Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 

 

For the Quarterly Period Ended June 26, 2011

 

Commission File Number 1-4949

 

 


 

CUMMINS INC.

(Exact name of registrant as specified in its charter)

 

Indiana

(State of Incorporation)

 

35-0257090

(IRS Employer Identification No.)

 

500 Jackson Street
Box 3005

Columbus, Indiana 47202-3005

(Address of principal executive offices)

 

Telephone (812) 377-5000

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that registrant was required to submit and post such files).  Yes x  No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

 

Large accelerated filer x

 

Accelerated filer o

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x

 

As of June 26, 2011, there were 194,701,906 shares of common stock outstanding with a par value of $2.50 per share.

 

Website Access to Company’s Reports

Cummins maintains an internet website at www.cummins.com.  Investors can obtain copies of our filings from this website free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to the Securities and Exchange Commission.

 

 

 



Table of Contents

 

CUMMINS INC. AND SUBSIDIARIES

TABLE OF CONTENTS

QUARTERLY REPORT ON FORM 10-Q

 

 

 

Page

 

 

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

 

 

ITEM 1.

Condensed Consolidated Financial Statements (Unaudited)

3

 

 

 

 

Condensed Consolidated Statements of Income for the three and six months ended June 26, 2011, and June 27, 2010

3

 

 

 

 

Condensed Consolidated Balance Sheets at June 26, 2011, and December 31, 2010

4

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the six months ended June 26, 2011, and June 27, 2010

5

 

 

 

 

Condensed Consolidated Statements of Changes in Equity for the six months ended June 26, 2011, and June 27, 2010

6

 

 

 

 

Notes to Condensed Consolidated Financial Statements

7

 

 

 

ITEM 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

23

 

 

 

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

43

 

 

 

ITEM 4.

Controls and Procedures

43

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

ITEM 1.

Legal Proceedings

44

 

 

 

ITEM 1A.

Risk Factors

44

 

 

 

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

44

 

 

 

ITEM 6.

Exhibits

45

 

 

 

 

Signatures

46

 

 

 

 

Cummins Inc. Exhibit Index

47

 

2



Table of Contents

 

PART I.  FINANCIAL INFORMATION

 

ITEM 1.  Condensed Consolidated Financial Statements

 

CUMMINS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

 

 

Three months ended

 

Six months ended

 

In millions, except per share amounts 

 

June 26, 2011

 

June 27, 2010

 

June 26, 2011

 

June 27, 2010

 

NET SALES (a)

 

$

4,641

 

$

3,208

 

$

8,501

 

$

5,686

 

Cost of sales

 

3,438

 

2,455

 

6,341

 

4,332

 

GROSS MARGIN

 

1,203

 

753

 

2,160

 

1,354

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES AND INCOME

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

463

 

354

 

852

 

689

 

Research, development and engineering expenses

 

157

 

96

 

286

 

188

 

Equity, royalty and interest income from investees (Note 6)

 

117

 

97

 

213

 

173

 

Gain on sale of business (Note 4)

 

68

 

 

68

 

 

Other operating (expense) income, net

 

 

(4

)

(6

)

(8

)

OPERATING INCOME

 

768

 

396

 

1,297

 

642

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

10

 

5

 

16

 

8

 

Interest expense

 

13

 

9

 

23

 

18

 

Other income (expense), net

 

(3

)

 

(6

)

17

 

INCOME BEFORE INCOME TAXES

 

762

 

392

 

1,284

 

649

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

225

 

122

 

382

 

209

 

CONSOLIDATED NET INCOME

 

537

 

270

 

902

 

440

 

 

 

 

 

 

 

 

 

 

 

Less: Net income attributable to noncontrolling interests

 

32

 

24

 

54

 

45

 

NET INCOME ATTRIBUTABLE TO CUMMINS INC.

 

$

505

 

$

246

 

$

848

 

$

395

 

 

 

 

 

 

 

 

 

 

 

EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.

 

 

 

 

 

 

 

 

 

Basic

 

$

2.61

 

$

1.25

 

$

4.36

 

$

2.00

 

Diluted

 

$

2.60

 

$

1.25

 

$

4.34

 

$

2.00

 

 

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE SHARES OUTSTANDING

 

 

 

 

 

 

 

 

 

Basic

 

193.8

 

196.9

 

194.6

 

197.6

 

Dilutive effect of stock compensation awards

 

0.6

 

0.4

 

0.6

 

0.3

 

Diluted

 

194.4

 

197.3

 

195.2

 

197.9

 

 

 

 

 

 

 

 

 

 

 

CASH DIVIDENDS DECLARED PER COMMON SHARE

 

$

0.2625

 

$

0.175

 

$

0.525

 

$

0.35

 

 


(a) Includes sales to nonconsolidated equity investees of $635 million and $1,234 million and $516 million and $944 million for the three and six months ended June 26, 2011 and June 27, 2010, respectively.

