(11)	(17)
Change in pensions and other postretirement defined benefit plans				12					12		12
Total comprehensive income									505	16	521
Effect of changing pension plan measurement date pursuant to SFAS No. 158			(5)	(2)					(7)		(7)
Issuance of shares	3	(1)							2	4	6
Acquisition of shares						(45)			(45)		(45)
Cash dividends on common stock			(51)						(51)		(51)
Distribution to noncontrolling interests										(8)	(8)
Stock option exercises		(1)				4			3		3
Other shareholder transactions		14						4	18	2	20
BALANCE AT END OF PERIOD at Jun. 29, 2008	554	1,180	3,087	(266)		(634)	(79)	(7)	3,835	306	4,141
BALANCE AT BEGINNING OF PERIOD at Mar. 30, 2008							(79)
Other comprehensive income (loss):
BALANCE AT END OF PERIOD at Jun. 29, 2008							(79)
BALANCE AT BEGINNING OF PERIOD at Dec. 31, 2008	554	1,239	3,288	(1,066)		(715)	(61)	(5)	3,234	246	3,480
Comprehensive income:
Net income			63						63	21	84
Other comprehensive income (loss):
Unrealized gain on derivatives				44					44		44
Foreign currency translation adjustments				87					87	6	93
Change in pensions and other postretirement defined benefit plans				4					4		4
Total comprehensive income									198	27	225
Issuance of shares	1	2							3		3
Cash dividends on common stock			(71)						(71)		(71)
Distribution to noncontrolling interests										(15)	(15)
Stock option exercises		(1)				1
Conversion to capital lease (Note 12)										(35)	(35)
Other shareholder transactions		1					3	4	8		8
BALANCE AT END OF PERIOD at Jun. 28, 2009	$555	$1,241	$3,280	($931)	[1]	($714)	($58)	($1)	$3,372	$223	$3,595
[1]Comprised of defined benefit postretirement plans of $(794) million, foreign currency translation adjustments of $(116) million, unrealized gain on marketable securities of $2 million and unrealized loss on derivatives of $(23) million.

NATURE OF OPERATIONS

NATURE OF OPERATIONS
	6 Months Ended Jun. 28, 2009 USD / shares
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NATURE OF OPERATIONS	NOTE 1. NATURE OF OPERATIONS CumminsInc. (Cummins, the Company, the registrant, we, our, or us) is a leading global power provider that designs, manufactures, distributes and services diesel and natural gas engines, electric power generation systems and engine-related component products, including filtration and emissions solutions, turbochargers, fuel systems, controls and air handling systems. We were founded in 1919 as one of the first manufacturers of diesel engines and are headquartered in Columbus, Indiana. We sell our products to Original Equipment Manufacturers (OEMs), distributors and other customers worldwide. We serve our customers through a network of more than 500 company-owned and independent distributor locations and approximately 5,200 dealer locations in more than 190 countries and territories.

BASIS OF PRESENTATION

BASIS OF PRESENTATION
	6 Months Ended Jun. 28, 2009 USD / shares
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION	NOTE 2. BASIS OF PRESENTATION The unaudited Condensed Consolidated Financial Statements reflect all adjustments which, in the opinion of management, are necessary for a fair statement of the results of operations, financial position and cash flows. All such adjustments are of a normal recurring nature. The Condensed Consolidated Financial Statements have been prepared pursuant to the rulesand regulations of the Securities and Exchange Commission (SEC) and in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted as permitted by such rulesand regulations. Certain reclassifications have been made to prior period amounts to conform to the presentation of the current period condensed financial statements. Our reporting period ends on the Sunday closest to the last day of the quarterly calendar period. The second quarters of 2009 and 2008 ended on June28, and June29, respectively. The interim periods for both 2009 and 2008 contain 13 weeks. Our fiscal year ends on December31, regardless of the day of the week on which December31 falls. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts in the Condensed Consolidated Financial Statements. Significant estimates and assumptions in these Condensed Consolidated Financial Statements require the exercise of judgment and are used for, but not limited to, allowance for doubtful accounts, estimates of future cash flows and other assumptions associated with goodwill and long-lived asset impairment tests, useful lives for depreciation and amortization, warranty programs, determination of discount and other rate assumptions for pension and other postretirement benefit expenses, income taxes and deferred tax valuation allowances and contingencies. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be different from these estimates. The weighted-average diluted common shares outstanding exclude the anti-dilutive effect of certain stock options since such options had an exercise price in excess of the monthly average market value of our common stock. The options excluded from diluted earnings per share for the three and six month periods ended June28, 2009, and June29, 2008, were as follows: Three months ended Six months ended June28, 2009 June29, 2008 June28, 2009 June29, 2008 Options excluded 99,167 4,317 75,671 7,286 Comprehensive income is comprised of net income, as well as adjustments for foreign currency translation, marketable securities, derivative instruments designated as cash flow hedges and pension and other postretirement defined benefits. Total comprehensive income attributable to Cummins Inc. for the three and six month periods ended June28, 2009, was $177 million and $198 million, respectively. Total comprehensive income attributable to Cummins Inc. for th

