Download - cmi_050926
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A New CumminsA New Cummins
Tim SolsoChairman and Chief Executive Officer
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Disclosure Regarding Forward-Looking Statements & non-GAAP Financial MeasuresDisclosure 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 59 of our 2004 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 EBIT to GAAPfinancial measures.
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Cummins Management TeamCummins Management TeamExecutive Committee• Joe Loughrey President & Chief Operating Officer• Jean Blackwell Executive Vice President & Chief Financial Officer• John Wall Vice President & Chief Technical Officer• Tom Linebarger Executive Vice President & President – Power Generation• Mark Gerstle Vice President – Corporate Quality & Chief Risk Officer
Engines• Jim Kelly Vice President & President – Engine Business• Ed Pence Vice President & General Manager – Heavy-duty Engine• Dave Crompton Vice President & General Manager – MidRange Engine• Mark Levett Vice President & General Manager – HHP Engine• Christine Vujovich Vice President – Marketing & Environmental Policy
Power Generation• Tony Satterthwaite Vice President – Worldwide Commercial Gensets
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Cummins Management TeamCummins Management TeamComponents• Rick Mills Vice President & President – Components Group• Pamela Carter Vice President & President – Fleetguard/Nelson• Ray Amlung General Manager – Fuel Systems Business• Paul Ibbotson Vice President & Managing Director – Holset Turbochargers• Mike Cross Vice President & General Manager – Emission Solutions Business
Distribution• Rich Freeland Vice President & President – Worldwide Distribution
Emerging Markets• Steve Chapman Group Vice President - Emerging Markets and Businesses• Anant Talaulicar Vice President & Managing Director – Cummins India Ltd. • John Watkins Vice President & Managing Director – Cummins East Asia ABO
Corporate• Richard Harris Vice President – Treasurer • Marsha Hunt Vice President – Corporate Controller
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Delivering on CommitmentsDelivering on Commitments
Revenue Growth 8% -10%EBIT Margin 6% - 9%Cap Ex < D&ADebt to Capital Ratio 35% - 45%Investment Grade 2005
ROE 15%
Target 2005LTM
9.5%7.7%67% of D&A43%S&P BBB-Moody Ba126%
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Delivering on CommitmentsDelivering on Commitments
50
100
150
200
250
300
350
400
Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05
Sto
ck P
ric
e In
dex
Average Total Shareholder
Return for 2003/04
77.4%
CMI S&P 500 Peer Avg.
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Delivering on CommitmentsDelivering on Commitments
• Six Sigma
• Market share gains
• Best products
• Recognition
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• Leverage Complementary Businesses
• Create Shareholder Value
• Low-Cost Producer
• Grow in Related Markets
• Performance Ethic
• Increase Profitability and Cash Flow
• Reduce Debt and Invest in Growth
• Create Shareholder Value
Key Strategic Principles
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P/E Valuation – Opportunity P/E Valuation – Opportunity
10
14
9
13
1815
0
5
10
15
20
1999 2004 2005
P/E
Mul
tiplie
r
CMI Peer Group
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Investment CommunityInvestment Community
• Cyclicality
• Cash management
• OEM vertical integration
• ’07 emission impact
• Volatility in performance
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Growing Stable Diversified EarningsGrowing Stable Diversified Earnings
Cyclical EBIT Stable & Diversified EBIT
$543M$316M
* Excludes restructuring charges
1999 EBIT* 2004 EBIT
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Growing International SalesConsolidated Net SalesGrowing International SalesConsolidated Net Sales
1999
9%
US
EuropeAsia
Canada
Mexico / Latin America
Africa / Middle East
Australia
2004
14%
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US
EuropeAsia
Canada
Mexico / Latin America
Africa / Middle East
Australia
Growing International SalesConsolidated & Unconsolidated Net SalesGrowing International SalesConsolidated & Unconsolidated Net Sales
1999 2004
11%
20%
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Emerging MarketsEmerging Markets
Consolidated Net Sales
Unconsolidated JV Net Sales
14% CAGR
35% CAGR
China
0
200
400
600
800
1,000
1,200
2000 2001 2002 2003 2004
US$
Mill
ions