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

3



Table of Contents

 

CUMMINS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

 

June 26,

 

December 31,

 

In millions, except par value 

 

2011

 

2010

 

ASSETS

 

 

 

 

 

Current assets

 

 

 

 

 

Cash and cash equivalents

 

$

1,111

 

$

1,023

 

Marketable securities (Note 5)

 

363

 

339

 

Total cash, cash equivalents and marketable securities

 

1,474

 

1,362

 

Accounts and notes receivable, net

 

 

 

 

 

Trade and other

 

2,511

 

1,935

 

Nonconsolidated equity investees

 

269

 

308

 

Inventories (Note 8)

 

2,275

 

1,977

 

Deferred income taxes

 

305

 

314

 

Prepaid expenses and other current assets

 

303

 

393

 

Total current assets

 

7,137

 

6,289

 

Long-term assets

 

 

 

 

 

Property, plant and equipment

 

5,103

 

4,927

 

Accumulated depreciation

 

(2,986

)

(2,886

)

Property, plant and equipment, net

 

2,117

 

2,041

 

Investments and advances related to equity method investees

 

761

 

734

 

Goodwill

 

348

 

367

 

Other intangible assets, net

 

216

 

222

 

Deferred income taxes

 

115

 

203

 

Other assets

 

619

 

546

 

Total assets

 

$

11,313

 

$

10,402

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

Current liabilities

 

 

 

 

 

Loans payable

 

$

59

 

$

82

 

Accounts payable (principally trade)

 

1,686

 

1,362

 

Current portion of accrued product warranty (Note 9)

 

429

 

421

 

Accrued compensation, benefits and retirement costs

 

419

 

468

 

Deferred revenue

 

202

 

182

 

Taxes payable (including taxes on income)

 

255

 

202

 

Other accrued expenses

 

663

 

543

 

Total current liabilities

 

3,713

 

3,260

 

Long-term liabilities

 

 

 

 

 

Long-term debt

 

702

 

709

 

Pensions

 

110

 

195

 

Postretirement benefits other than pensions

 

432

 

439

 

Other liabilities and deferred revenue

 

839

 

803

 

Total liabilities

 

5,796

 

5,406

 

 

 

 

 

 

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

 

 

EQUITY

 

 

 

 

 

Cummins Inc. shareholders’ equity

 

 

 

 

 

Common stock, $2.50 par value, 500 shares authorized, 222.1 and 221.8 shares issued

 

1,968

 

1,934

 

Retained earnings

 

5,191

 

4,445

 

Treasury stock, at cost, 27.4 and 24.0 shares

 

(1,333

)

(964

)

Common stock held by employee benefits trust, at cost, 1.9 and 2.1 shares

 

(23

)

(25

)

Accumulated other comprehensive loss

 

 

 

 

 

Defined benefit postretirement plans

 

(613

)

(646

)

Other

 

(32

)

(74

)

Total accumulated other comprehensive loss

 

(645

)

(720

)

Total Cummins Inc. shareholders’ equity

 

5,158

 

4,670

 

Noncontrolling interests

 

359

 

326

 

Total equity

 

5,517

 

4,996

 

Total liabilities and equity

 

$

11,313

 

$

10,402

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

4



Table of Contents

 

CUMMINS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Six months ended

 

 

 

June 26,

 

June 27,

 

In millions 

 

2011

 

2010

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

Consolidated net income

 

$

902

 

$

440

 

Adjustments to reconcile consolidated net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

159

 

161

 

Gain on sale of business (Note 4)

 

(68

)

 

Gain on fair value adjustment for consolidated investee (Note 4)

 

 

(12

)

Deferred income taxes

 

87

 

43

 

Equity in income of investees, net of dividends

 

2

 

(49

)

Pension contributions in excess of expense (Note 10)

 

(47

)

(116

)

Excess tax benefits on stock based awards

 

(4

)

(7

)

Other post-retirement benefits payments in excess of expense (Note 10)

 

(10

)

(7

)

Stock-based compensation expense

 

18

 

11

 

Translation and hedging activities

 

(6

)

3

 

Changes in current assets and liabilities, net of acquisitions and divestitures:

 

 

 

 

 

Accounts and notes receivable

 

(513

)

(57

)

Inventories

 

(290

)

(301

)

Other current assets

 

11

 

1

 

Accounts payable

 

307

 

239

 

Accrued expenses

 

169

 

(14

)

Changes in other liabilities and deferred revenue

 

58

 

66

 

Other, net

 

(31

)

26

 

Net cash provided by operating activities

 

744

 

427

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

Capital expenditures

 

(215

)

(91

)

Investments in internal use software

 

(22

)

(22

)

Proceeds from disposals of property, plant and equipment

 

5

 

42

 

Investments in and advances to equity investees

 

(20

)

(1

)

Proceeds from sale of business, net of cash sold (Note 4)

 

111

 

 

Acquisition of businesses, net of cash acquired (Note 4)

 

 

(71

)

Investments in marketable securities—acquisitions (Note 5)

 

(361

)

(358

)

Investments in marketable securities—liquidations (Note 5)

 

343

 

278

 

Cash flows from derivatives not designated as hedges

 

6

 

(18

)

Other, net

 

2

 

(2

)

Net cash used in investing activities

 

(151

)

(243

)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

Proceeds from borrowings

 

60

 

85

 

Payments on borrowings and capital lease obligations

 

(94

)

(37

)

Net borrowings under short-term credit agreements

 

11

 

(1

)

Distributions to noncontrolling interests

 

(26

)

(4

)

Dividend payments on common stock

 

(102

)

(70

)

Repurchases of common stock

 

(373

)

(162

)

Excess tax benefits on stock-based awards

 

4

 

7

 

Other, net

 

7

 

9

 

Net cash used in financing activities

 

(513

)

(173

)

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS

 

8

 

(17

)

Net increase (decrease) in cash and cash equivalents

 

88

 

(6

)

Cash and cash equivalents at beginning of year

 

1,023

 

930

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

 

$

1,111

 

$

924

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

5



Table of Contents

 

CUMMINS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

Common

 

 

 

Total

 

 

 

 

 

 

 

 

 

Additional

 

 

 

Other

 

 

 

Stock

 

 

 

Cummins Inc.