RECENTLY ADOPTED AND RECENTLY I

RECENTLY ADOPTED AND RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
	6 Months Ended Jun. 28, 2009 USD / shares
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
RECENTLY ADOPTED AND RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS	NOTE 3. RECENTLY ADOPTED AND RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS Accounting Pronouncements Recently Adopted In December2007, the FASB issued SFAS No.160, Noncontrolling Interests in Consolidated Financial Statements (SFAS 160), which is effective for interim and annual fiscal periods beginning after December15, 2008. This standard amends Accounting Research Bulletin No.51, Consolidated Financial Statements (ARB 51) and establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the accounting for future ownership changes with respect to those subsidiaries. This standard defines a noncontrolling interest, previously called a minority interest, as the portion of equity in a subsidiary not attributable, directly or indirectly, to a parent. This standard requires, among other items, that a noncontrolling interest be included in the consolidated balance sheet within equity separate from the parents equity; consolidated net income to be reported at amounts inclusive of both the parents and noncontrolling interests shares and, separately, the amounts of consolidated net income attributable to the parent and noncontrolling interest all on the consolidated statements of income; and if a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary be measured at fair value and a gain or loss be recognized in net income based on such fair value. We adopted this standard effective January1, 2009, and applied it retrospectively. As a result, we reclassified noncontrolling interests of $246 million from the mezzanine section to equity in the December31, 2008, balance sheet. Certain reclassifications have been made to prior period amounts to conform to the presentation of the current period under this standard. In March2008, the FASB issued SFAS No.161, Disclosures about Derivative Instruments and Hedging Activities (SFAS 161), which is effective for interim and annual fiscal periods beginning after November15, 2008. This standard amends SFAS No.133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133) and requires enhanced disclosures about a companys derivative and hedging activities. We adopted this standard effective January1, 2009, and applied it prospectively. The new disclosures required by this standard are included in Note 11. In April2009, the FASB issued three new FASB Staff Positions (FSPs) all of which impact the accounting and disclosure related to certain financial instruments. FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (FSP FAS 157-4) provides additional guidance for estimating fair value in accordance with SFAS 157 when the volume and level of activity for the asset or liability have significantly decreased. It also includes guidance on identifying circumstances that indicate a transaction is not orderly. FSP FAS 115-2 and FAS 124-2, Recognition of Other-Than-Temporary Impairment (FSP FAS 115-2 and FAS 124-2) amends the other-than-temporary impairment guidance for debt securities

