Forward-looking Statements A. Foreign Exchange Rates B. Interest Rates C. Commodity Prices 17 These are representative of the Future Factors that could affect the outcome of the forward-looking statements. In addition, such statements could be affected by general industry and market conditions and growth rates, general domestic and international economic conditions, including interest rate and currency exchange rate fluctuations, and other Future Factors. The Company is exposed to fluctuation in commodity prices through the purchase of raw materials as well as contractual agreements with component suppliers. Given the historically volatile nature of commodity prices, this exposure can signifi- cantly impact product costs. The Company uses commodity swap agreements to partially hedge exposures to changes in copper and aluminum prices. Given a hypothetical, instanta- neous, 10 percent depreciation of the underlying commodity price, with prices then remaining fixed for a 12-month period, the Company would experience a loss of approximately  $1 million for the annual reporting period. This amount excludes the offsetting impact of decreases in commodity costs. The Company currently has in place three interest rate swaps that effectively convert fixed-rate debt into floating-rate debt. The objective of the swaps is to more efficiently balance borrowing costs and interest rate risk. A sensitivity analysis assumed a hypothetical, instantaneous, 100 basis-point parallel increase in the floating interest rate yield curve, after which rates remained fixed at the new, higher level for a one-year period. This change in yield curve would correspond to a  $4 million increase in interest expense for the one-year period.  This sensitivity analysis does not account for the change in  the CompanyGLYPH<213>s competitive environment indirectly related to changes in interest rates and the potential managerial action taken in response to these changes. Future Factors include increasing price and product competition by foreign and domestic competitors, including new entrants; rapid technological developments and changes; the ability to continue to introduce competitive new products on a timely, cost-effective basis; the mix of products; the achievement of lower costs and expenses; domestic and foreign governmental and public policy changes, including environmental regulations; protection and validity of patent and other intellectual property rights; reliance on large customers; technological, implementa- tion and cost/financial risks in increasing use of large, multi-year contracts; the cyclical nature of CumminsGLYPH<213> business; the outcome of pending and future litigation and governmental  proceedings; and continued availability of financing, financial instruments and financial resources in the amounts, at the times and on the terms required to support CumminsGLYPH<213> future business. This ManagementGLYPH<213>s Discussion and Analysis of Results of Operations and Financial Condition, other sections of this Annual Report and the CompanyGLYPH<213>s press releases, teleconfer- ences and other external communications contain forward-looking statements that are based on current expecta- tions, estimates and projections about the industries in which Cummins operates and managementGLYPH<213>s beliefs and assump- tions. Words, such as GLYPH<210>expects,GLYPH<211> GLYPH<210>anticipates,GLYPH<211> GLYPH<210>intends,GLYPH<211> GLYPH<210>plans,GLYPH<211> GLYPH<210>believes,GLYPH<211> GLYPH<210>seeks,GLYPH<211> GLYPH<210>estimates,GLYPH<211> variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guaran- tees of future performance and involve certain risks, uncertainties and assumptions (GLYPH<210>Future FactorsGLYPH<211>) which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. Cummins undertakes no obligation to update publicly any forward-looking statements, whether as  a result of new information, future events or otherwise. Due to its international business presence, the Company transacts extensively in foreign currencies. As a result, corporate earnings experience some volatility related to movements in exchange rates. In order to exploit the benefits  of global diversification and naturally offsetting currency positions, foreign exchange balance sheet exposures are aggregated and hedged at the corporate level through the  use of foreign exchange forward contracts. The objective of  the foreign exchange hedging program is to reduce earnings volatility resulting from the translation of net foreign exchange balance sheet positions. A hypothetical, instantaneous,  10 percent adverse movement in the foreign currency exchange rates would decrease earnings by approximately  $4 million in the current reporting period. The sensitivity  analysis ignores the impact of foreign exchange movements  on CumminsGLYPH<213> competitive position as well as the remoteness of the likelihood that all foreign currencies will move in tandem against the U.S. dollar. The analysis also ignores the offsetting impact on income of the revaluation of the underlying balance sheet exposures.