Cummins (CMI) 10-Q 30 Oct 09 2009 Q3 Quarterly report Financial data

CONDENSED CONSOLIDATED STATEMEN

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (USD $)
In Millions, except Per Share data	3 Months Ended Sep. 27, 2009		3 Months Ended Sep. 28, 2008		9 Months Ended Sep. 27, 2009		9 Months Ended Sep. 28, 2008
NET SALES (a)	$2,530	[1]	$3,693	[1]	$7,400	[1]	$11,054	[1]
Cost of sales	2,027		2,873		6,004		8,648
GROSS MARGIN	503		820		1,396		2,406
OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses	304		388		891		1,109
Research, development and engineering expenses	90		113		254		320
Equity, royalty and interest income from investees (Note 4)	57		66		147		202
Restructuring and other charges (Note 5)	22				95
Other operating income (expense), net	3		(2)		(6)		(9)
OPERATING INCOME	147		383		297		1,170
Interest income	2		4		5		14
Interest expense	9		10		26		33
Other income (expense), net	6		(7)		(10)		(20)
INCOME BEFORE INCOME TAXES	146		370		266		1,131
Income tax expense	36		123		72		372
NET INCOME	110		247		194		759
Less: net income attributable to noncontrolling interests	15		18		36		47
NET INCOME ATTRIBUTABLE TO CUMMINS INC.	$95		$229		$158		$712
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
Basic (in dollars per share)	0.48		1.18		0.8		3.65
Diluted (in dollars per share)	0.48		1.17		0.8		3.62
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic (in shares)	197.4		194.9		197.1		195.1
Dilutive effect of stock compensation awards (in shares)	0.4		1.6		0.3		1.4
Diluted (in shares)	197.8		196.5		197.4		196.5
CASH DIVIDENDS DECLARED PER COMMON SHARE (in dollars per share)	0.175		0.175		0.525		0.425
[1](a) Includes sales to nonconsolidated equity investees of $428 million and $1,279 million and $554 million and $1,636 million for the three and nine months ended September 27, 2009 and September 28, 2008, respectively.

1_CONDENSED CONSOLIDATED STATEM

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Parenthetical) (USD $)
In Millions	3 Months Ended Sep. 27, 2009	3 Months Ended Sep. 28, 2008	9 Months Ended Sep. 27, 2009	9 Months Ended Sep. 28, 2008
STATEMENTS OF INCOME
Sales to nonconsolidated equity investees	$428	$554	$1,279	$1,636

CONDENSED CONSOLIDATED BALANCE

CONDENSED CONSOLIDATED BALANCE SHEETS (USD $)
In Millions	Sep. 27, 2009	Dec. 31, 2008
Current assets
Cash and cash equivalents	$686	$426
Marketable securities	148	77
Accounts and notes receivable, net
Trade and other	1,534	1,551
Nonconsolidated equity investees	197	231
Inventories (Note 7)	1,461	1,783
Deferred income taxes	363	347
Prepaid expenses and other current assets	254	298
Total current assets	4,643	4,713
Long-term assets
Property, plant and equipment	4,736	4,539
Accumulated depreciation	(2,877)	(2,698)
Property, plant and equipment, net	1,859	1,841
Investments and advances related to equity method investees	538	588
Goodwill	363	362
Other intangible assets, net	229	223
Deferred income taxes	400	491
Other assets	323	301
Total assets	8,355	8,519
Current liabilities
Current portion of long-term debt and loans payable	60	69
Accounts payable (principally trade)	875	1,009
Current portion of accrued product warranty (Note 8)	422	434
Accrued compensation, benefits and retirement costs	335	364
Other accrued expenses	619	763
Total current liabilities	2,311	2,639
Long-term liabilities
Long-term debt	621	629
Pensions	425	574
Postretirement benefits other than pensions	455	452
Other liabilities and deferred revenue	740	745
Total liabilities	4,552	5,039
Cummins Inc. shareholders' equity
Common stock, $2.50 par value, 500 shares authorized, 222.1 and 221.7 shares issued	1,842	1,793
Retained earnings	3,340	3,288
Treasury stock, at cost, 20.3 and 20.4 shares	(713)	(715)
Common stock held by employee benefits trust, at cost, 3.5 and 5.1 shares	(43)	(61)
Unearned compensation	(1)	(5)
Accumulated other comprehensive loss
Defined benefit postretirement plans	(741)	(798)
Other	(121)	(268)
Total accumulated other comprehensive loss	(862)	(1,066)
Total Cummins Inc. shareholders' equity	3,563	3,234
Noncontrolling interests	240	246
Total equity	3,803	3,480
Total liabilities and equity	$8,355	$8,519