PENSION AND OTHER POSTRETIREMEN

PENSION AND OTHER POSTRETIREMENT BENEFITS
	6 Months Ended Jun. 28, 2009 USD / shares
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PENSION AND OTHER POSTRETIREMENT BENEFITS	NOTE 4. PENSION AND OTHER POSTRETIREMENT BENEFITS We sponsor funded and unfunded domestic and foreign defined benefit pension and other postretirement plans. Cash contributions to these plans were as follows: Three months ended Six months ended June28, June29, June28, June29, In millions 2009 2008 2009 2008 Defined benefit pension and postretirement plans: Voluntary $ 45 $ 12 $ 45 $ 24 Mandatory 20 14 41 30 Total defined benefit plans $ 65 $ 26 $ 86 $ 54 Defined contribution pension plans $ 7 $ 8 $ 23 $ 18 We presently anticipate contributing $125 million to $135 million to our defined benefit pension plans in 2009 and paying approximately $53 million in claims and premiums for other postretirement benefits. The $125 million to $135 million of contributions for the full year include voluntary contributions of $100 million to $105 million. These contributions and payments include payments from Company funds either to increase pension assets or to make direct payments to plan participants. The components of net periodic pension and other postretirement benefit cost under our plans consisted of the following: Pension Other Postretirement U.S. Plans Non-U.S. Plans Benefits Three months ended June28, June29, June28, June29, June28, June29, In millions 2009 2008 2009 2008 2009 2008 Service cost $ 12 $ 12 $ 4 $ 7 $ $ Interest cost 28 29 14 16 8 8 Expected return on plan assets (35 ) (38 ) (14 ) (19 ) Amortization of prior service (credit) cost (1 ) 1 1 (2 ) (2 ) Recognized net actuarial loss (gain) 7 5 5 5 (1 ) Other 1 Net periodic benefit cost $ 12 $ 8 $ 10 $ 10 $ 6 $ 5 Pension Other Postretirement U.S. Plans Non-U.S. Plans Benefits Six months ended June28, June29, June28, June29, June28, June29, In millions 2009 2008 2009 2008 2009 2008 Service cost $ 23 $ 24 $ 8 $ 14 $ $ Interest cost 57 58 27 32 15 16 Expected return on plan assets (70 ) (76 ) (28 ) (38 ) Amortization of prior service (credit) cost (1 ) 2 2 (4 ) (5 ) Recognized net actuarial loss (gain) 15 10 10 10 (1 ) Other 1 Net periodic benefit cost $ 25 $ 16 $ 19 $ 20 $ 11 $ 10

EQUITY, ROYALTY AND INTEREST IN

EQUITY, ROYALTY AND INTEREST INCOME FROM INVESTEES
	6 Months Ended Jun. 28, 2009 USD / shares
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
EQUITY, ROYALTY AND INTEREST INCOME FROM INVESTEES	NOTE 5. EQUITY, ROYALTY AND INTEREST INCOME FROM INVESTEES Equity, royalty and interest income from investees included in our Condensed Consolidated Statements of Income for the interim reporting periods was as follows: Three months ended Six months ended June28, June29, June28, June29, In millions 2009 2008 2009 2008 Distribution Entities North American distributors $ 23 $ 24 $ 49 $ 46 All other distributors 4 3 7 4 Manufacturing Entities Chongqing Cummins Engine Company, Ltd 12 7 20 14 Dongfeng Cummins Engine Company, Ltd 7 20 7 34 Shanghai Fleetguard Filter Co. Ltd. 2 2 3 5 Tata Cummins Ltd. 2 2 7 Cummins MerCruiser Diesel Marine LLC. (2 ) 2 (3 ) 6 All other manufacturers 5 3 9 Cummins share of net income 53 63 83 125 Royalty and interest income 4 6 7 11 Equity, royalty and interest income from investees $ 57 $ 69 $ 90 $ 136

