COLUMBUS, Ind. — Cummins Inc. has reported its fifth consecutive year of record sales and profits, despite significant global economic challenges that negatively affected fourth quarter performance.

For the year, sales increased 10 percent to $14.34 billion, from $13.05 billion in 2007. Net income rose 8 percent to $801 million, or $4.08 per share, compared to $739 million or $3.70 per share the previous year. Earnings Before Interest and Taxes (EBIT) were $1.29 billion, or 9 percent of sales, compared to $1.23 billion, or 9.4 percent of sales.

Net income included a $37 million pre-tax charge (13 cents a share) to cover the costs associated with job reductions in the fourth quarter that included reducing its professional workforce by nearly 650 people. Excluding this charge, EBIT was $1.33 billion, or 9.3 percent of sales.

Fourth quarter sales fell 6 percent to $3.29 billion compared to $3.52 billion during the same period in 2007. Net income dropped to $89 million or 45 cents a share, from $198 million, or $1 a share a year ago, while EBIT decreased to $129 million, or 3.9 percent of sales, from $324 million, or 9.2 percent of sales. Excluding the restructuring charge, EBIT was $166 million, or 5 percent of sales.

Sales declines in the company’s engine and components segments, driven by sharp demand drops in the global truck and construction markets, more than offset gains in power generation and distribution. All four segments, however, experienced weakening demand during the course of the quarter. The company’s financial performance in the quarter also was negatively affected by lower joint venture income and the impact of a strengthening U.S. dollar.

“Given our record-setting performance during the first nine months of the year, the rapid drop in demand in the fourth quarter as a result of the global recession was a major disappointment,” said Cummins Chairman and Chief Executive Officer Tim Solso. “At the same time, we moved quickly to lower our costs and tightly manage our capital spending, and already have taken further action in early 2009.”

In January, Cummins announced that it will reduce its worldwide professional workforce by at least an additional 800 people by March 1 and freeze pay for most salaried workers. In addition, the company’s officers had their pay reduced by 10 percent for 2009. By the end of March, the company will have reduced its global workforce by more than 1,400 salaried professionals and more than 1,300 hourly manufacturing plant employees – or about 6 percent of its total workforce – since the beginning of the fourth quarter 2008. During that time, Cummins has taken a number of other steps to align its costs with the current and expected future demand for its products.

Based on its latest market forecast and the expectation the global economy will not improve in 2009, Cummins today is providing sales and EBIT guidance that is below the company’s 2008 performance. Cummins expects sales in 2009 to be approximately 20 percent lower than 2008, and to earn an EBIT margin of 6.5 percent of sales, excluding restructuring costs associated with the actions announced in the first quarter of 2009.

Sales are forecast to drop across all business segments, with the largest decline expected to come from the components and engine segments. All business segments, however, are expected to be profitable in 2009 and the company will continue to aggressively reduce costs while investing in key growth opportunities.

Despite the difficult economic climate, the company’s balance sheet remains strong with low debt, healthy cash reserves and access to a $1.1 billion credit revolver. Cash generation and investment in future products, such as those to meet new U.S. emissions standards in 2010, and to support customer requirements will be a priority in 2009. In light of the current economic conditions, the company also has suspended its stock repurchase program but remains committed to maintaining its current dividend.

“We are in an extraordinarily challenging period, and while we don’t expect overall economic conditions to improve in 2009, we entered this recession in the strongest financial position in the company’s history,” Solso said. “Our experienced management team understands what it takes for Cummins to be successful in difficult times, and I am confident that we will do the hard work and make the difficult decisions necessary to emerge from this downturn well positioned to resume our recent history of profitable growth.”