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  • 1. First Quarter 2008 Earnings Teleconference April 30, 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 3 of our 2007 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. Confident in our ability to perform in 2008 and beyond Macro growth trends play to Cummins’ strengths Demonstrated technology leadership Disciplined investment for growth 4
  • 5. Demand for Energy and Fuel Efficiency Energy independence and fuel economy Dependence on reliable electric supply Higher fuel costs and electricity consumption 5
  • 6. Tougher Global Emission Standards Off- highway 2011-14 Europe 2009 China US / 2010 Canada 2010 Australia 2008 India Mexico Brazil 2010 2008 2009 6
  • 7. Robust and Sustainable GDP Growth CIS Turkey GDP 6-7% GDP 5% China GDP 9-11% Nigeria Vietnam GDP 7% GDP 7-8% India GDP 8% 7
  • 8. Targets Sales growth: 12% Cummins Inc. EBIT margin: 10% ROANA: 25% Selected Financial Data ROE: 20% Change Change $ Millions Q108 Q107 Amount Percent Sales 3,474 2,817 657 23% EBIT 315 243 72 30% % of Sales 9.1% 8.6% ROANA (LTM) 30% 31% ROE (LTM) 21% 24% EBIT growing faster than sales Gaining market share due to our technology leadership Investing in profitable growth opportunities in each operating segment, and in domestic and international markets 8
  • 9. Cummins Inc. Selected Income Statement Data Q108 Q107 Net Earnings ($M) 190 143 Earnings Per Share $0.97 $0.71 Warranties Issued (% of Net Sales) 3.1% 2.8% Gross Margin (% of Net Sales) 20.4% 19.6% SAR (% of Net Sales) 13.1% 12.9% Improved gross margin due to price realization, volume shift to larger engines, cost reduction programs and greater production efficiencies Unfavorable adjustment for prior period warranty estimates of 95 bps in Q1’08, half of which is related to older pre-2007 products; favorable adjustment in Q1’07 of 50 bps SAR up slightly due to investment in infrastructure to support growth 9
  • 10. Targets Engine Segment Sales growth: 13% EBIT margin: 8.5% Selected Financial Data Change Change $ Millions Q108 Q107 Amount Percent Sales 2,209 1,765 444 25% EBIT 194 128 66 52% % of Sales 8.8% 7.3% Record quarter for sales and EBIT Strong engine sales mainly due to market share gains in North America, and from strong international demand for construction, mining and marine equipment Gross margin improvement due to price realization on capacity constrained markets and favorable mix towards higher margin products 10
  • 11. Engine Segment Sales by Market – On-highway Change Change $ Millions Q108 Q107 Amount Percent Heavy-duty truck 536 424 112 26% Medium-duty truck and bus 397 206 191 93% Light-duty automotive/RV 275 288 (13) (5%) Total on-highway 1,208 918 290 32% North America Heavy-duty Truck engine shipments up 52% - better than market increase due to significant market share gains Global Medium-duty Truck shipments up 68% with strength in Brazil and Europe together with market share gains in North America Bus shipments up 60% on strength in Europe, China, and North America North America Light-duty Automotive shipments down 18% due to US economic uncertainty 11
  • 12. Engine Segment Sales by Market – Industrial Change Change $ Millions Q108 Q107 Amount Percent Total Industrial 732 617 115 19% Total revenues up in nearly all applications, primarily in international markets Global construction equipment sales up 14% driven by demand in East Asia, Europe, and Korea Worldwide mining revenue up 11% with growth in China, Russia, Latin America, and Australia Marine sales up 77% with successful launch of our Tier 2 product 15% increase in high-horsepower capacity above 30L in 2008 12
  • 13. Targets Distribution Segment Sales growth: 15% EBIT margin: 11% Selected Financial Data Change Change $ Millions Q108 Q107 Amount Percent Sales 445 309 136 44% EBIT 49 39 10 26% % of Sales 11.0% 12.6% Global demand remains strong in every geographic regions, including North America Acquisition of a distributor in North America added $37M in sales this quarter and, as expected, diluted EBIT as percent of sales Joint venture income increased 47 percent, mainly on strength of North America distributors 13