RESTRUCTURING CHARGES

RESTRUCTURING CHARGES
	6 Months Ended Jun. 28, 2009 USD / shares
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
RESTRUCTURING CHARGES	NOTE 6. RESTRUCTURING CHARGES 2009 Restructuring Actions In 2009, we executed restructuring actions in response to a reduction in orders in most of our U.S. and foreign markets due to the continuing deterioration in the global economy. We reduced our global workforce byapproximately 850 professional employees. In addition, we took numerous employee actions at many of our manufacturing locations, including approximately 2,600 hourly employees, significant downsizing at numerous facilities and complete closure of several facilities and branch distributor locations. Employee termination and severance costs were recorded based on approved plans developed by the businesses and corporate management which specified positions to be eliminated, benefits to be paid under existing severance plans, union contracts or statutory requirements and the expected timetable for completion of the plan. Estimates of restructuring were made based on information available at the time charges were recorded. Due to the inherent uncertainty involved, actual amounts paid for such activities may differ from amounts initially recorded and we may need to revise previous estimates. Total workforce reductions as of June28, 2009, were substantially completed. In response to closures and downsizing noted above, we incurred $2 million of restructuring expenses for lease terminations and $4 million of restructuring expenses for asset impairments. During 2009 we recorded a total pre-tax restructuring charge of $73 million, net of the $1 million favorable change in estimate related to 2008 actions, in Restructuring charges in the Condensed Consolidated Statements of Income related to the 2009 actions. These restructuring actions included: In millions 2009 Estimated Completion Date Workforce reductions $ 68 September2009 Exit activities 6 September2009 The following table summarizes the balance of accrued restructuring charges by expense type and the changes in the accrued amounts for the applicable periods. The restructuring related accruals were recorded in Other accrued expenses in the Condensed Consolidated Balance Sheets. In millions Severance Costs Exit Activities Total 2009 Restructuring charges $ 68 $ 6 $ 74 Cash payments for 2009 actions (51 ) (1 ) (52 ) Noncash items (4 ) (4 ) Balance at June28, 2009 $ 17 $ 1 $ 18 We do not include restructuring charges in our operating segment results. The pretax impact of allocating restructuring charges to the segment results would have been as follows: In millions 2009 Charges Engine $ 33 Power Generation 6 Components 26 Distribution 4 Non-segment 4 Total restructuring charges $ 73 2008 Restructuring Actions In 2008 we executed restructuring actions in response to the continued deterioration in our U.S. businesses and most key markets around the world in the second half of 2008, as well as a reduction in orders in most U.S. and foreign markets for 2009. In 2008 we announced reductions of our global work

INVENTORIES

INVENTORIES
	6 Months Ended Jun. 28, 2009 USD / shares
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INVENTORIES	NOTE 7. INVENTORIES Inventories included the following: June28, December31, In millions 2009 2008 Finished products $ 858 $ 860 Work-in-process and raw materials 774 1,021 Inventories at FIFO cost 1,632 1,881 Excess of FIFO over LIFO (97 ) (98 ) Total inventories $ 1,535 $ 1,783

PRODUCT WARRANTY LIABILITY

PRODUCT WARRANTY LIABILITY
	6 Months Ended Jun. 28, 2009 USD / shares
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PRODUCT WARRANTY LIABILITY	NOTE 8. PRODUCT WARRANTY LIABILITY We charge the estimated costs of warranty programs, other than product recalls, to income at the time products are shipped to customers. We use historical claims experience to develop the estimated liability. We review product recall programs on a quarterly basis and, if necessary, record a liability when we commit to an action. We also sell extended warranty coverage on several engines. The following is a tabular reconciliation of the product warranty liability, including the deferred revenue related to our extended warranty coverage: Six months ended June28, June29, In millions 2009 2008 Balance, beginning of period $ 962 $ 749 Provision for warranties issued 157 218 Deferred revenue on extended warranty contracts sold 53 43 Payments (242 ) (175 ) Amortization of deferred revenue on extended warranty contracts (36 ) (31 ) Changes in estimates for pre-existing warranties 53 50 Foreign currency translation 11 Balance, end of period $ 958 $ 854 The amount of deferred revenue related to extended coverage programs as of June28, 2009, was $243 million. As of June28, 2009, we had $12 million of receivables related to estimated supplier recoveries of which $6 million was included in Trade and other receivables and $6 million was included in Other assets in our Condensed Consolidated Balance Sheets. During 2008 and 2009, actual cost trends for certain midrange engine products, including product launched in 2007 and for which warranty periods can extend to five years, indicated higher per claim repair cost than the product on which the initial accrual rate was developed. These products include more electronic parts than historical models, contributing to the higher cost per claim. In addition, certain products introduced in 2003 and sold prior to 2007 for which the warranty period extended five years also demonstrated higher cost per claim than that of predecessor products. We increased our liability in 2008 as these experience trends became evident.

