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  • 1. Fourth Quarter 2007 Earnings Teleconference February 1, 2008
  • 2. Participants Tim Solso Chairman and Chief Executive Officer Jean Blackwell Chief Financial Officer Joe Loughrey Chief Operating Officer Tom Linebarger President – Cummins Power Generation Dean Cantrell Director – Investor Relations 2
  • 3. Disclosure Regarding Forward-Looking Statements & non-GAAP Financial Measures This presentation contains certain forward-looking information. Any forward-looking statement involves risk and uncertainty. The Company’s future results may be affected by changes in general economic conditions and by the actions of customers and competitors. Actual outcomes may differ materially from what is expressed in any forward-looking statement. A more complete disclosure about forward- looking statements begins on page 61 of our 2006 Form 10-K, and it applies to this presentation. This presentation contains certain non-GAAP financial measures such as earnings before interest and taxes (EBIT). Please refer to our website (www.cummins.com) for the reconciliation of those measures to GAAP financial measures. 3
  • 4. Key Messages 4th straight year of record sales and profits Operational improvement beginning in Components Acceleration of earnings growth in 2008 Investing in longer-term global growth story 4
  • 5. Targets Sales growth: 12% Cummins Inc. EBIT margin: 10% ROANA: 25% Selected Financial Data ROE: 20% Change Change $ Millions Q407 Q406 Amount Percent Sales 3,516 3,033 483 16% EBIT 324 303 21 7% % of Sales 9.2% 10.0% ROANA (LTM) 29% 31% ROE (LTM) 21% 25% Global customer demand leading to growth in nearly every market Gaining market share due to our technology leadership Investing in profitable growth opportunities in each operating segment, and in domestic and international markets 5
  • 6. Cummins Inc. Selected Income Statement Data Q407 Q406 Net Earnings ($M) 198 189 Earnings Per Share $1.00 $0.94 Product Coverage (% of Net Sales) 3.4% 2.3% Gross Margin (% of Net Sales) 19.4% 21.0% SAR (% of Net Sales) 12.9% 12.5% Earnings before interest and taxes (EBIT) at 9.2% of sales As expected, lower gross margins due to higher costs associated with the launch of the EPA ’07 products, partially offset by higher pricing for new products Higher warranty accrual rate during introductory year of EPA ’07 products Less overhead recovery from significantly lower heavy-duty and pick-up truck volumes 6
  • 7. Targets Power Generation Sales growth: 15% EBIT margin: 10% Segment Selected Financial Data Change Change $ Millions Q407 Q406 Amount Percent Sales 840 658 182 28% EBIT 86 62 24 39% % of Sales 10.2% 9.4% Strong sales of commercial generator sets and alternator equipment across the globe Consumer growth as portables, commercial mobile, recreational marine, and auxiliary power units offset softness in recreational vehicles Strong price realization for commercial generator sets and alternators 7
  • 8. Targets Distribution Segment Sales growth: 15% EBIT margin: 11% Selected Financial Data Change Change $ Millions Q407 Q406 Amount Percent Sales 468 386 82 21% EBIT 56 39 17 44% % of Sales 12.0% 10.1% Organic growth of 25% excluding the reporting change of a North American distributor, currency and acquisitions Global demand for our products remain strong, particularly in Europe, the Middle East, Singapore, and Africa Joint venture earnings contributed $25 million to segment earnings on strength of sales of power generation equipment in North America plus contribution from new joint ventures 8
  • 9. Targets Engine Segment Sales growth: 13% EBIT margin: 8.5% Selected Financial Data Change Change $ Millions Q407 Q406 Amount Percent Sales 2,155 1,952 203 10% EBIT 120 181 (61) (34%) % of Sales 5.6% 9.3% Growth in both Industrial and Medium-duty Truck & Bus revenue Lower gross margins due to higher costs associated with the launch of the EPA ’07 products, partially offset by higher pricing for new products Higher warranty accrual rate during introductory year of EPA ’07 products Investing in new growth opportunities and additional capacity Less overhead recovery from significantly lower heavy-duty and pick-up truck volumes 9
  • 10. Engine Segment Sales by Market – On-highway Change Change $ Millions Q407 Q406 Amount Percent Heavy-duty truck 531 640 (109) (17%) Medium-duty truck and bus 398 256 142 55% Light-duty automotive/RV 247 322 (75) (23%) Total on-highway 1,176 1,218 (42) (3%) North America Heavy-duty Truck engine shipments down 38% - much better than market due to significant market share gains Medium-duty Truck shipments up 21% with strength in Brazil and Europe together with market share gains in North America Bus shipments up 80% on strength in Europe, China, and North America North America Light-duty Automotive shipments down 47% due to US economic uncertainty 10