 

 

 

 

 

 

 

Common

 

paid-in

 

Retained

 

Comprehensive

 

Treasury

 

Held in

 

Unearned

 

Shareholders’

 

Noncontrolling

 

Total

 

In millions 

 

Stock

 

Capital

 

Earnings

 

Loss

 

Stock

 

Trust

 

Compensation

 

Equity

 

Interests

 

Equity

 

BALANCE AT DECEMBER 31, 2009

 

$

555

 

$

1,306

 

$

3,575

 

$

(895

)

(731

)

$

(36

)

$

(1

)

$

3,773

 

$

247

 

$

4,020

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

395

 

 

 

 

 

 

 

 

 

395

 

45

 

440

 

Other comprehensive income (loss) (Note 12)

 

 

 

 

 

 

 

(65

)

 

 

 

 

 

 

(65

)

 

(65

)

Total comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

330

 

45

 

375

 

Issuance of shares

 

 

 

3

 

 

 

 

 

 

 

 

 

 

 

3

 

 

3

 

Employee benefits trust activity

 

 

 

9

 

 

 

 

 

 

 

1

 

 

 

10

 

 

10

 

Acquisition of shares

 

 

 

 

 

 

 

 

 

(162

)

 

 

 

 

(162

)

 

(162

)

Cash dividends on common stock

 

 

 

 

 

(70

)

 

 

 

 

 

 

 

 

(70

)

 

(70

)

Distribution to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4

)

(4

)

Stock option exercises

 

 

 

 

 

 

 

 

 

3

 

 

 

 

 

3

 

 

3

 

Deconsolidation of variable interest entity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11

)

(11

)

Other shareholder transactions

 

 

 

(5

)

 

 

 

 

 

 

 

 

1

 

(4

)

 

(4

)

BALANCE AT JUNE 27, 2010

 

$

555

 

$

1,313

 

$

3,900

 

$

(960

)

$

(890

)

$

(35

)

$

 

$

3,883

 

$

277

 

$

4,160

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT DECEMBER 31, 2010

 

$

554

 

$

1,380

 

$

4,445

 

$

(720

)

$

(964

)

$

(25

)

$

 

$

4,670

 

$

326

 

$

4,996

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

848

 

 

 

 

 

 

 

 

 

848

 

54

 

902

 

Other comprehensive income (loss) (Note 12)

 

 

 

 

 

 

 

75

 

 

 

 

 

 

 

75

 

 

75

 

Total comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

923

 

54

 

977

 

Issuance of shares

 

1

 

7

 

 

 

 

 

 

 

 

 

 

 

8

 

 

8

 

Employee benefits trust activity

 

 

 

16

 

 

 

 

 

 

 

2

 

 

 

18

 

 

18

 

Acquisition of shares

 

 

 

 

 

 

 

 

 

(373

)

 

 

 

 

(373

)

 

(373

)

Cash dividends on common stock

 

 

 

 

 

(102

)

 

 

 

 

 

 

 

 

(102

)

 

(102

)

Distribution to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(26

)

(26

)

Stock option exercises

 

 

 

1

 

 

 

 

 

4

 

 

 

 

 

5

 

 

5

 

Other shareholder transactions

 

 

 

9

 

 

 

 

 

 

 

 

 

 

9

 

5

 

14

 

BALANCE AT JUNE 26, 2011

 

$

555

 

$

1,413

 

$

5,191

 

$

(645

)(1)

$

(1,333

)

$

(23

)

$

 

$

5,158

 

$

359

 

$

5,517

 

 


(1)Comprised of defined benefit postretirement plans of $(613) million, foreign currency translation adjustments of $(36) million, and unrealized gain on marketable securities of $4 million.

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

6



Table of Contents

 

CUMMINS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 1NATURE OF OPERATIONS

 

Cummins Inc. (“Cummins,” “the Company,” “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, 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 600 company-owned and independent distributor locations and approximately 6,000 dealer locations in more than 190 countries and territories.

 

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 rules and 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 rules and 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 usually ends on the Sunday closest to the last day of the quarterly calendar period.  The second quarters of 2011 and 2010 ended on June 26, and June 27, respectively.  The interim periods for both 2011 and 2010 contain 13 weeks.  Our fiscal year ends on December 31, regardless of the day of the week on which December 31 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, lease classifications and contingencies.  Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be different from these estimates.

 

In preparing our Condensed Consolidated Financial Statements, we evaluated subsequent events through the date our quarterly report was filed with the SEC.