2_CONDENSED CONSOLIDATED BALANC

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
Share data in Millions, except Per Share data	Sep. 27, 2009	Dec. 31, 2008
BALANCE SHEETS
Common stock, par value (in dollars per share)	2.5	2.5
Common stock, shares authorized	500	500
Common stock, shares issued	222.1	221.7
Treasury stock, shares	20.3	20.4
Common stock, shares held by employee benefits trust, at cost	3.5	5.1

3_CONDENSED CONSOLIDATED STATEM

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Millions	9 Months Ended Sep. 27, 2009	9 Months Ended Sep. 28, 2008
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$194	$759
Adjustments to reconcile net income to net cash provided by operating activities:
Restructuring charges, net of cash payments (Note 5)	21
Depreciation and amortization	238	233
Deferred income taxes	(11)	38
Equity in income of investees, net of dividends	56	(80)
Pension expense, net of pension contributions (Note 6)	(49)	(40)
Other post-retirement benefits expense, net of cash payments (Note 6)	(18)	(11)
Stock-based compensation expense	16	27
Excess tax deficiencies (benefits) on stock-based awards	2	(12)
Translation and hedging activities	33	15
Changes in current assets and liabilities, net of acquisitions and dispositions:
Accounts and notes receivable	89	(310)
Inventories	360	(334)
Other current assets	32	(35)
Accounts payable	(155)	198
Accrued expenses	(185)	206
Changes in long-term liabilities	103	78
Other, net	4	(7)
Net cash provided by operating activities	730	725
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(204)	(330)
Investments in internal use software	(24)	(53)
Proceeds from disposals of property, plant and equipment	8	20
Investments in and advances to equity investees	(5)	(51)
Acquisition of businesses, net of cash acquired	(2)	(142)
Proceeds from the sale of an equity investment		64
Investments in marketable securities - acquisitions	(234)	(264)
Investments in marketable securities - liquidations	171	281
Purchases of other investments	(54)	(54)
Cash flows from derivatives not designated as hedges	(21)	(24)
Other, net	1	1
Net cash used in investing activities	(364)	(552)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings	11	91
Payments on borrowings and capital lease obligations	(60)	(111)
Net borrowings under short-term credit agreements	(4)	5
Distributions to noncontrolling interests	(16)	(14)
Dividend payments on common stock	(106)	(86)
Proceeds from sale of common stock held by employee benefit trust	54	52
Repurchases of common stock		(123)
Excess tax (deficiencies) benefits on stock-based awards	(2)	12
Other, net	3	3
Net cash used in financing activities	(120)	(171)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	14	(7)
Net increase (decrease) in cash and cash equivalents	260	(5)
Cash and cash equivalents at beginning of year	426	577
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$686	$572

