Cummins Reports Fourth Consecutive Year of Record Sales and Profits

Cummins Inc. (NYSE: CMI) today released results for 2007, completing a year of record sales and earnings - the fourth straight year of record financial performance for the Company. Cummins’ sales rose 15 percent to $13.05 billion, from $11.36 billion in 2006.

Net income rose to $739 million, or $3.70 cents a share, a 3 percent increase compared to $715 million, or $3.55 a share, in 2006. Earnings Before Interest and Taxes (EBIT) of $1.23 billion, or 9.4 percent of sales, represent a 4 percent increase from 2006 when the Company earned $1.18 billion, or 10.4 percent of sales.

The record results came despite the expected significant drop in the North American heavy-duty truck market as a result of emissions changes that took effect Jan. 1, 2007. Industry-wide sales in that market declined nearly 50 percent in 2007, but Cummins’ increased share in that market as well as strong growth across most of the rest of the Company’s businesses and regions more than offset the decrease.

“2007 was an outstanding year for Cummins,” said Chairman and Chief Executive Officer Tim Solso. “This record-setting performance in the face of significant challenges validates our message that Cummins truly has become a more diversified, global power leader. Most importantly, our efforts continue to benefit our shareholders, who have enjoyed an average annual return of over 55 percent on their investment over the past five years.”

Cummins’ fourth quarter sales of $3.5 billion also were a quarterly best for the Company, and were 16 percent higher than the same period in 2006. Net earnings for the quarter increased 5 percent to $198 million ($1.00 per share), from $189 million (94 cents a share) during the same period in 2006. EBIT increased 7 percent to $324 million (9.2 percent of sales), compared to $303 million, or 10 percent of sales.

The Company’s strong performance in the fourth quarter was led by gains in the Power Generation and Distribution segments, although all four of the Company’s operating segments – Engine, Power Generation, Distribution and Components – reported record sales for the fourth quarter and for all of 2007.

Global Power Generation sales increased 28 percent in the fourth quarter to $840 million, while Segment EBIT of $86 million was 39 percent higher than the same period in 2006. Strong gains around most of the world in commercial generator sales and significant growth in alternator sales in Europe and China were key drivers for the segment in the fourth quarter.

The Company’s Distribution segment reported sales of $468 million in the fourth quarter, a 21 percent improvement from the same period in 2006. Record Segment EBIT of $56 million was 44 percent higher than during the fourth quarter of 2006.

Sales and Segment EBIT also improved in the Components segment, despite some operational issues associated with rapid growth that affected profitability in two of the segment’s businesses – Emission Solutions and Turbo Technologies. The Company is aggressively managing these issues, and expects improved profit performance from both businesses in 2008.

Still, Components sales in the fourth quarter rose 30 percent from the same period in 2006 to $777 million, while Segment EBIT more than doubled to $47 million in the quarter.

Although revenues were higher in the Engine segment, profits were lower for both the fourth quarter and the full year due to costs associated with the release of new products in North America to meet the 2007 EPA emissions regulations.

The engine business also invested heavily around the globe for capacity expansion and new products. Notable investments include the light duty diesel engine program in Columbus, Indiana, and the two light commercial vehicle engine platforms for the Chinese truck market. These two new platforms for this rapidly growing 1.1 million unit market in China will be manufactured as part of our joint venture partnership with Foton.

At the same time, Cummins also gained significant share in key engine markets during 2007 – especially in the North American heavy-duty truck engine market, where the Company’s market share exceeded 40 percent for the last nine months of the year. The Company’s 2007 product, which is based on Cummins’ proven cooled Exhaust Gas Recirculation technology, has performed as well as expected and has been well-received by customers.

In the fourth quarter, the Company received significant recognition from two leading industry organizations: J.D. Power and Associates awarded Cummins one of its prestigious customer satisfaction awards for the performance and cost of ownership of the Company’s new heavy-duty truck engine. Diesel Progress magazine named Cummins its “Newsmaker of the Year” for 2007, primarily for work around meeting the 2007 EPA emissions standards.