 

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 June 26, 2011, and June 27, 2010, were as follows:

 

 

 

Three months ended

 

Six months ended

 

 

 

June 26,

 

June 27,

 

June 26,

 

June 27,

 

 

 

2011

 

2010

 

2011

 

2010

 

Options excluded

 

140,277

 

6,685

 

80,858

 

13,527

 

 

You should read these interim condensed financial statements in conjunction with the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2010.  Our interim period financial results for the three and six month interim periods presented are not necessarily indicative of results to be expected for any other interim period or for the entire year.  The year-end Consolidated Balance Sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP.

 

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NOTE 3.  RECENTLY ADOPTED AND RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

 

Accounting Pronouncements Recently Adopted

 

In October 2009, the Financial Accounting Standards Board (FASB) amended its rules regarding the accounting for multiple element revenue arrangements.  The objective of the amendment is to allow vendors to account for revenue for different deliverables separately as opposed to part of a combined unit when those deliverables are provided at different times.  Specifically, this amendment addresses how to separate deliverables and simplifies the process of allocating revenue to the different deliverables when more than one deliverable exists.  The new rules were effective for us beginning January 1, 2011.  This amendment did not have a significant impact on our Condensed Consolidated Financial Statements as multiple element revenue arrangements are not material to our business.

 

Accounting Pronouncements Issued But Not Yet Effective

 

In June 2011, the FASB amended its rules regarding the presentation of comprehensive income.  The objective of this amendment is to improve the comparability, consistency and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income.  Specifically, this amendment requires that all non-owner changes in shareholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  The new rules will become effective during interim and annual periods beginning after December 15, 2011.  Because the standard only impacts the display of comprehensive income and does not impact what is included in comprehensive income, the standard will not have a significant impact on our Consolidated Financial Statements.

 

In May 2011, the FASB amended its standards related to fair value measurements and disclosures.  The objective of the amendment is to improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and International Financial Reporting Standards.  Primarily this amendment changed the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements in addition to clarifying the Board’s intent about the application of existing fair value measurement requirements.  The new standard also requires additional disclosures related to fair value measurements categorized within Level 3 of the fair value hierarchy and requires disclosure of the categorization in the hierarchy for items which are not recorded at fair value but fair value is required to be disclosed.  The new rules will become effective during interim and annual periods beginning after December 15, 2011.  As of June 26, 2011, we had no fair value measurements categorized within Level 3.  The only impact for us is expected to be the disclosure of the categorization in the fair value hierarchy for those items where fair value is only disclosed (primarily our debt obligations).

 

NOTE 4.  DIVESTITURES AND ACQUISITIONS

 

Divestitures

 

In January 2011, we reached an agreement to sell 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.  The transaction closed in the second quarter of 2011.  This business was historically included in our Components segment.  The sales price was $123 million.  We recognized a pre-tax gain on the sale of $68 million, which included an allocation of goodwill of $19 million.  The transaction has a working capital adjustment mechanism that will be determined in the third quarter.  We do not expect a significant change to the measurement of the gain.  The gain has been excluded from segment results as it was not considered by management in its evaluation of operating results for the three and six months ended June 26, 2011.

 

Sales for this business were $171 million, $126 million and $169 million in 2010, 2009 and 2008, respectively.  Income before income taxes for this business was approximately $22 million, $11 million and $19 million in 2010, 2009 and 2008, respectively.

 

We signed a non-binding letter of intent to sell certain assets and liabilities of our light-duty filtration business which manufactures light-duty automotive and industrial filtration solutions.  The transaction is expected to close in the second half of 2011.  The sales price is expected to be approximately $90 million to $95 million, subject to a final financial statement review.  There are no earnouts or other contingencies associated with the sales price.  We expect to recognize a pre-tax gain on the sale of approximately $45 million to $50 million, which includes an allocation of goodwill of approximately $11 million.

 

Sales for this business were $74 million, $54 million and $75 million in 2010, 2009 and 2008, respectively.  Income before income taxes for this business was approximately $9 million, $2 million and $9 million in 2010, 2009 and 2008, respectively.

 

The assets and liabilities associated with these businesses have not been reclassified and separately presented in the Condensed Consolidated Balance Sheets as they are immaterial.  We will enter into supply and other agreements with the operations that will represent ongoing involvement and as such, the results of these operations will not be presented as discontinued operations.

 

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Acquisition

 

On January 4, 2010, we acquired the remaining 70 percent interest in Cummins Western Canada (CWC) from our former principal for consideration of approximately $71 million.  We formed a new partnership with a new distributor principal where we own 80 percent of CWC and the new distributor principal owns 20 percent.  The acquisition was effective on January 1, 2010.  The $71 million of consideration consisted of:

 

In millions

 

 

 

Borrowings under credit revolver

 

$

44

 

Capital contributed by Cummins Inc.

 

10

 

Capital contributed by new principal, as described below

 

8

 

Funded from first quarter operations

 

9

 

Total consideration

 

$

71

 

 

The purchase price was approximately $97 million as presented below.  The intangible assets are primarily customer related and are being amortized over periods ranging from one to three years.  The acquisition of CWC was accounted for as a business combination, with the results of the acquired entity and the goodwill included in the Distribution operating segment as of the acquisition date.  Distribution segment results also include a $12 million gain for the three months ended March 28, 2010, as we were required to re-measure our pre-existing 30 percent ownership interest in CWC to fair value in accordance with GAAP.  Net sales for CWC were $272 million for the twelve months ended December 31, 2010, which was approximately two percent of Cummins Inc. consolidated sales.