  • 14. Targets Components Segment Sales growth: 20% EBIT margin: 9% Selected Financial Data Change Change $ Millions Q108 Q107 Amount Percent Sales 820 657 163 25% EBIT 37 24 13 54% % of Sales 4.5% 3.7% Record quarter for revenue - growth in all businesses, particularly Emission Solutions (up $54M or 63%) and Turbo Technologies (up $88M or 49%) Filtration up $31M or 11%, excluding two business exited in 2007 Significant EBIT growth due to improvements in three of the four businesses New leadership in Emission Solutions focused on initiatives to improve manufacturing efficiency, product cost and pricing 14
  • 15. Targets Power Generation Sales growth: 15% EBIT margin: 10% Segment Selected Financial Data Change Change $ Millions Q108 Q107 Amount Percent Sales 787 675 112 17% EBIT 78 77 1 1% % of Sales 9.9% 11.4% Strong sales of commercial generator sets and alternator equipment across the globe Weakening RV market in North America led to lower Consumer revenues Increases in gross margin due to net price realization were offset by investments in sales force and infrastructure to support global market growth 15
  • 16. Joint Venture Income $ Millions Q108 Q107 Engine 33 17 On-highway 21 9 Off-highway 8 5 Rec. Marine 4 3 Power Generation 5 3 Distribution 25 17 Components 4 (1) Total JV Income 67 36 Engine joint venture income up primarily due to strengthening Chinese on- highway truck market during Euro 3 transition Distribution increased 47% on strength of engine and power generation equipment sales in North America 16
  • 17. Cash Flow Q108 Q107 Operating Cash Flow ($M) 37 (113) Capital Expenditures ($M) 90 48 Pension Funding ($M) 17 61 Share Repurchase ($M) 11 13 Working Capital (% of Net Sales) 19.0% 20.0% Cash flow strategy to maintain a strong balance sheet, including funding our liabilities; investing in profitable growth; and returning value to our shareholders Operating cash flow $150M better mainly due to higher earnings and accrued expenses and lower pension contributions 17
  • 18. Guidance for 2008 Consolidated Results Item Full Year Guidance Revenue Up 12% Earnings from Joint Ventures Up 5-10% EBIT Margin (%) 10% Effective Tax Rate 34% Capital Expenditures ($M) $550 to $600 Global Pension Funding ($M) $90 to $100 Guidance revised upward Guidance revised downward Change to range of guidance 18
  • 19. Guidance for 2008 Segment Results Power Item Engine Components Distribution Generation Revenue Up 10-15% Up 10-15% Up 17-22% Up 25-30% Slightly Slightly Low End EBIT Relative Close to Above 10% Below 11% to Target 8.5% target 6-7% target target 19
  • 20. Guidance for 2008 Engine Markets Shipments to North American Class 8 Heavy- duty truck up 35 to 40 percent despite flat OEM truck build Shipments to the global Medium-duty Truck and Bus markets to grow 25 to 30 percent Shipments to Light-duty Automotive & RV decline by 15 to 20 percent Industrial revenue up 20 to 25 percent Aftermarket revenue up 8 to 10 percent 20
  • 21. 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 21
  • 22. Appendix
  • 23. Cummins Inc. Q1 2008 LTM Revenue by Segment Components Macro growth trends Segment 19% play to Cummins’ Engine strengths Segment 52% Disciplined investment Distribution Segment 10% for growth Demonstrated technology leadership Power Gen Segment 19% Q1 2008 LTM Data Sales: $13.7 billion EBIT: $1,299 million EBIT Margin: 9.5% 23
  • 24. Cummins Inc. Q1 2008 LTM Revenue by Marketing Territory Africa/Middle East Canada 5% 3% International revenue is 55% of consolidated Mexico/Latin America revenue 9% Most international areas growing at double digit United States Asia/Australia rate 45% 20% Demonstrates our geographic diversity Europe/CIS 18% 24
  • 25. Cummins – Historical Performance Sales EBIT $16,000 $1,400 $1,299 $13,705 $1,227 $1,179 $14,000 $13,048 $1,200 $11,362 $12,000 $1,000 $907 $9,918 $10,000 $ Millons $ Millons $8,438 $800 $8,000 $543 $600 $6,000 $400 $4,000 $200 $2,000 $0 $0 2004 2005 2006 2007 Q1'08 2004 2005 2006 2007 Q1'08 LTM LTM 25
  • 26. Engine Segment Q1 2008 LTM Revenue by Product Emission regulations create opportunities Midrange Parts and Emerging markets (3-9L) 40% Service 22% Strategic OEM partnerships New engine platforms Aftermarket revenue creates stable earnings High Horsepower (19-91L) 17% Q1 2008 LTM Segment Data Heavy-Duty Sales: $8.6 billion (10-15L) 21% EBIT: $655 million EBIT Margin: 7.6% 26
  • 27. Engine Segment Q1 2008 LTM Revenue by Market Application Gaining market share in Stationary Power 11% on-highway markets Heavy-duty Industrial markets truck 24% Mining/Rail supported by non- Govt/O&G Marine 15% residential construction and commodity markets Expanding capacity to meet growing demand Construction Medium-duty & Ag 18% Truck & bus 17% Q1 2008 LTM Segment Data Light-duty Sales: $8.6 billion Automotive EBIT: $655 million & RV 15% EBIT Margin: 7.6% 27