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES
	6 Months Ended Jun. 28, 2009 USD / shares
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
COMMITMENTS AND CONTINGENCIES	NOTE 9. COMMITMENTS AND CONTINGENCIES We are subject to numerous lawsuits and claims arising out of the ordinary course of our business, including actions related to product liability; personal injury; the use and performance of our products; warranty matters; patent, trademark or other intellectual property infringement; contractual liability; the conduct of our business; tax reporting in foreign jurisdictions; distributor termination; workplace safety; and environmental matters. We also have been identified as a potentially responsible party at multiple waste disposal sites under federal and related state environmental statutes and regulations and may have joint and several liability for any investigation and remediation costs incurred with respect to such sites. Some of these lawsuits, claims and proceedings involve substantial amounts. We have denied liability with respect to many of these lawsuits, claims and proceedings and are vigorously defending such lawsuits, claims and proceedings. We carry various forms of commercial, property and casualty, product liability and other forms of insurance; however, such insurance may not be applicable or adequate to cover the costs associated with a judgment against us with respect to these lawsuits, claims and proceedings. We do not believe that these lawsuits are material individually or in the aggregate. While we believe we have also established adequate accruals for our expected future liability with respect to pending lawsuits, claims and proceedings, where the nature and extent of any such liability can be reasonably estimated based upon then presently available information, there can be no assurance that the final resolution of any existing or future lawsuits, claims or proceedings will not have a material adverse effect on our business, results of operation, financial condition or cash flows. In June2008, four Cummins sites in Southern Indiana, including our Technical Center, experienced extensive damage caused by flood water from an unusually high amount of rainfall. We have been in ongoing discussions with our insurance carriers regarding our claim. In May2009, our insurance carriers filed a law suit seeking a declaratory judgment that a lower policy sublimit applies to the Technical Center based upon an allegation that the site is located in a flood plain. In addition, they allege that certain other damages and losses claimed by Cummins are not covered by insurance. Cummins has also filed suit seeking a declaratory judgment that all losses suffered by Cummins are covered under the insurance policies, as well as a claim that the insurance companies have acted in bad faith. We have finalized the documentation of Cummins $199 million claim ($116 million expense and $83 million capital), which does not include an additional claim amount related to business interruption. We remain confident that we will recover a majority of the amounts due to us under the insurance policies. We have incurred approximately $88 million in expense and $42 million in capital of our $199 million claim through June28, 2009. We recorded flood damage expenses of $9 million and $3 million for the three and

FAIR VALUE OF FINANCIAL INSTRUM

FAIR VALUE OF FINANCIAL INSTRUMENTS
	6 Months Ended Jun. 28, 2009 USD / shares
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FAIR VALUE OF FINANCIAL INSTRUMENTS	NOTE 10. FAIR VALUE OF FINANCIAL INSTRUMENTS The majority of the assets and liabilities we carry at fair value are available-for-sale (AFS) securities and derivatives. AFS securities are derived from level 1 or level 2 inputs. The predominance of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services. The fair value measurement of derivatives results primarily from level 2 inputs. Many of our derivative contracts are valued utilizing publicly available pricing data of contracts with similar terms. In other cases, the contracts are valued using current spot market data adjusted for the appropriate current forward curves provided by external financial institutions. We participate in commodity swap contracts, currency forward contracts, and interest rate swaps. When material, we adjust the values of our derivative contracts for counter-party or our credit risk. The following table summarizes our financial instruments recorded at fair value in our Condensed Consolidated Balance Sheets at June28, 2009: Fair Value Measurements Using In millions Quoted prices in active markets for identical assets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Total Available-for-sale securities $ 11 $ 6 $ $ 17 Derivative assets 49 49 Derivative liabilities (32 ) (32 ) Total $ 11 $ 23 $ $ 34 Fair Value of Other Financial Instruments Based on borrowing rates currently available to us for bank loans with similar terms and average maturities, considering our risk premium, the fair value of total debt, including current maturities, at June28, 2009, was approximately $550million. The carrying value at that date was $680million. At December31, 2008, the fair and carrying values of total debt, including current maturities, were $567million and $698million, respectively. The carrying values of all other receivables and liabilities approximated fair values.