 

The purchase price was allocated as follows:

 

In millions

 

 

 

Accounts receivable

 

$

31

 

Inventory

 

48

 

Fixed assets

 

45

 

Intangible assets

 

11

 

Goodwill

 

2

 

Other assets

 

2

 

Current liabilities

 

(42

)

Total purchase price

 

$

97

 

Fair value of pre-existing 30 percent interest

 

(26

)

Consideration given

 

$

71

 

 

We provided a loan to our partner of approximately $8 million to fund the purchase of his 20 percent interest.  The purchase transaction resulted in $8 million of noncontrolling interest (representing our partner’s 20 percent interest) which was completely offset by the $8 million receivable from our partner, reducing the noncontrolling interest impact to zero as of the acquisition date.  The interest-bearing loan is expected to be repaid over a period of 3-5 years.  The partner also has periodic options to purchase an additional 10 to 15 percent interest in CWC up to a maximum of an additional 30 percent (total ownership not to exceed 50 percent).

 

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NOTE 5.  MARKETABLE SECURITIES

 

A summary of marketable securities, all of which are classified as current, is as follows:

 

 

 

June 26, 2011

 

December 31, 2010

 

In millions

 

Cost

 

Gross unrealized
gains/(losses)

 

Estimated
fair value

 

Cost

 

Gross unrealized
gains/(losses)

 

Estimated 
fair value

 

Available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt mutual funds

 

$

184

 

$

3

 

$

187

 

$

179

 

$

1

 

$

180

 

Bank debentures

 

91

 

 

91

 

85

 

 

85

 

Certificates of deposit

 

71

 

 

71

 

59

 

 

59

 

Government debt securities-non-U.S.

 

4

 

(1

)

3

 

4

 

(1

)

3

 

Corporate debt securities

 

2

 

 

2

 

2

 

 

2

 

Equity securities and other

 

 

9

 

9

 

 

10

 

10

 

Total marketable securities

 

$

352

 

$

11

 

$

363

 

$

329

 

$

10

 

$

339

 

 

At June 26, 2011, the fair value of available-for-sale investments in debt securities by contractual maturity is as follows:

 

Maturity date

 

Fair value

 

In millions

 

 

 

1 year or less

 

$

88

 

1-5 years

 

6

 

5-10 years

 

1

 

After 10 years

 

1

 

Total

 

$

96

 

 

NOTE 6.  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

 

 

 

June 26,

 

June 27,

 

June 26,

 

June 27,

 

In millions

 

2011

 

2010

 

2011

 

2010

 

Distribution Entities

 

 

 

 

 

 

 

 

 

North American distributors

 

$

35

 

$

23

 

$

65

 

$

46

 

Komatsu Cummins Chile, Ltda

 

6

 

3

 

10

 

6

 

All other distributors

 

1

 

1

 

2

 

2

 

Manufacturing Entities

 

 

 

 

 

 

 

 

 

Dongfeng Cummins Engine Company, Ltd.

 

26

 

34

 

49

 

52

 

Chongqing Cummins Engine Company, Ltd.

 

19

 

13

 

31

 

23

 

Shanghai Fleetguard Filter Co., Ltd.

 

4

 

4

 

8

 

6

 

Tata Cummins, Ltd.

 

3

 

3

 

7

 

7

 

Cummins Westport, Inc.

 

3

 

2

 

4

 

5

 

Valvoline Cummins, Ltd.

 

2

 

3

 

4

 

5

 

Komatsu manufacturing alliances

 

(1

)

3

 

1

 

5

 

Bejing Foton Cummins Engine Co., Ltd.

 

(1

)

(4

)

(3

)

(6

)

All other manufacturers

 

6

 

4

 

12

 

7

 

Cummins share of net income

 

103

 

89

 

190

 

158

 

Royalty and interest income

 

14

 

8

 

23

 

15

 

Equity, royalty and interest income from investees

 

$

117

 

$

97

 

$

213

 

$

173

 

 

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NOTE 7.  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.  Derivative assets and liabilities are derived from 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.  When material, we adjust the values of our derivative contracts for counter-party or our credit risk.  There were no transfers into or out of Levels 2 or 3 in the first six months of 2011.

 

The following table summarizes our financial instruments recorded at fair value in our Condensed Consolidated Balance Sheets at June 26, 2011:

 

 

 

Fair Value Measurements Using

 

 

 

Quoted prices in
active markets for
identical assets

 

Significant other
observable inputs

 

Significant 
unobservable inputs

 

 

 

In millions

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Total

 

Available-for-sale debt securities:

 

 

 

 

 

 

 

 

 

Debt mutual funds

 

$

85

 

$

102

 

$

 

$

187

 

Bank debentures

 

 

91

 

 

91

 

Certificates of deposit

 

 

71

 

 

71

 

Government debt securities-non-U.S.