4_CONDENSED CONSOLIDATED STATEM

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (USD $)
In Millions	Total Cummins Inc. Shareholders' Equity	Common Stock	Additional paid-in Capital	Retained Earnings	Accumulated Other Comprehensive Loss		Treasury Stock	Common Stock Held in Trust	Unearned Compensation	Noncontrolling Interests	Total
BALANCE at Dec. 31, 2007	$3,410	$551	$1,168	$2,660	($286)		($593)	($79)	($11)	$292	$3,702
Comprehensive income:
Net income	712			712						47	759
Other comprehensive income (loss) (Note 13)	(96)				(96)					(26)	(122)
Total comprehensive income	616									21	637
Effect of changing pension plan measurement date	(7)			(5)	(2)						(7)
Issuance of shares	3	3								8	11
Employee benefits trust activity	52		41					11			52
Acquisition of shares	(123)						(123)				(123)
Purchase of equity from noncontrolling interests										(54)	(54)
Cash dividends on common stock	(86)			(86)							(86)
Distribution to noncontrolling interests										(14)	(14)
Stock option exercises	4		(1)				5				4
Other shareholder transactions	27		22						5	(4)	23
BALANCE at Sep. 28, 2008	3,896	554	1,230	3,281	(384)		(711)	(68)	(6)	249	4,145
Comprehensive income:
BALANCE at Dec. 31, 2008	3,234	554	1,239	3,288	(1,066)		(715)	(61)	(5)	246	3,480
Comprehensive income:
Net income	158			158						36	194
Other comprehensive income (loss) (Note 13)	204				204					9	213
Total comprehensive income	362									45	407
Issuance of shares	7	1	6								7
Employee benefits trust activity	58		40					18			58
Cash dividends on common stock	(106)			(106)							(106)
Distribution to noncontrolling interests										(16)	(16)
Stock option exercises	1		(1)				2				1
Conversion to capital lease (Note 12)										(35)	(35)
Other shareholder transactions	7		3						4		7
BALANCE at Sep. 27, 2009	$3,563	$555	$1,287	$3,340	($862)	[1]	($713)	($43)	($1)	$240	$3,803
[1]Comprised of defined benefit postretirement plans of $(741) million, foreign currency translation adjustments of $(121) million, unrealized gain on marketable securities of $2 million and unrealized loss on derivatives of $(2) million.

5_CONDENSED CONSOLIDATED STATEM

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (Parenthetical) (USD $)
In Millions	9/27/2009
STATEMENTS OF CHANGES IN EQUITY
Defined benefit postretirement plans	($741)
Foreign currency translation adjustments	(121)
Unrealized gain on marketable securities	2
Unrealized loss on derivatives	($2)

NATURE OF OPERATIONS

NATURE OF OPERATIONS
	9 Months Ended Sep. 27, 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
	9 Months Ended Sep. 27, 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 third quarters of 2009 and 2008 ended on September27, and September28, 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 nine month periods ended September27, 2009, and September28, 2008, were as follows: Three months ended Nine months ended September27, 2009 September28, 2008 September27, 2009 September28, 2008 Options excluded 28,717 5,950 61,585 6,885 You should read these interim condensed financial statements in conjunction with the Consolidated Financial Statements included in our Annual Report on Form10-K for the year ended December31, 2008. Our interim period financial results for the three and nine month interim periods presented are not necessarily indicative of results to be expected for any other interim period or for the entire year. The yea

RECENTLY ADOPTED AND RECENTLY I

RECENTLY ADOPTED AND RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
	9 Months Ended Sep. 27, 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 Financial Accounting Standards Board (FASB) amended its existing standards for noncontrolling interests in consolidated financial statements, which was effective for interim and annual fiscal periods beginning after December15, 2008. The new standard established accounting and reporting standards for the noncontrolling interest in a subsidiary and for the accounting for future ownership changes with respect to those subsidiaries. The new standard defined a noncontrolling interest, previously called a minority interest, as the portion of equity in a subsidiary not attributable, directly or indirectly, to a parent. The new standard required, 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 the new 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 the new standard. In March2008, the FASB amended its existing standards for disclosures about derivative instruments and hedging activities, which was effective for interim and annual fiscal periods beginning after November15, 2008. The new standards require enhanced disclosures about a companys derivative and hedging activities. We adopted the new standard effective January1, 2009, and applied it prospectively. The new disclosures required are included in Note 11. In April2009, the FASB amended its existing standards for accounting and disclosures related to certain financial instruments including: (a)providing additional rulesfor estimating fair value when the volume and level of activity for the asset or liability has significantly decreased; (b)identifying circumstances that indicate a transaction is not orderly; (c)amending the other-than-temporary impairment rulesfor debt securities to make it more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements; and (d)requiring enhanced disclosures about the fair value of financial instruments on an interim basis in addition to the annual disclosure requirements (Note 10). The new standards were required to be adopted for interim periods ending after June15, 2009. The adoption of the new standards did not have a material impact on our Condensed