  • 28. Engines – Historical Performance Sales Segment EBIT $10,000 $800 $733 $8,626 $9,000 $700 $8,182 $655 $8,000 $7,511 $589 $582 $600 $6,657 $7,000 $500 $6,000 $5,424 $M $M $5,000 $400 $328 $4,000 $300 $3,000 $200 $2,000 $100 $1,000 $0 $0 2004 2005 2006 2007 Q1'08 2004 2005 2006 2007 Q1'08 LTM LTM 28
  • 29. Power Generation Segment Q1 2008 LTM Revenue by Product Capitalize on industry Alternators Commercial 20% growth 59% Leverage existing Rental market leadership 2% Establish leadership in all major markets Expand into new and Consumer 11% adjacent markets Power Electronics 3% Q1 2008 LTM Segment Data Energy Sales: $3.2 billion Solutions EBIT: $335 million 5% EBIT Margin: 10.6% 29
  • 30. Power Generation – Historical Performance Sales Segment EBIT $3,500 $400 $3,172 $3,060 $335 $334 $350 $3,000 $300 $2,416 $2,500 $250 $1,999 $220 $2,000 $1,842 $M $M $200 $1,500 $145 $150 $1,000 $100 $60 $500 $50 $0 $0 2004 2005 2006 2007 Q1'08 2004 2005 2006 2007 Q1'08 LTM LTM 30
  • 31. Components Segment Q1 2008 LTM Revenue by Product Specialty New products launched Filtration Air Intake Industry leading 5% Systems technology 9% Turbocharger Capacity expansion 31% Acoustic Grow with CMI and non- Exhaust 9% CMI engine volumes Leverage global distribution to grow aftermarket Engine Fuel Filtration Systems 16% 14% Q1 2008 LTM Segment Data Catalytic Sales: $3.1 billion Exhaust EBIT: $166 million 16% EBIT Margin: 5.4% 31
  • 32. Components – Historical Performance Sales Segment EBIT $180 $3,500 $166 $3,095 $153 $160 $2,932 $3,000 $140 $2,500 $2,281 $120 $107 $2,000 $2,000 $1,783 $100 $89 $M $M $84 $80 $1,500 $60 $1,000 $40 $500 $20 $0 $0 2004 2005 2006 2007 Q1'08 2004 2005 2006 2007 Q1'08 LTM LTM 32
  • 33. Distribution Segment Q1 2008 LTM Revenue by Product Continue acquisitions, Service 17% consolidations and Engines integrations 21% Leverage Cummins equipment growth World-class customer support Build capabilities – invest in growing regions Power Parts, Generation Filters, & Q1 2008 LTM Segment Data 26% Consumables Sales: $1.7 billion 36% EBIT: $197 million EBIT Margin: 11.8% 33
  • 34. Distribution – Historical Performance Sales Segment EBIT $1,800 $250 $1,676 $1,540 $1,600 $197 $1,385 $200 $187 $1,400 $1,191 $1,200 $144 $150 $973 $1,000 $M $M $107 $800 $100 $79 $600 $400 $50 $200 $0 $0 2004 2005 2006 2007 Q1'08 2004 2005 2006 2007 Q1'08 LTM LTM 34
  • 35. Non-GAAP Reconciliations
  • 36. Non-GAAP Reconciliation – EBIT Three Months Ended Millions March 30, December 31, April 1, 2008 2007 2007 Segment EBIT $ 315 $ 324 $ 243 Less: Interest Expense $ 11 $ 14 $ 16 Earnings before income taxes and minority $ 304 $ 310 $ 227 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 – EBITDA Three Months Ended Millions March 30, December 31, April 1, 2008 2007 2007 Segment EBIT $ 315 $ 324 $ 243 Add back: Depreciation & Amortization $ 75 $ 75 $ 68 EBITDA $ 390 $ 399 $ 311 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. 37
  • 38. Non-GAAP Reconciliation – Cash From Operations Excluding Pension Contributions Three Months Ended Millions March 30, April 1, 2008 2007 Cash provided by operations $ 37 $ (113) Add back: pension contributions $ 17 $ 61 Cash provided by operations $ 54 $ (52) 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. 38
  • 39. Non-GAAP Reconciliation – Net Assets March 30, April 1, Millions 2008 2007 Net assets for operating segments $ 4,513 $ 4,041 Liabilities deducted in computing net assets 3,898 3,516 Pension and other postretirement liabilities (361) (824) Deferred tax assets not allocated to segments 549 689 Debt-related costs not allocated to segments 26 26 Total assets $ 8,625 $ 7,448 A reconciliation of net assets for operating segments to total assets in our Consolidated Financial Statements is shown in the table above. 39
  • 40. Non-GAAP Reconciliation – Equity Used for Return on Equity Calculation March 30, April 1, Millions 2008 2007 Equity used for return on equity calculation $ 3,981 $ 3,480 less Defined other postretirement benefits 1 5 less Defined benefit pension plans 372 538 Total shareholder’s equity $ 3,608 $ 2,937 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. 40