Financial Overview

(in million dollars)

	FY2008	FY2007	Rate of change (%)	Factors
Engine	8,810	8,182	7.7	See factor 1
Component	3,152	2,932	7.5	See factor 2

Factor 1
Engine segment sales increased primarily due to the following drivers.
-Heavy-duty sales increased primarily due to an increase in the Company's market share in the North American (includes the U.S. and Canada and excludes Mexico) heavy-duty truck markets, increased Mexican heavy-duty truck sales in the first six months of 2008 resulting from the pre-buy activity ahead of Mexico's July 1, 2008, new emissions requirements and weaker demand in the first six months of 2007 resulting from the 2006 pre-buy to replace trucks ahead of the 2007 emissions regulations change.
-Medium-duty trucks sales increased due to increased demand in global medium-duty truck markets, primarily due to the Company's market share increases in the North American medium-duty truck market, weaker demand in the first six months of 2007 resulting from the 2006 pre-buy to replace trucks ahead of the 2007 emissions regulations change and strong demand in Latin America driven by strong economic conditions in Brazil in 2008.

-These increases were partially offset by a 50 percent decline in units sold to Chrysler. This decline was due to the deteriorating demand for light duty trucks in North America as the result of the softening U.S. economy and concerns over fuel prices earlier in the year.

-Total on-highway-related sales were 53 percent of total engine segment sales in 2008, compared to 56 percent in 2007.

Factors 2
Components segment sales increased primarily due to the following drivers.
-Turbocharger business sales increased due to strong growth in North America, Europe and China, partially due to pre-buy activity in advance of new Euro III emissions standards, which fueled domestic sales in China.
-Emissions solutions business sales increased due to strong sales in North America as the result of price increases and North American market share gains.

-These increases were partially offset by the sale of Universal Silencer and the discontinuance of a product line in 2007, which contributed a combined $75 million in sales in the year ended December 31, 2007.


Contract
-In June 2008, the Company and Navistar International Corporation announced that they have extended their engine supply agreement for class 8 on-highway diesel engines through 2013. The agreement provides for the ongoing supply of Cummins ISL, ISM and ISX engines for use in Internationalﾂｮ brand class 8 trucks. As part of the long-term agreement, beginning in 2010, Cummins will be Navistar's exclusive supplier for 15- and 16-liter big bore diesel engines (Cummins ISX) for Navistar's Internationalﾂｮ trucks in North America. Cummins engines in 2010 will incorporate an integrated technology solution that includes the XPI High Pressure Common Rail (HPCR) fuel system, next generation Cooled Exhaust Gas Recirculation (EGR), advanced electronic controls, proven air handling and the Cummins Particulate Filter. (From a press release on Jun 16, 2008)


Acquisition and Divestiture
-In July 2007, the Compay announced that it has concluded its joint ventures with CNH Global N.V. (CNH) and Iveco N.V., two Fiat Group companies. Under the new agreement, Cummins will purchase CNH's 50 percent interest in Consolidated Diesel Company (CDC). CDC will become a wholly-owned entity of Cummins. And the Company will sell its one-third interest in the European Engine Alliance (EEA) to Fiat Powertrain Technologie. EEA was established in 1996 as a joint venture between Cummins and two Fiat Group companies, Iveco N.V. and New Holland, which is now CNH Global N.V. (From a press release on Jul 18, 2008)

R&D Expenditure

(in million dollars)

	FY2008	FY2007	FY2006
Engine	286	222	225
Power Generation	41	34	28
Components	95	73	68
Total	422	329	321

R&D Structure
-The Company operates 17 technical centers around the world.


Product Development
-In March 2008, Cummins Filtration introduces the next generation of air filtration technology with its Fleetguard Direct Flow(TM) Series engine air cleaner. The unique design provides significant reduction in size, allowing it to fit into areas conventional air cleaners do not. Direct Flow邃｢ air technology delivers numerous competitive benefits, including higher performance, increased engine protection, improved handling and greater installation flexibility, lower operating costs, and environmentally friendly service filter disposal as it contains no metal components. This patented product fits a broad range of applications, including on and off highway vehicles, stationary compressor equipment, marine and offshore equipment. The primary filter is made from a highly optimized media arrayed in an efficiently pleated design that is over 99.9 percent efficient during the life of the filter. (From a press release on Mar. 12, 2008)

Capital Expenditure

(in million dollars)

	FY2008	FY2007	FY2006
Engine	331	189	125
Power Generation	57	51	45
Components	139	99	70
Distribution	16	14	9
Total	543	353	249

Overseas investment
-In April 2008, the Company announced the opening of its first fuel systems manufacturing site outside of North America, the Cummins Fuel Systems Wuhan Plant. Wuhan, Hubei Province, also is home to a regional Cummins service center and a technical center joint venture owned by Cummins and Dongfeng Motor Company. Cummins has made an initial investment of $10 million into the plant, which will manufacture Cummins Common Rail fuel pumps and CELECT injectors/fuel pumps, primarily for the China market. The Cummins Fuel Systems Wuhan Plant joins Cummins Turbo Technologies (formerly Holset) and Cummins Filtration (formerly Fleetguard) to become the third Cummins components business unit with local production in the China diesel market. (From a press release on Apr. 8, 2008)