2008 outlook

The Company expects to extend its record financial performance to a fifth straight year in 2008. Sales are forecast to increase 12 percent from 2007 levels and the Company expects to generate EBIT of 10 percent of sales in 2008.

The Company’s financial performance over the last four years has resulted in a strong balance sheet, which has given Cummins the flexibility to invest in the people, products, facilities and technologies necessary to take advantage of growth opportunities around the world. Cummins expects to spend between $550 million and $600 million on capital projects in 2008.

The Company expects the North American truck engine markets to rebound somewhat from 2007, despite the uncertainty that exists in the U.S. economy. Additionally, Cummins expects to maintain its market share gains from 2007 in key segments such as heavy-duty and medium-duty truck and bus.

The Distribution segment continues to grow to provide support for the increasing number of Cummins’ products around the globe. The Company’s Power Generation business is forecast to remain extremely strong in 2008, with demand being driven by global infrastructure needs, while the Components segment is forecasting improved profit performance – especially in its two fastest-growing businesses, Turbo Technologies and Emission Solutions.

“We are extremely pleased with our 2007 performance and are excited about the prospects for 2008,” Solso said. “All the pieces are in place for Cummins to take advantage of the many profitable growth opportunities in front of us - now and in the years to come.”

Fourth quarter 2007 details

Engine segment

Sales of $2.16 billion were a quarterly record and 10 percent higher than $1.95 billion during the same period in 2006. Segment EBIT decreased 34 percent to $120 million, or 5.6 percent of sales, from $181 million, or 9.3 percent of sales, a year ago.

North American heavy-duty truck engine shipments fell 38 percent, while light-duty automotive shipments decreased 47 percent due to softness in the heavy-duty pickup truck market during the quarter. However, global medium-duty truck engine shipments increased 21 percent, led by strong growth in Latin America, and construction market shipments rose 17 percent compared to the same period in 2006.

Power Generation segment

Segment sales of $840 million rose 28 percent from $658 million. Segment EBIT increased 39 percent to $86 million, or 10.2 percent of sales, from $62 million or 9.4 percent of sales. The segment saw strong sales gains in virtually every line of business, led by a 31 percent increase in commercial sales and a 34 percent rise in alternator sales.

Distribution segment

Segment sales of $468 million rose 21 percent from $386 million in the same period in 2006. Segment EBIT increased 44 percent to $56 million, or 12.0 percent of sales, from $39 million, or 10.1 percent of sales in 2006. Sales of engines and power generation products were sharply higher – especially in Europe, the Middle East and Africa – and the segment reported record earnings from its joint ventures.

Components segment

Sales in the segment – which consists of the Company’s filtration, turbocharger, exhaust aftertreatment and fuel systems businesses – rose 30 percent to $777 million, from $599 million for the same period in 2006. Segment EBIT rose 104 percent to $47 million, or 6.0 percent of sales, from $23 million, or 3.8 percent of sales, in the fourth quarter of 2006.

The segment’s performance was led by the Filtration business, which reported improved sales and stronger return on sales. The Company’s turbocharger and Emission Solutions businesses continued to experience significant sales growth for their products, but their profitability was adversely affected by costs and operational issues related to meeting that demand.

Presentation of Non-GAAP Financial Information

EBIT is a non-GAAP measure used in this release. Each is defined and reconciled to what management believes to be the most comparable GAAP measure in a schedule attached to this release. Cummins presents this information as it believes it is useful to understanding the Company's operating performance, and because EBIT is a measure used internally to assess the performance of the operating units.

Webcast information Cummins management will host a teleconference to discuss these results today at 10 a.m. EST. This teleconference will be webcast and available on the Investor Relations section of the Cummins website at www.cummins.com. Participants wishing to view the visuals available with the audio are encouraged to sign-in a few minutes prior to the start of the teleconference.