DERIVATIVES

DERIVATIVES
	6 Months Ended Jun. 28, 2009 USD / shares
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DERIVATIVES	NOTE 11. DERIVATIVES We are exposed to financial risk resulting from volatility in foreign exchange rates, commodity prices and interest rates. This risk is closely monitored and managed through the use of financial derivative instruments including foreign currency forward contracts, commodity forward contracts and interest rate swaps. As stated in our internal policies and procedures, financial derivatives are used expressly for hedging purposes, and under no circumstances are they used for speculative purposes. When material, we adjust the value of our derivative contracts for counter-party or our credit risk. The results and status of our hedging transactions are reported to senior management on a monthly and quarterly basis. Foreign Currency Exchange Rate Risk As a result of our international business presence, we are exposed to foreign currency exchange risks. We transact business in foreign currencies and, as a result, our income experiences some volatility related to movements in foreign currency exchange rates. To help manage our exposure to exchange rate volatility, we use foreign exchange forward contracts on a regular basis to hedge forecasted intercompany and third-party sales and purchases denominated in non-functional currencies. Our internal policy allows for managing anticipated foreign currency cash flows for up to one year. These foreign currency forward contracts are designated and qualify as foreign currency cash flow hedges under SFAS No.133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133). The effective portion of the unrealized gain or loss on the forward contract is deferred and reported as a component of Accumulated other comprehensive loss (AOCL). When the hedged forecasted transaction (sale or purchase) occurs, the unrealized gain or loss is reclassified into income in the same line item associated with the hedged transaction in the same period or periods during which the hedged transaction affects income. The ineffective portion of the hedge, unrealized gain or loss, if any, is recognized in current income during the period of change. As of June28, 2009, we expect to reclassify an unrealized net gain of $5 million from AOCL to income over the next year. For the six month periods ended June28, 2009, and June29, 2008, there were no circumstances that would have resulted in the discontinuance of a foreign currency cash flow hedge. To minimize the income volatility resulting from the remeasurement of net monetary assets and payables denominated in a currency other than the functional currency, we enter into foreign currency forward contracts, which are considered economic hedges. The objective is to offset the gain or loss from remeasurement with the gain or loss from the fair market valuation of the forward contract. These derivative instruments are not designated as hedges under SFAS133. The table below summarizes our outstanding foreign currency forward contracts. The currencies in this table represent 88% of the notional amounts of contracts outstanding as of June28, 2009. In millions Currency Denomination Currency June28, 2009 United States Dollar (USD

LEASE AMENDMENT AND EXTENSION

LEASE AMENDMENT AND EXTENSION
	6 Months Ended Jun. 28, 2009 USD / shares
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
LEASE AMENDMENT AND EXTENSION	NOTE 12. LEASE AMENDMENT AND EXTENSION During 2001, we entered into a sale-leaseback transaction with a financial institution with regard to certain heavy-duty engine manufacturing equipment. The lease was classified as an operating lease with a lease term of 11.5 years, expiring June28, 2013. The financial institution created a grantor trust to act as the lessor in the arrangement. The financial institution owns all of the equity in the trust. The grantor trust has no assets other than the equipment and its rights to the lease agreement with us. On the initial sale, we received $125 million from the financial institution which was financed with $99 million of non-recourse debt and $26 million of equity. Our obligations to the grantor trust consisted of the payments due under the lease and a $9 million guarantee of the residual value of the equipment. In addition, we had a fixed price purchase option that was exercisable on January14, 2009, for approximately $35 million; however, we decided not to exercise this option. In December2003, the grantor trust which acts as the lessor in the sale and leaseback transaction described above was consolidated as a result of the adoption of FIN 46(R), due primarily to the existence of the residual value guarantee. As a result of the consolidation, the manufacturing equipment and the trusts obligations under its non-recourse debt arrangement was included in our Condensed Consolidated Balance Sheets as property, plant and equipment and long-term debt, respectively. The equity in the trust held by the financial institution was reported as noncontrolling interest. The non-recourse debt arrangement is more fully discussed in Note 10 to our annual Consolidated Financial Statements included in our 2008 Form10-K. In addition, our Condensed Consolidated Statements of Income included interest expense on the lessors debt obligations and depreciation expense on the manufacturing equipment rather than rent expense under the lease agreement. In April2008, the trust made the final payment on the non-recourse debt. In February2009, we amended the lease agreement to extend the lease for an additional two years to June2015, and we removed the residual value guarantee. As a result of removing the residual value guarantee, we are no longer required to consolidate the grantor trust and we deconsolidated the trust in the first quarter of 2009. With the deconsolidation, we are now required to account for the leasing arrangement with the trust which qualifies as a capital lease. The deconsolidation of the trust had minimal impact on our Condensed Consolidated Financial Statements as the present value of the minimum lease payments (including the extension) approximated the amount that was reported as noncontrolling interest as of the date of the amendment. The reduction in noncontrolling interests and increase in our capital lease liabilities was $35 million. The future lease payments required under the amended lease are as follows: In millions Payment Due date amount 2009 $ 3 2010 2011 2012 12 2013 10 Thereafter 18 The lease agreement includes cer