 

 

3

 

 

3

 

Corporate debt securities

 

 

2

 

 

2

 

Total available-for-sale debt securities

 

85

 

269

 

 

354

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale equity securities:

 

 

 

 

 

 

 

 

 

Financial services industry

 

9

 

 

 

9

 

Total available-for-sale equity securities

 

9

 

 

 

9

 

 

 

 

 

 

 

 

 

 

 

Derivative assets:

 

 

 

 

 

 

 

 

 

Commodity swap contracts

 

 

3

 

 

3

 

Interest rate contracts

 

 

51

 

 

51

 

Total derivative assets

 

 

54

 

 

54

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities:

 

 

 

 

 

 

 

 

 

Commodity swap contracts

 

 

1

 

 

1

 

Foreign currency forward contracts

 

 

1

 

 

1

 

Total derivative liabilities

 

 

2

 

 

2

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

94

 

$

321

 

$

 

$

415

 

 

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Table of Contents

 

The following table summarizes our financial instruments recorded at fair value in our Condensed Consolidated Balance Sheets at December 31, 2010:

 

 

 

Fair Value Measurements Using

 

 

 

Quoted prices in
active markets for
identical assets

 

Significant other
observable inputs

 

Significant
unobservable inputs

 

 

 

In millions

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Total

 

Available-for-sale debt securities:

 

 

 

 

 

 

 

 

 

Debt mutual funds

 

$

75

 

$

105

 

$

 

$

180

 

Bank debentures

 

 

85

 

 

85

 

Certificates of deposit

 

 

59

 

 

59

 

Government debt securities-non-U.S.

 

 

3

 

 

3

 

Corporate debt securities

 

 

2

 

 

2

 

Total available-for-sale debt securities

 

75

 

254

 

 

329

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale equity securities:

 

 

 

 

 

 

 

 

 

Financial services industry

 

10

 

 

 

10

 

Total available-for-sale equity securities

 

10

 

 

 

10

 

 

 

 

 

 

 

 

 

 

 

Derivative assets:

 

 

 

 

 

 

 

 

 

Commodity swap contracts

 

 

21

 

 

21

 

Interest rate contracts

 

 

41

 

 

41

 

Total derivative assets

 

 

62

 

 

62

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

85

 

$

316

 

$

 

$

401

 

 

Fair value of derivative assets for foreign currency forward contracts and total derivative liabilities at December 31, 2010, are not material to our Condensed Consolidated Balance Sheets.

 

The substantial majority of our assets were valued utilizing a market approach.  A description of the valuation techniques and inputs used for our level 2 fair value measures are as follows:

 

Debt mutual funds — Assets in level 2 consist of exchange traded mutual funds that lack sufficient trading volume to be classified at level 1.  The fair value measure for these investments is the daily net asset value published on a regulated governmental website.  Daily quoted prices are available from the issuing brokerage and are used on a test basis to corroborate this level 2 input.

 

Bank debentures and Certificates of deposit — These investments provide us with a fixed rate of return and generally range in maturity from six months to one year.  The counter-parties to these investments are reputable financial institutions with investment grade credit ratings.  Since these instruments are not tradable and must be settled directly by Cummins with the respective financial institution, our fair value measure is the financial institutions’ month-end statement.

 

Government debt securities-non-U.S. and Corporate debt securities — The fair value measure for these securities are broker quotes received from reputable firms.  These securities are infrequently traded on a national stock exchange and these values are used on a test basis to corroborate our level 2 input measure.

 

Foreign currency forward contracts — The fair value measure for these contracts are determined based on forward foreign exchange rates received from third-party pricing services.  These rates are based upon market transactions and are periodically corroborated by comparing to third-party broker quotes.

 

Commodity swap contracts — The fair value measure for these contracts are current spot market data adjusted for the appropriate current forward curves provided by external financial institutions.  The current spot price is the most significant component of this valuation and is based upon market transactions.  We use third-party pricing services for the spot price component of this valuation which is periodically corroborated by market data from broker quotes.

 

Interest rate contracts — We currently have only one interest rate contract.  We utilize the month-end statement from the issuing financial institution as our fair value measure for this investment.  We corroborate this valuation through the use of a third-party pricing service for similar assets and liabilities.

 

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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 and carrying value of total debt, including current maturities, at June 26, 2011 and December 31, 2010, are set forth in the table below.  The carrying values of all other receivables and liabilities approximated fair values.

 

 

 

June 26,

 

December 31,

 

In millions

 

2011

 

2010

 

Fair value of total debt

 

$

917

 

$

886

 

Carrying value of total debt

 

847

 

843

 

 

NOTE 8.  INVENTORIES

 

Inventories are stated at the lower of cost or market.  Inventories included the following:

 

 

 

June 26,

 

December 31,

 

In millions

 

2011

 

2010

 

Finished products

 

$

1,196

 

$

1,019

 

Work-in-process and raw materials

 

1,182

 

1,048

 

Inventories at FIFO cost

 

2,378

 

2,067

 

Excess of FIFO over LIFO

 

(103

)

(90

)

Total inventories

 

$

2,275

 

$

1,977

 

 

NOTE 9.  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 or when they become probable and estimable, which is reflected in the provision for warranties issued line.  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 and accrued recall programs:

 

 

 

Six months ended

 

 

 

June 26,

 

June 27,

 

In millions 

 

2011

 

2010

 

Balance, beginning of period

 

$

980

 

$

989

 

Provision for warranties issued

 

219

 

157

 

