Cummins (CMI)

NOTE 17. EARNINGS PER SHARE

        We calculate basic earnings per share (EPS) of common stock by dividing net earnings by the weighted-average number of common shares outstanding for the period. The calculation of diluted EPS reflects the potential dilution that occurs if options or securities are exercised or debt is converted into common stock and the effect of the exercise or conversion on EPS. We exclude shares of common stock held in the Employee Benefits Trust (see Note 15) from the calculation of the weighted-average common shares outstanding until those shares are distributed from the Employee Benefits Trust to the RSP. Following is a reconciliation of net earnings and weighted-average common shares outstanding for purposes of calculating basic and diluted earnings per share (all share and per share amounts were

111

CUMMINS INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 17. EARNINGS PER SHARE (Continued)

adjusted for the impact of a two-for-one stock split on April 9, 2007 and an additional two-for-one stock split on January 2, 2008):

        The weighted-average diluted common shares outstanding for 2007 excludes the effect of approximately 825 weighted-average shares of common stock options, since such options had an exercise price in excess of the monthly average market value of our common stock during that year. In 2006 and 2005, the monthly average market value of our common stock was greater than the exercise price of all our common stock options and therefore no options were excluded from our calculation of the weighted-average diluted shares outstanding.

        The Board of Directors authorized a pair of two-for-one splits of Cummins stock in 2007, which were distributed on April 9, 2007 and January 2, 2008, to shareholders of record as of March 26, 2007 and December 21, 2007, respectively. All share and per share amounts in this Form 10-K have been adjusted to reflect the two-for-one stock splits. During the second quarter of 2007 our shareholders ratified a proposal to increase our common stock authorization to 300 million shares.

NOTE 17. EARNINGS PER SHARE

        We calculate basic earnings per share (EPS) of common stock by dividing net earnings by the weighted-average number of common shares outstanding for the period.
The calculation of diluted EPS reflects the potential dilution that occurs if options or securities are exercised or debt is converted into common stock and the effect of the exercise or conversion on
EPS. We exclude shares of common stock held in the Employee Benefits Trust (see Note 15) from the calculation of the weighted-average common shares outstanding until those shares are
distributed from the Employee Benefits Trust to the RSP. Following is a reconciliation of net earnings and weighted-average common shares outstanding for purposes of calculating basic and diluted
earnings per share (all share and per share amounts were

111

CUMMINS INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 17. EARNINGS PER SHARE (Continued)

adjusted
for the impact of a two-for-one stock split on April 9, 2007 and an additional two-for-one stock split on January 2, 2008):

        The
weighted-average diluted common shares outstanding for 2007 excludes the effect of approximately 825 weighted-average shares of common stock options, since such options had an
exercise price in excess of the monthly average market value of our common stock during that year. In 2006 and 2005, the monthly average market value of our common stock was greater than the exercise
price of all our common stock options and therefore no options were excluded from our calculation of the weighted-average diluted shares outstanding.

        The
Board of Directors authorized a pair of two-for-one splits of Cummins stock in 2007, which were distributed on April 9, 2007 and January 2,
2008, to shareholders of record as of March 26, 2007 and December 21, 2007, respectively. All share and per share amounts in
this Form 10-K have been adjusted to reflect the two-for-one stock splits. During the second quarter of 2007 our shareholders ratified a proposal to increase
our common stock authorization to 300 million shares.

NOTE 10.  EARNINGS PER SHARE

We calculate basic earnings per share (EPS) of common stock by dividing net earnings available to common shareholders by the weighted-average number of common shares outstanding for the period. The calculation of diluted EPS reflects the potential dilution that occurs if options or debt securities are exercised or converted into common stock and the effect of the exercise or conversion reduces EPS.  We exclude shares of common stock held by our Retirement Savings Plan in the Employee Benefits Trust from the calculation of the weighted-average common shares outstanding until those shares are distributed from the Trust.  The following is a reconciliation of net earnings and weighted-average common shares outstanding for purposes of calculating basic and diluted net earnings per share:

The weighted-average diluted common shares outstanding for the nine months ended September 26, 2004, exclude the effect of approximately 0.4 million common stock options since such options had an exercise price in excess of the average market value of our common stock.  

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NOTE 10.  EARNINGS PER SHARE

We calculate basic earnings per share (EPS) of common stock by dividing net earnings available to common shareholders by the weighted-average number of common shares outstanding for the period. The calculation of diluted EPS reflects the potential dilution that occurs if options or securities are exercised or converted into common stock and the effect of the exercise or conversion reduces EPS.  We exclude shares of common stock held by our Retirement Savings Plan in the Employee Benefits Trust from the calculation of the weighted-average common shares outstanding until those shares are distributed from the Trust.  The following is a reconciliation of net earnings and weighted-average common shares outstanding for purposes of calculating basic and diluted net earnings per share:

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The weighted-average diluted common shares outstanding for the three and six months ended June 27, 2004, exclude the effect of approximately 0.1 million and 0.6 million common stock options, respectively, since such options had an exercise price in excess of the average market value of our common stock.

NOTE 10.  EARNINGS PER SHARE

We calculate basic earnings per share (EPS) of common stock by dividing net earnings available to common shareholders by the weighted-average number of common shares outstanding for the period. The calculation of diluted EPS reflects the potential dilution that occurs if options or securities are exercised or converted into common stock and the effect of the exercise or conversion reduces EPS.  We exclude shares of common stock held by our Retirement Savings Plan in the Employee Benefits Trust from the calculation of the weighted-average common shares outstanding until those shares are distributed from the Trust.  The following is a reconciliation of net earnings and weighted-average common shares outstanding for purposes of calculating basic and diluted net earnings per share:

The weighted-average diluted common shares outstanding for the three months ended March 28, 2004, exclude the effect of approximately 1.1 million common stock options, since such options had an exercise price in excess of the average market value of our common stock.