  • 11. Engine Segment Sales by Market – Industrial Change Change $ Millions Q407 Q406 Amount Percent Total Industrial 733 559 174 31% Total shipments up 20% with growth in nearly all applications, but primarily in international markets Global construction equipment shipments up 17% driven by demand in East Asia, Europe, and Korea Worldwide shipments for mining up 16% with growth in China, Russia, Latin America, and Australia Commercial marine shipments up 18% with successful launch of our Tier 2 product Increasing high-horsepower capacity another 30% by mid 2008 11
  • 12. Targets Components Segment Sales growth: 20% EBIT margin: 9% Selected Financial Data Change Change $ Millions Q407 Q406 Amount Percent Sales 777 599 178 30% EBIT 47 23 24 104% % of Sales 6.0% 3.8% Growth in all businesses on sales of new products to meet emission standards, particularly Emission Solutions (up $81M or 167%) and Turbo Technologies (up $72M or 44%) Filtration (up $19M or 7%) saw strong economic-driven revenue growth in Eastern Europe, Russia, and the Middle East New product introduction costs, metal market cost increases, and aggressive production ramp up provided challenges for each of the businesses 12
  • 13. Joint Venture Income $ Millions Q407 Q406 Engine 26 16 On-highway 18 10 Off-highway 6 4 Rec. Marine 2 2 Power Generation 5 2 Distribution 25 16 Components 3 1 Total JV Income 59 35 Engine joint venture income up primarily due to continued strengthening in the Chinese on-highway truck market Distribution increased 56% on strength of power generation equipment sales in North America 13
  • 14. Cash Flow Q407 Q406 Operating Cash Flow ($M) 287 227 Capital Expenditures ($M) 171 97 Pension Funding ($M) 106 112 Share Repurchase ($M) 125 45 Working Capital (% of Net Sales) 17.3% 16.9% Cash flow strategy to maintain a strong balance sheet, including funding our liabilities; investing in profitable growth; and returning value to our shareholders Working capital net cash inflow of $11 million in Q407 compared to net cash outflow of $10 million in Q406 Repurchased 2.1 million shares (split-adjusted) during the quarter 14
  • 15. Guidance for 2008 Consolidated Results Item Full Year Guidance Revenue Up 12% Earnings from Joint Ventures Up 5 – 10% EBIT Margin (%) 10% Effective Tax Rate 35% Capital Expenditures ($M) $550 to $600 Global Pension Funding ($M) $95 to $105 15
  • 16. Forecasting 12% Growth in Revenue 14,900 14,400 Revenue ($ M) 13,900 13,400 12,900 12,400 2007 Volume Distributor Price New Products 2008 Acquisition and Consolidation 16
  • 17. 10% EBIT Margin Yields Nearly 20% Profit Growth 13% 12% EBIT (% of Net Sales) 11% 10% 9% 8% 2007 Overhead Price Cost Investment 2008 Leverage Reduction in Growth 17
  • 18. Guidance for 2008 Segment Results Power Item Engine Components Distribution Generation Revenue Up 5-10% Up 10-15% Up 17-22% Up 20-25% Slightly Slightly Slightly Between EBIT Relative Below 8.5% Above 10% Below 11% to Target 6-7% target target target 18
  • 19. Thank You for Your Interest in Cummins We will now take your questions. Contact Information: Dean Cantrell Director – Investor Relations (812) 377-3121 Investor_Relations@Cummins.com www.cummins.com 19
  • 20. Appendix
  • 21. Cummins Inc. 2007 Revenue by Segment Components Macro growth trends Segment 19% play to Cummins’ Engine strengths Segment 52% Disciplined Distribution Segment 10% investment for growth Demonstrated technology leadership Power Gen Segment 19% FYE 2007 Data Sales: $13.0 billion EBIT: $1,227 million EBIT Margin: 9.4% 21
  • 22. Cummins Inc. 2007 Revenue by Marketing Territory Africa/Middle East International revenue Canada 5% 3% is 54% of consolidated revenue in 2007 Mexico/Latin America Most international 9% areas growing at double digit rate United States Asia/Australia Demonstrates our 46% 19% geographic diversity Europe/CIS 18% 22
  • 23. Cummins – Historical Performance Sales EBIT $13,048 $14,000 $1,400 $1,227 $1,179 $12,000 $1,200 $11,362 $9,918 $10,000 $1,000 $907 $8,438 $ Millons $ Millons $8,000 $800 $6,296 $543 $6,000 $600 $4,000 $400 $181 $2,000 $200 $0 $0 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 23
  • 24. Engine Segment 2007 Revenue by Product Emission regulations create opportunities Midrange Parts and (3-9L) 40% Emerging markets Service 21% Strategic OEM partnerships New engine platforms Aftermarket revenue creates stable earnings High Horsepower (19-91L) 17% FYE 2007 Data Heavy-Duty Sales: $8.2 billion (10-15L) 22% EBIT: $589 million EBIT Margin: 7.2% 24