Deferred revenue on extended warranty contracts sold

 

50

 

51

 

Payments

 

(188

)

(206

)

Amortization of deferred revenue on extended warranty contracts

 

(46

)

(42

)

Changes in estimates for pre-existing warranties

 

7

 

(20

)

Foreign currency translation

 

3

 

(6

)

Balance, end of period

 

$

1,025

 

$

923

 

 

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Warranty related deferred revenue, supplier recovery receivables and the long-term portion of the warranty liability on our June 26, 2011, balance sheet were as follows:

 

 

 

June 26,

 

 

 

In millions

 

2011

 

Balance Sheet Locations

 

Deferred revenue related to extended coverage programs:

 

 

 

 

 

Current portion

 

$

94

 

Deferred revenue

 

Long-term portion

 

194

 

Other liabilities and deferred revenue

 

Total

 

$

288

 

 

 

 

 

 

 

 

 

Receivables related to estimated supplier recoveries:

 

 

 

 

 

Current portion

 

$

9

 

Trade and other receivables

 

Long-term portion

 

7

 

Other assets

 

Total

 

$

16

 

 

 

 

 

 

 

 

 

Long-term portion of warranty liability

 

$

308

 

Other liabilities and deferred revenue

 

 

NOTE 10. 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

 

 

 

June 26,

 

June 27,

 

June 26,

 

June 27,

 

In millions

 

2011

 

2010

 

2011

 

2010

 

Defined benefit pension and other postretirement plans:

 

 

 

 

 

 

 

 

 

Voluntary pension

 

$

35

 

$

35

 

$

70

 

$

95

 

Mandatory pension

 

5

 

5

 

11

 

56

 

Defined benefit pension contributions

 

40

 

40

 

81

 

151

 

Other postretirement plans

 

9

 

11

 

18

 

17

 

Total defined benefit plans

 

$

49

 

$

51

 

$

99

 

$

168

 

Defined contribution pension plans

 

$

13

 

$

12

 

$

37

 

$

23

 

 

We presently anticipate contributing approximately $130 million to our defined benefit pension plans in 2011 and paying approximately $51 million in claims and premiums for other postretirement benefits.  The $130 million of contributions for the full year include voluntary contributions of approximately $109 million.  These contributions and payments may be made from trusts or company funds either to increase pension assets or to make direct benefit payments to plan participants.

 

The components of net periodic pension and other postretirement benefit cost under our plans consisted of the following:

 

 

 

Pension

 

 

 

 

 

U.S. Plans

 

Non-U.S. Plans

 

Other Postretirement Benefits

 

 

 

Three months ended

 

 

 

June 26,

 

June 27,

 

June 26,

 

June 27,

 

June 26,

 

June 27,

 

In millions

 

2011

 

2010

 

2011

 

2010

 

2011

 

2010

 

Service cost

 

$

13

 

$

12

 

$

5

 

$

4

 

$

 

$

 

Interest cost

 

27

 

27

 

15

 

14

 

6

 

7

 

Expected return on plan assets

 

(38

)

(37

)

(19

)

(17

)

 

 

Amortization of prior service (credit) cost

 

 

 

1

 

 

(2

)

(2

)

Recognized net actuarial loss

 

10

 

9

 

3

 

5

 

 

 

Net periodic benefit cost

 

$

12

 

$

11

 

$

5

 

$

6

 

$

4

 

$

5

 

 

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Table of Contents

 

 

 

Pension

 

 

 

 

 

U.S. Plans

 

Non-U.S. Plans

 

Other Postretirement Benefits

 

 

 

Six months ended

 

 

 

June 26,

 

June 27,

 

June 26,

 

June 27,

 

June 26,

 

June 27,

 

In millions

 

2011

 

2010

 

2011

 

2010

 

2011

 

2010

 

Service cost

 

$

26

 

$

23

 

$

10

 

$

9

 

$

 

$

 

Interest cost

 

54

 

55

 

30

 

29

 

12

 

14

 

Expected return on plan assets

 

(76

)

(74

)

(37

)

(35

)

 

 

Amortization of prior service (credit) cost

 

 

 

1

 

1

 

(4

)

(4

)

Recognized net actuarial loss

 

20

 

18

 

6

 

9

 

 

 

Net periodic benefit cost

 

$

24

 

$

22

 

$

10

 

$

13

 

$

8

 

$

10

 

 

NOTE 11.  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 U.S. 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.  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 operations, financial condition or cash flows.

 

We conduct significant business operations in Brazil that are subject to the Brazilian federal, state and local labor, social security, tax and customs laws.  While we believe we comply with such laws, they are complex, subject to varying interpretations and we are often engaged in litigation regarding the application of these laws to particular circumstances.

 

In June 2008, four of our sites in Southern Indiana, including our Technical Center, experienced extensive flood damage.  We have submitted a claim for $220 million to our insurance carriers, which includes a claim for business interruption.  As of June 26, 2011, we have received $92 million in recoveries from the insurance carriers.  Our insurance carriers have disputed certain aspects of our claim and the parties have filed suit against each other.  Although we believe that we are insured against the full amount of our claim, there is no assurance that we will be successful recovering the amounts we believe are due under the policies.

 

U.S. Distributor Commitments

 

Our distribution agreements with independent and partially-owned distributors generally have a 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.  The 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 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 upon expiration or terminate them upon written 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.