India
0
100
200
300
400
500
600
700
2000 2001 2002 2003 2004
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N. America Heavy-duty TruckTotal RevenueN. America Heavy-duty TruckTotal Revenue
NA HD Truck Original Equipment Sales
Sales to All Other Markets
1999
81%
19%
2004
86%
14%
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Growth in Chrysler ShipmentsGrowth in Chrysler Shipments
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
1988 1990 1992 1994 1996 1998 2000 2002 2004
24% CAGR
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Distribution Ownership – 1999 Distribution Ownership – 1999
Company-owned
Joint Venture
Independent
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Distribution Ownership – TodayDistribution Ownership – Today
Company-owned
Joint Venture
Independent
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Profitable Joint Venture GrowthProfitable Joint Venture Growth
Number of JV's
0
5
10
15
20
25
30
35
40
1999 2004
Earnings from JV's
-40
-20
0
20
40
60
80
100
120
1999 2004
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A New CumminsA New Cummins
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Creating Shareholder ValueCreating Shareholder Value
Jean BlackwellChief Financial Officer
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A New CumminsA New Cummins
5.1%2.0%PAT %
$ 130m$ (27m)JV Income
$10.10 - $10.30*$ 3.41EPS
26%10%ROE
24%11%ROANA
$ 715m$ 260mEBIT
$ 9,241m$ 6,639mSales
2005 LTM1999
*2005 Guidance ($9.60 EPS LTM)
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Financial PlatformFinancial Platform
Focused Cash Management
ReducingCyclicality
EarningsGrowth
Creating Shareholder
Value
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Financial PlatformFinancial Platform
Creating Shareholder
Value
Focused Cash Management
ReducingCyclicality
EarningsGrowth
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Turning Sales into Higher EarningsTurning Sales into Higher Earnings
Total Sales
LTM
$6,639 $6,597$5,681 $5,853 $6,296
$8,438$9,241
($4,000)
($2,000)
$0
$2,000
$4,000
$6,000
$8,000
$10,000
1999 2000 2001 2002 2003 2004 2005
Total Sales
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Total Sales and Net Earnings
Turning Sales into Higher EarningsTurning Sales into Higher Earnings
LTM
$6,639 $6,597$5,681 $5,853 $6,296
$8,438$9,241
($4,000)
($2,000)
$0
$2,000
$4,000
$6,000
$8,000
$10,000
1999 2000 2001 2002 2003 2004 2005($240)($160)($80)$0$80$160$240$320$400$480$560
Total Sales Net Earnings
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21.0%
19.2%17.8% 17.9% 17.8%
19.9%20.7%
10.0%
15.0%
20.0%
25.0%
1999 2000 2001 2002 2003 2004 2005
Growing MarginGrowing Margin
Gross Margin
LTM
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15.7% 15.4%
16.6%16.0%
16.4%
14.9% 14.6%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
1999 2000 2001 2002 2003 2004 2005
Controlling ExpensesControlling Expenses
Selling, Administrative and R&D Expense
LTM
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($27)
$7 $10$22
$70
$111
$130
($40)
($20)
$0
$20
$40
$60
$80
$100
$120
$140
1999 2000 2001 2002 2003 2004 2005
Mill
ions
USD
Generating More from JVsGenerating More from JVs
Income from Joint Ventures
LTM
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3.9%
1.4%
-0.8%
2.4%2.9%
6.4%
7.7%
-2.0%-1.0%0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%9.0%
1999 2000 2001 2002 2003 2004 2005
EBIT as % of Sales Target EBIT as % of Sales
Growing EBITGrowing EBIT
Earnings Before Interest and Income Tax
LTM
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$3.41
$0.35
($2.70)
$2.13$1.27
$7.39
$10.10 - $ 10.30
($4.00)
($2.00)
$0.00
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
1999 2000 2001 2002 2003 2004 2005
Increasing Earnings per ShareIncreasing Earnings per Share
Guidance for 2005
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10.00%
1.10%
-8.60%
6.90%3.80%
21.30%25.80%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
1999 2000 2001 2002 2003 2004 2005
Return on Equity Target Return on Equity
Improving Return on EquityImproving Return on Equity
LTM
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Setting New TargetsSetting New Targets
Cummins
Sales Growth
EBIT
ROANA
8 % - 10 %
6 % - 9 %
18 %
ROE 15 %
Debt to Capital 35 % - 45%
7 % - 10 %
22 %
18 %
30 % - 40%
8 % - 10 %
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Looking for the FutureLooking for the Future
Sales$ 13.5 - $ 15 B
EBIT
With those targets, here is the view of Cummins in 2010….