  • 25. Engine Segment 2007 Revenue by Market Application Gaining market share in Stationary Power 11% on-highway markets Heavy-duty truck 24% Industrial markets Mining/Rail Govt/O&G supported by non- Marine 15% residential construction and commodity markets Expanding capacity to meet growing demand Construction Medium-duty & Ag 18% Truck & bus 16% FYE 2007 Data Light-duty Sales: $8.2 billion Automotive EBIT: $589 million & RV 16% EBIT Margin: 7.2% 25
  • 26. Engines – Historical Performance Sales Segment EBIT $9,000 $800 $733 $8,182 $8,000 $7,511 $700 $6,657 $589 $7,000 $582 $600 $6,000 $5,424 $500 $5,000 $M $M $400 $328 $4,000 $3,582 $300 $3,000 $200 $2,000 $100 $62 $1,000 $0 $0 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 26
  • 27. Power Generation Segment 2007 Revenue by Product Capitalize on industry Alternators Commercial 20% growth 58% Leverage existing Rental market leadership 2% Establish leadership in all major markets Expand into new and Consumer 11% adjacent markets Power Electronics 4% FYE 2007 Segment Data Energy Sales: $3.1 billion Solutions 5% EBIT: $334 million EBIT Margin: 10.9% 27
  • 28. Power Generation – Historical Performance Sales Segment EBIT $3,500 $400 $3,060 $334 $350 $3,000 $300 $2,416 $2,500 $250 $220 $1,999 $2,000 $1,842 $200 $M $M $145 $150 $1,500 $1,329 $100 $60 $1,000 $50 $500 $0 ($19) $0 ($50) 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 28
  • 29. Components Segment 2007 Revenue by Product Specialty New products launched Filtration Air Intake 6% Industry leading Systems 9% technology Turbocharger 29% Capacity expansion Acoustic Grow with CMI and non- Exhaust 10% CMI engine volumes Leverage global distribution to grow aftermarket Engine Fuel Filtration Systems 17% 14% FYE 2007 Segment Data Catalytic Sales: $2.9 billion Exhaust EBIT: $153 million 15% EBIT Margin: 5.2% 29
  • 30. Components – Historical Performance Sales Segment EBIT $180 $3,500 $153 $160 $2,932 $3,000 $140 $2,500 $2,281 $120 $107 $2,000 $2,000 $100 $1,783 $89 $M $M $86 $84 $80 $1,500 $1,292 $60 $1,000 $40 $500 $20 $0 $0 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 30
  • 31. Distribution Segment 2007 Revenue by Product Service Continue acquisitions, 17% consolidations and Engines 21% integrations Leverage Cummins equipment growth World-class customer support Build capabilities – invest in growing regions Power Parts, Generation Filters, & FYE 2007 Segment Data 25% Consumables Sales: $1.5 billion 37% EBIT: $187 million EBIT Margin: 12.1% 31
  • 32. Distribution – Historical Performance Sales Segment EBIT $1,800 $200 $187 $180 $1,540 $1,600 $1,385 $160 $1,400 $144 $1,191 $140 $1,200 $120 $973 $107 $1,000 $M $M $100 $800 $79 $669 $80 $600 $60 $51 $400 $40 $200 $20 $0 $0 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 32
  • 33. Joint Venture Sales Unconsolidated Engines Distribution $2,500 $4,000 $3,435 $3,500 $1,940 $2,000 $3,000 $2,497 $1,474 $2,500 $1,500 $ Millions $ Millions $1,316 $1,232 $1,285 $2,000 $1,715 $529 $1,000 $1,500 $1,204 $1,029 $1,000 $500 $500 $0 $0 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 In 2003, sales from certain JVs (colored red above) were treated as unconsolidated; adoption of FIN 46R in 2004 required the company to consolidate the results of certain JVs. 33
  • 34. Joint Venture Sales Unconsolidated Power Generation Components $180 $200 $166 $162 $175 $180 $160 $160 $140 $130 $140 $120 $123 $105 $120 $110 $ Millions $ Millions $100 $94 $100 $80 $72 $72 $80 $60 $60 $40 $40 $20 $20 $0 $0 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 34
  • 35. Non-GAAP Reconciliations
  • 36. Non-GAAP Reconciliation – EBIT Three Months Ended Millions December 31, December 31, September 30, 2007 2006 2007 Segment EBIT $ 324 $ 303 $ 306 Less: Interest Expense $ 14 $ 20 $ 14 Earnings before income taxes and minority $ 310 $ 283 $ 292 interests We define EBIT as earnings before interest expense, provision for income taxes and minority interests in earnings of consolidated subsidiaries. We use EBIT to assess and measure the performance of our operating segments and also as a component in measuring our variable compensation programs. The table above reconciles EBIT, a non-GAAP financial measure, to our consolidated earnings before income taxes and minority interests, for each of the applicable periods. We believe EBIT is a useful measure of our operating performance for the periods presented as it illustrates our operating performance without regard to financing methods, capital structure or income taxes. This measure is not in accordance with, or an alternative for, accounting principles generally accepted in the United States of America (GAAP) and may not be consistent with measures used by other companies. It should be considered supplemental data. 36