EQUITY, ROYALTY AND INTEREST IN

EQUITY, ROYALTY AND INTEREST INCOME FROM INVESTEES
	9 Months Ended Sep. 27, 2009 USD / shares
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
EQUITY, ROYALTY AND INTEREST INCOME FROM INVESTEES	NOTE 4. 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 Nine months ended September27, September28, September27, September28, In millions 2009 2008 2009 2008 Distribution Entities North American distributors $ 25 $ 26 $ 74 $ 72 Komatsu Cummins Chile, Ltda. 3 2 9 5 All other distributors 1 2 2 3 Manufacturing Entities Dongfeng Cummins Engine Company, Ltd 11 16 18 50 Chongqing Cummins Engine Company, Ltd 8 9 28 23 Valvoline Cummins, Ltd. 3 1 5 2 Shanghai Fleetguard Filter Co. Ltd. 2 2 5 7 Tata Cummins Ltd. 2 2 7 Cummins MerCruiser Diesel Marine LLC. (2 ) (1 ) (5 ) 5 All other manufacturers 4 (2 ) 12 Cummins share of net income 53 61 136 186 Royalty and interest income 4 5 11 16 Equity, royalty and interest income from investees $ 57 $ 66 $ 147 $ 202

RESTRUCTURING AND OTHER CHARGES

RESTRUCTURING AND OTHER CHARGES
	9 Months Ended Sep. 27, 2009 USD / shares
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
RESTRUCTURING AND OTHER CHARGES	NOTE 5. RESTRUCTURING AND OTHER 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 by approximately 1,000 professional employees. In addition, we took numerous employee actions at many of our manufacturing locations, including approximately 3,150 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. In response to closures and downsizing noted above, we incurred $2 million of restructuring expenses for lease terminations and $5 million of restructuring expenses for asset impairments. During 2009 we recorded a total pre-tax restructuring charge of $83 million, comprising $85 million of charges related to 2009 actions net of the $2 million favorable change in estimate related to 2008 actions, in Restructuring and other charges in the Condensed Consolidated Statements of Income. The estimated completion date for the workforce reductions and the exit activities is March2010. These restructuring actions included: September 27, 2009 In millions Three months ended Nine months ended Workforce reductions $ 11 $ 79 Exit activities 7 Changes in estimate (1 ) (3 ) Total restructuring charges 10 83 Curtailment loss 12 12 Total restructuring and other charges $ 22 $ 95 In addition, as a result of the restructuring actions described above, we also recorded a $12 million curtailment loss in the third quarter of 2009 in our pension and other postretirement plans. See Note 6 for additional detail. 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 $ 79 $ 7 $ 86 Cash payments for 2009 actions (61 ) (1 ) (62 ) Noncash items (5 ) (5 ) Changes in estimates (1 ) (1 ) Translation 1 1 Balance at September27, 2009 $ 18 $ 1 $ 19 We do not include restructuring charges in our operating segment re

PENSION AND OTHER POSTRETIREMEN

PENSION AND OTHER POSTRETIREMENT BENEFITS
	9 Months Ended Sep. 27, 2009 USD / shares
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PENSION AND OTHER POSTRETIREMENT BENEFITS	NOTE 6. 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 Nine months ended September27, September28, September27, September28, In millions 2009 2008 2009 2008 Defined benefit pension and postretirement plans: Voluntary $ 55 $ 46 $ 100 $ 70 Mandatory 21 21 62 51 Total defined benefit plans $ 76 $ 67 $ 162 $ 121 Defined contribution pension plans $ 9 $ 6 $ 32 $ 24 We presently anticipate contributing $130 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 $130 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: Other Pension Postretirement U.S. Plans Non-U.S. Plans Benefits Three months ended September27, September28, September27, September28, September27, September28, In millions 2009 2008 2009 2008 2009 2008 Service cost $ 11 $ 12 $ 5 $ 6 $ $ Interest cost 28 28 15 17 7 8 Expected return on plan assets (34 ) (37 ) (16 ) (18 ) Amortization of prior service cost (credit) 1 (2 ) (2 ) Recognized net actuarial loss 8 5 5 5 Net periodic benefit costs 13 8 10 10 5 6 Curtailment loss 6 6 Net periodic benefit cost after curtailment losses $ 19 $ 8 $ 10 $ 10 $ 11 $ 6 Other Pension Postretirement U.S. Plans Non-U.S. Plans Benefits Nine months ended September27, September28, September27, September28, September27, September28, In millions 2009 2008 2009 2008 2009 2008 Service cost $ 34 $ 36 $ 13 $ 20 $ $ Interest cost 85 86 42 49 22 24 Expected return on plan assets (104 ) (113 ) (44 ) (56 ) Amortization of prior service (credit) cost (1 ) 3 2 (6 ) (7 ) Recognized net actuarial loss (gain) 23 15 15 15 (1 ) Other 1 Net periodic benefit cost 38 24 29 30 16 16 Curtailment loss 6 6 Net periodic benefit cos