Forward-looking statements disclosure

Information provided in this release and on the webcast that is not purely historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding the company’s expectations, hopes, beliefs and intentions on strategies regarding the future. It is important to note that the company’s actual future results could differ materially from those projected in such forward-looking statements because of a number of factors, including, but not limited to, general economic, business and financing conditions, labor relations, governmental action, competitor pricing activity, expense volatility and other risks detailed from time to time in Cummins Securities and Exchange Commission filings.

About Cummins

Cummins Inc., a global power leader, is a corporation of complementary business units that design, manufacture, distribute and service engines and related technologies, including fuel systems, controls, air handling, filtration, emission solutions and electrical power generation systems. Headquartered in Columbus, Indiana, (USA) Cummins serves customers in more than 160 countries through its network of 550 Company-owned and independent distributor facilities and more than 5,000 dealer locations. Cummins reported net income of $739 million on sales of $13.0 billion in 2007. Press releases can be found on the Web at www.cummins.com.

A reconciliation of our segment information to the corresponding amounts in the Consolidated Financial Statements is shown in the table below:

The Board of Directors authorized a two-for-one split of Cummins stock on March 8, 2007, which was distributed on April 9, 2007, to shareholders of record as of March 26, 2007. The Board of Directors authorized an additional two-for-one split of Cummins stock on December 11, 2007, which was distributed on January 2, 2008, to shareholders of record as of December 21, 2007. All share and per share amounts have been adjusted to reflect both two-for-one stock splits.

See attached schedule for historical presentation of earnings per share adjusted for latest stock split.

NOTE 3. PROVISION FOR INCOME TAXES

Our tax rates are generally less than the 35 percent U.S. income tax rate primarily because of lower taxes on foreign earnings and research tax credits.

Our effective tax rate for the three and twelve months ended December 31, 2007, was 31.3 percent and 32.6 percent, respectively. Our effective tax rate for the three and twelve months ended December 31, 2006, was 28.3 percent and 29.9 percent, respectively. Our provision for the three months ended December 31, 2006, was favorably impacted by $10 million, or $0.05 per share, due to the retroactive reinstatement of the U.S. research tax credit. In addition to the research credit, our provision for the twelve months ended December 31, 2006, was impacted by a $12 million, or $0.06 per share, increase in the first quarter for the effect of new Indiana tax legislation, and a $28 million, or $0.14 per share, reduction in the second quarter due to the favorable resolution of tax uncertainties related to prior years.

NOTE 4. DEPRECIATION AND AMORTIZATION

Depreciation and amortization expense included in operating activities of the Condensed Consolidated Statements of Cash Flows for the years ended December 31, 2007 and 2006 was $290 million and $296 million, respectively.

NOTE 5. SHIPPING AND HANDLING COSTS

Our shipping and handling costs are expensed as incurred. Those shipping and handling costs associated with operations of our inventory distribution centers and warehouse facilities were previously classified as "Selling and administrative expenses" in our Condensed Consolidated Statements of Earnings. In accordance with Emerging Issues Task Force (EITF) Issue No. 00-10 “Accounting for Shipping and Handling Fees and Costs,” we previously disclosed the amount of shipping and handling costs included as “Selling and administrative expenses” in the notes to our consolidated financial statements. Beginning January 1, 2007, we revised our accounting policy and all shipping and handling costs are now classified as “Cost of sales.” This presentation is more consistent with current industry practice. For purposes of comparability, the $34 million and $130 million previously classified as “Selling and administrative expenses” in the three and twelve months ended December 31, 2006, has been adjusted retrospectively to apply the new method. This change had no impact on operating earnings, EBIT, net earnings, or earnings per share.

Contacts:

Cummins Inc.
Mark Land – Director of Public Relations, 317-610-2456
mark.d.land@cummins.com