  • 37. Non-GAAP Reconciliation – EBIT Years Ended Millions December 31, December 31, 2007 2006 Segment EBIT $ 1,227 $ 1,179 Less: Interest Expense $ 58 $ 96 Earnings before income taxes and minority $ 1,169 $ 1,083 interests We define EBIT as earnings before interest expense, provision for income taxes and minority interests in earnings of consolidated subsidiaries. We use EBIT to assess and measure the performance of our operating segments and also as a component in measuring our variable compensation programs. The table above reconciles EBIT, a non-GAAP financial measure, to our consolidated earnings before income taxes and minority interests, for each of the applicable periods. We believe EBIT is a useful measure of our operating performance for the periods presented as it illustrates our operating performance without regard to financing methods, capital structure or income taxes. This measure is not in accordance with, or an alternative for, accounting principles generally accepted in the United States of America (GAAP) and may not be consistent with measures used by other companies. It should be considered supplemental data. 37
  • 38. Non-GAAP Reconciliation – EBITDA Three Months Ended Millions December 31, December 31, September 30, 2007 2006 2007 Segment EBIT $ 324 $ 303 $ 306 Add back: Depreciation & Amortization $ 75 $ 74 $ 73 EBITDA $ 399 $ 377 $ 379 We define EBITDA as earnings before interest expense, provision for income taxes, minority interests in earnings of consolidated subsidiaries and depreciation and amortization expense. We believe EBIT is a useful measure of our operating performance for the periods presented as it illustrates our operating performance without regard to financing methods, capital structure, income taxes or depreciation methods. This measure is not in accordance with, or an alternative for, accounting principles generally accepted in the United States of America (GAAP) and may not be consistent with measures used by other companies. It should be considered supplemental data. 38
  • 39. Non-GAAP Reconciliation – EBITDA Years Ended Millions December 31, December 31, 2007 2006 Segment EBIT $ 1,227 $ 1,179 Add back: Depreciation & Amortization $ 290 $ 296 EBITDA $ 1,517 $ 1,475 We define EBITDA as earnings before interest expense, provision for income taxes, minority interests in earnings of consolidated subsidiaries and depreciation and amortization expense. We believe EBIT is a useful measure of our operating performance for the periods presented as it illustrates our operating performance without regard to financing methods, capital structure, income taxes or depreciation methods. This measure is not in accordance with, or an alternative for, accounting principles generally accepted in the United States of America (GAAP) and may not be consistent with measures used by other companies. It should be considered supplemental data. 39
  • 40. Non-GAAP Reconciliation – Cash From Operations Excluding Pension Contributions Years Ended Millions December 31, December 31, 2007 2006 Cash provided by operations $ 810 $ 840 Add back: pension contributions $ 250 $ 266 Cash provided by operations $ 1,060 $ 1,106 excluding pension contributions We believe cash provided by operations excluding pension contributions is a useful measure of our operating performance for the periods presented as it illustrates our operating performance without regard to funding decisions. This measure is not in accordance with, or an alternative for, GAAP and may not be consistent with measures used by other companies. It should be considered supplemental data. 40
  • 41. Non-GAAP Reconciliation – Net Assets December 31, December 31, Millions 2007 2006 Net assets for operating segments $ 4,434 $ 4,056 Liabilities deducted in computing net assets 3,759 3,510 Minimum pension liability excluded from net assets - (837) Pension and other postretirement liabilities (570) - Deferred tax assets not allocated to segments 546 710 Debt-related costs not allocated to segments 26 26 Total assets $ 8,195 $ 7,465 A reconciliation of net assets for operating segments to total assets in our Consolidated Financial Statements is shown in the table above. 41
  • 42. Non-GAAP Reconciliation – Equity Used for Return on Equity Calculation December 31, December 31, Millions 2007 2006 Equity used for return on equity calculation $ 3,409 $ 2,802 less Defined other postretirement benefits - 3 less Defined benefit pension plans 378 508 less Minimum pension liability adjustment - - Total shareholder’s equity $ 3,787 $ 3,313 A reconciliation of equity used for return on equity calculation to total shareholder’s equity in our Consolidated Financial Statements is shown in the table above. 42