INVENTORIES

INVENTORIES
	9 Months Ended Sep. 27, 2009 USD / shares
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INVENTORIES	NOTE 7. INVENTORIES Inventories included the following: September27, December31, In millions 2009 2008 Finished products $ 833 $ 860 Work-in-process and raw materials 716 1,021 Inventories at FIFO cost 1,549 1,881 Excess of FIFO over LIFO (88 ) (98 ) Total inventories $ 1,461 $ 1,783

PRODUCT WARRANTY LIABILITY

PRODUCT WARRANTY LIABILITY
	9 Months Ended Sep. 27, 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: Nine months ended September27, September28, In millions 2009 2008 Balance, beginning of period $ 962 $ 749 Provision for warranties issued 241 319 Deferred revenue on extended warranty contracts sold 77 73 Payments (352 ) (258 ) Amortization of deferred revenue on extended warranty contracts (54 ) (47 ) Changes in estimates for pre-existing warranties 67 63 Foreign currency translation 12 (10 ) Balance, end of period $ 953 $ 889 The amount of deferred revenue related to extended coverage programs as of September27, 2009, was $247 million. As of September27, 2009, we had $11 million of receivables related to estimated supplier recoveries of which $5 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 and 2009 as these experience trends became evident.

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES
	9 Months Ended Sep. 27, 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 lawsuit 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 $99 million in expense and $51 million in capital of our $199 million claim through September27, 2009. We recorded gains on insurance recoveries related to flood damage of $8 mil

FAIR VALUE OF FINANCIAL INSTRUM

FAIR VALUE OF FINANCIAL INSTRUMENTS
	9 Months Ended Sep. 27, 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 September27, 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 $ 138 $ 10 $ $ 148 Derivative assets 49 49 Derivative liabilities (13 ) (13 ) Total $ 138 $ 46 $ $ 184 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 September27, 2009, was approximately $628million. The carrying value at that date was $681million. 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
	9 Months Ended Sep. 27, 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 swap 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 Due to 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 GAAP. 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 September27, 2009, we expect to reclassify an unrealized net gain of $1 million from AOCL to income over the next year. For the nine month periods ended September27, 2009, and September28, 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 GAAP. The table below summarizes our outstanding foreign currency forward contracts. The currencies in this table represent 90% of the notional amounts of contracts outstanding as of September27, 2009. In millions Currency Denomination Currency September27, 2009 United States Dollar (USD) 21 British Pound Sterling (GBP) 93 Euro (E

LEASE AMENDMENT AND EXTENSION

LEASE AMENDMENT AND EXTENSION
	9 Months Ended Sep. 27, 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 new accounting standards for variable interest entities, 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, DEBT 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 $ 1 2010 2011 2012 12 2013 10