OPERATING SEGMENTS

OPERATING SEGMENTS
	6 Months Ended Jun. 28, 2009 USD / shares
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OPERATING SEGMENTS	NOTE 13. OPERATING SEGMENTS Our reportable operating segments consist of the following: Engine, Power Generation, Components and Distribution. This reporting structure is organized according to the products and markets each segment serves. We use segment EBIT (defined as earnings or loss before interest expense, income taxes and noncontrolling interests) as the primary basis for the chief operating decision-maker to evaluate the performance of each operating segment. A summary of operating results by segment for the three and six month periods is shown below: In millions Engine Power Generation Components Distribution Non-segment items(1) Total Three months ended June28, 2009 External sales $ 1,133 $ 481 $ 355 $ 462 $ $ 2,431 Intersegment sales 173 129 147 1 (450 ) Total sales 1,306 610 502 463 (450 ) 2,431 Depreciation and amortization(2) 45 11 17 4 77 Research, development and engineering expense 51 8 20 79 Equity, royalty and interest income from investees 17 6 4 30 57 Restructuring charges 7 7 Interest income 1 1 Segment EBIT (4 ) 41 (10 ) 55 27 109 Three months ended June29, 2008 External sales $ 2,030 $ 692 $ 584 $ 581 $ $ 3,887 Intersegment sales 356 246 271 (873 ) Total sales 2,386 938 855 581 (873 ) 3,887 Depreciation and amortization(2) 46 11 18 7 82 Research, development and engineering expense 70 10 24 104 Equity, royalty and interest income from investees 32 6 3 28 69 Interest income 2 1 1 4 Segment EBIT 221 115 77 68 (12 ) 469 Six months ended June28, 2009 External sales $ 2,338 $ 958 $ 701 $ 873 $ $ 4,870 Intersegment sales 460 309 331 3 (1,103 ) Total sales 2,798 1,267 1,032 876 (1,103 ) 4,870 Depreciation and amortization(2) 86 22 35 9 152 Research, development and engineering expense 109 16 39 164 Equity, royalty and interest income from investees 14 11 5 60 90 Restructuring charges 73 73 Interest income 1 1 1 3 Segment EBIT (20 ) 110 (9 ) 113 (57 ) 137 Six months ended June29, 2008 External sales $ 3,915 $ 1,273 $ 1,151 $ 1,022 $ $ 7,361 Intersegment sales 680 452 524 4 (1,660 ) Total sales 4,595 1,725 1,675 1,026 (1,660 ) 7,361 Depreciation and amortization(2) 90 22 33 11 156 Research, development and engineering expense 140 20 47 207 Equity, royalty and interest income from investees 65 11 7 53 136 Interest income 5 2 2 1 1

Document Entity Information

Document Entity Information (USD $)
In Millions, except Share data	6 Months Ended Jun. 28, 2009	Jun. 29, 2008
Document and Entity Information [Abstract]
Entity Registrant Name	CUMMINS INC.
Entity Central Index Key	0000026172
Document Type	10-Q
Document Period End Date	2009-06-28
Amendment Flag	false
Amendment Description	no
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Public Float		$13,000
Entity Common Stock, Shares Outstanding	201,805,312