 

Other Guarantees and Commitments

 

We periodically enter into guarantee arrangements, including guarantees of non-U.S. distributor financing, residual value guarantees on equipment leased under operating leases and other miscellaneous guarantees of third-party obligations.  As of June 26, 2011, the maximum potential loss related to these other guarantees is $62 million ($36 million of which relates to the Beijing Foton guarantee discussed below and $23 million relates to the Cummins Olayan Energy Limited guarantee discussed below).

 

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We have arrangements with certain suppliers that require us to purchase minimum volumes or be subject to monetary penalties.  The penalty amounts are less than our purchase commitments and essentially allow the supplier to recover their tooling costs in most instances.  As of June 26, 2011, if we were to stop purchasing from each of these suppliers, the amount of the penalty would be approximately $54 million, of which $49 million relates to a contract with an engine parts supplier that extends to 2013.  This arrangement enables us to secure critical components.  We do not currently anticipate paying any penalties under these contracts.

 

In July 2008, Beijing Foton Cummins Engine Company, a 50 percent owned entity accounted for under the equity method, entered into a line of credit agreement with a borrowing capacity of up to $185 million (at current exchange rates).  The line will be used primarily to fund equipment purchases for a new manufacturing plant.  As a part of this transaction, we guaranteed 50 percent of any outstanding borrowings up to a maximum guarantee of $93 million (at current exchange rates).  As of June 26, 2011, outstanding borrowings under this agreement were $72 million and our guarantee was $36 million (at current exchange rates).  We recorded a liability for the fair value of this guarantee.  The amount of the liability was less than $1 million.  The offset to this liability was an increase in our investment in the joint venture.

 

In February 2010, Cummins Olayan Energy Limited, a 49 percent owned entity accounted for under the equity method, executed a four-year $101 million (at current exchange rates) debt financing arrangement to acquire certain rental equipment assets.  As a part of this transaction, we guaranteed 49 percent of the total outstanding loan amount or $50 million (at current exchange rates).  As of June 26, 2011, outstanding borrowings under this agreement were $48 million and our guarantee was $23 million (at current exchange rates). We recorded a liability for the fair value of this guarantee.  The amount of the liability was less than $1 million.  The offset to this liability was an increase in our investment in the joint venture.

 

We have guarantees with certain customers that require us to satisfactorily honor contractual or regulatory obligations, or compensate for monetary losses related to nonperformance.  These performance bonds and other performance-related guarantees at June 26, 2011, were $77 million.

 

Indemnifications

 

Periodically, we enter into various contractual arrangements where we agree to indemnify a third-party against certain types of losses.  Common types of indemnifications include:

 

·                  product liability and license, patent or trademark indemnifications,

 

·                  asset sale agreements where we agree to indemnify the purchaser against future environmental exposures related to the asset sold and

 

·                  any contractual agreement where we agree to indemnify the counter-party for losses suffered as a result of a misrepresentation in the contract.

 

We regularly evaluate the probability of having to incur costs associated with these indemnifications and accrue for expected losses that are probable.  Because the indemnifications are not related to specified known liabilities and due to their uncertain nature, we are unable to estimate the maximum amount of the potential loss associated with these indemnifications.

 

Joint Venture Commitments

 

As of June 26, 2011, we have committed to invest an additional $86 million into existing joint ventures of which $63 million is expected to be funded in 2011.

 

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NOTE 12.  COMPREHENSIVE INCOME

 

The table below provides a summary of total comprehensive income and the allocation of total comprehensive income between the shareholders of Cummins Inc. and the non-controlling interests for the three and six month periods ended June 26, 2011 and June 27, 2010.

 

 

 

Three months ended

 

 

 

June 26, 2011

 

June 27, 2010

 

In millions

 

Attributable to
Cummins Inc.

 

Attributable to
Noncontrolling
Interests

 

Total
Consolidated

 

Attributable to
Cummins Inc.

 

Attributable to
Noncontrolling
Interests

 

Total
Consolidated

 

Net income

 

$

505

 

$

32

 

$

537

 

$

246

 

$

24

 

$

270

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on marketable securities

 

 

 

 

1

 

 

1

 

Unrealized gain (loss) on derivatives

 

(12

)

 

(12

)

(2

)

 

(2

)

Foreign currency translation adjustments

 

2

 

(2

)

 

(12

)

(4

)

(16

)

Change in pensions and other postretirement defined benefit plans

 

7

 

 

7

 

8

 

 

8

 

Total other comprehensive income (loss)

 

(3

)

(2

)

(5

)

(5

)

(4

)

(9

)

Total comprehensive income

 

$

502

 

$

30

 

$

532

 

$

241

 

$

20

 

$

261

 

 

 

 

Six months ended

 

 

 

June 26, 2011

 

June 27, 2010

 

In millions

 

Attributable to
Cummins Inc.

 

Attributable to
Noncontrolling
Interests

 

Total
Consolidated

 

Attributable to
Cummins Inc.

 

Attributable to
Noncontrolling
Interests

 

Total
Consolidated

 

Net income

 

$

848

 

$

54

 

$

902

 

$

395

 

$

45

 

$

440

 

Other comprehensive income, net of tax