COMPREHENSIVE INCOME

COMPREHENSIVE INCOME
	9 Months Ended Sep. 27, 2009 USD / shares
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
COMPREHENSIVE INCOME	NOTE 13. COMPREHENSIVE INCOME The tables below represent a reconciliation of our net income to comprehensive income for the three and nine month periods ended September27, 2009, and September28, 2008. Three months ended September27, 2009 Three months ended September28, 2008 Attributable to Attributable to Noncontrolling Total Attributable to Attributable to Noncontrolling Total In millions Cummins Inc. Interests Consolidated Cummins Inc. Interests Consolidated Net income $ 95 $ 15 $ 110 $ 229 $ 18 $ 247 Other comprehensive income (loss), net of tax Unrealized gain on marketable securities 1 1 2 Unrealized (loss) gain on derivatives 21 21 (25 ) (25 ) Foreign currency translation adjustments (5 ) 3 (2 ) (99 ) (14 ) (113 ) Change in pensions and other postretirement defined benefit plans 53 53 5 5 Total other comprehensive income (loss) 69 3 72 (118 ) (13 ) (131 ) Total comprehensive income $ 164 $ 18 $ 182 $ 111 $ 5 $ 116 Nine months ended September27, 2009 Nine months ended September28, 2008 Attributable to Attributable to Noncontrolling Total Attributable to Attributable to Noncontrolling Total In millions Cummins Inc. Interests Consolidated Cummins Inc. Interests Consolidated Net income $ 158 $ 36 $ 194 $ 712 $ 47 $ 759 Other comprehensive income (loss), net of tax Unrealized loss on marketable securities (1 ) (1 ) (2 ) Unrealized gain (loss) on derivatives 65 65 (7 ) (7 ) Foreign currency translation adjustments 82 9 91 (105 ) (25 ) (130 ) Change in pensions and other postretirement defined benefit plans 57 57 17 17 Total other comprehensive income (loss) 204 9 213 (96 ) (26 ) (122 ) Total comprehensive income $ 362 $ 45 $ 407 $ 616 $ 21 $ 637

OPERATING SEGMENTS

OPERATING SEGMENTS
	9 Months Ended Sep. 27, 2009 USD / shares
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OPERATING SEGMENTS	NOTE 14. 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 nine month periods is shown below: In millions Engine Power Generation Components Distribution Non-segment items(1) Total Three months ended September27, 2009 External sales $ 1,270 $ 444 $ 395 $ 421 $ $ 2,530 Intersegment sales 169 105 196 1 (471 ) Total sales 1,439 549 591 422 (471 ) 2,530 Depreciation and amortization(2) 49 13 18 5 85 Research, development and engineering expense 59 9 22 90 Equity, royalty and interest income from investees 16 5 4 32 57 Restructuring and other charges 22 22 Interest income 1 1 2 Segment EBIT 61 23 31 55 (15 ) 155 Three months ended September28, 2008 External sales $ 1,927 $ 653 $ 535 $ 578 $ $ 3,693 Intersegment sales 352 235 266 3 (856 ) Total sales 2,279 888 801 581 (856 ) 3,693 Depreciation and amortization(2) 43 9 16 6 74 Research, development and engineering expense 75 11 27 113 Equity, royalty and interest income from investees 26 6 3 31 66 Interest income 2 1 1 4 Segment EBIT 160 108 61 61 (10 ) 380 Nine months ended September27, 2009 External sales $ 3,608 $ 1,402 $ 1,096 $ 1,294 $ $ 7,400 Intersegment sales 629 414 527 4 (1,574 ) Total sales 4,237 1,816 1,623 1,298 (1,574 ) 7,400 Depreciation and amortization(2) 135 35 53 14 237 Research, development and engineering expense 168 25 61 254 Equity, royalty and interest income from investees 30 16 9 92 147 Restructuring and other charges 95 95 Interest income 2 1 1 1 5 Segment EBIT 41 133 22 168 (72 ) 292 Nine months ended September28, 2008 External sales $ 5,842 $ 1,926 $ 1,686 $ 1,600 $ $ 11,054 Intersegment sales 1,032 687 790 7 (2,516 ) Total sales 6,874 2,613 2,476 1,607 (2,516 ) 11,054 Depreciati

Document and Entity Information

Document and Entity Information (USD $)
In Billions, except Share data	9 Months Ended Sep. 27, 2009	Jun. 29, 2008
Document and Entity Information
Entity Registrant Name	CUMMINS INC
Entity Central Index Key	0000026172
Document Type	10-Q
Document Period End Date	2009-09-27
Amendment Flag	false
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
Entity Common Stock, Shares Outstanding	201,792,780