$ 950 - $ 1,500 M
$ 9.2 B
$ 715 M
2005 LTM 2010
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Financial PlatformFinancial Platform
Creating Shareholder
Value
Focused Cash Management
ReducingCyclicality
EarningsGrowth
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Balancing Revenue and Income SourcesBalancing Revenue and Income Sources
• All businesses are profitable
• Less cyclical businesses growing faster
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Heavy Duty Engine BusinessHeavy Duty Engine Business
Revenue $1.18B $2.3B
EBIT From loss to significant contribution
NA Market Share 21% 26%
Build Rate 135/day 405/day
PED 8.6 3.8
Inventory Turns 30.2 37.0
Consolidation Savings > $30M annually
Low Point 2005LTM
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Heavy Duty Engine BusinessHeavy Duty Engine Business
Revenue $1.18B $2.3B
EBIT From loss to significant contribution
NA Market Share 21% 26%
Build Rate 135/day 405/day
PED 8.6 3.8
Inventory Turns 30.2 37.0
Consolidation Savings > $30M annually
Break Even
Low Point 2005LTM
Reducedmore than 50%
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Increasing Global PresenceIncreasing Global Presence
Total Sales
LTM
61% 57%54% 55% 53%
52% 50%
39% 43%
46% 45%47%
48%50%
$0$1,000$2,000$3,000$4,000$5,000$6,000
$7,000$8,000
$9,000$10,000
1999 2000 2001 2002 2003 2004 2005
Mill
ions
USD
United States International
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Financial PlatformFinancial Platform
Creating Shareholder
Value
Focused Cash Management
ReducingCyclicality
EarningsGrowth
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$307
$472
$152$193
$158
$614
$517
$0
$100
$200
$300
$400
$500
$600
$700
1999 2000 2001 2002 2003 2004 2005
Mill
ions
US
DGenerating More Cashfrom OperationsGenerating More Cashfrom Operations
Operating Cash Flow
LTM
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$75 $64$94
$298
$195
$673
$457
$0
$100
$200
$300
$400
$500
$600
$700
$800
1999 2000 2001 2002 2003 2004 2005
Mill
ions
US
DCreating a Strong Cash PositionCreating a Strong Cash Position
Cash and Marketable Securities
*Balance as of June’05
*
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Cash PrioritiesCash Priorities
• Operational:
– Reducing debt
– Investing in the business
– Funding our liabilities
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$1,215 $1,197
$945
$1,137
$1,429
$1,626
$1,368
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800
1999 2000 2001 2002 2003 2004 2005
Deb
t in
mill
ions
USD
0%
10%
20%
30%
40%
50%
60%
70%
80%
Debt
to C
apita
l Rat
io
Reducing Debt LevelsReducing Debt Levels
Total Debt- 2005
* As of June’05
*
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$223
$304
$405
$271
$215 $228$206
$90$111
$151
$192
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Mill
ions
US
DUsing Capital WiselyUsing Capital Wisely
Capital Expenditures
LTM
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156%
204%
256%
92% 95% 90%
41% 50% 56%67%
136%
0%
50%
100%
150%
200%
250%
300%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Using Capital WiselyUsing Capital Wisely
CAPEX as % of Depreciation & Amortization
LTM
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4.3%
5.8%
7.2%
3.2% 3.5% 3.6%
1.8% 1.8% 2.1%
1.5%
4.3%
0%
1%
2%
3%
4%
5%
6%
7%
8%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Using Capital WiselyUsing Capital Wisely
CAPEX as % of Sales
LTM
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11.1%
19.7%
24.3%
4.1% 7.8%
-2.1%
6.5%
-5%
0%
5%
10%
15%
20%
25%
1999 2000 2001 2002 2003 2004 2005
Effective Balance Sheet ManagementEffective Balance Sheet Management
Return on Average Net Assets
LTM
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Funding LiabilitiesFunding Liabilities
Pensions
• Exceeded statutory contributionsfor past 5 years
• Changed retirement plan structure beginning in 1997
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$20
$137 $127
$113
$62
$81 $81
$0
$20
$40
$60
$80
$100
$120
$140
$160
1999 2000 2001 2002 2003 2004 2005
Mill
ions
US
D
Funding Pension ObligationsFunding Pension Obligations
LTM
Actual Funding
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Funding LiabilitiesFunding Liabilities
OPEB
• Capped future liabilities in 1991
• $80 million liability reduction expected from Medicare Bill in 2006
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• Operational– Reducing debt
– Investing in the business
– Funding our liabilities
• Returning value to shareholders– Dividends
– Share repurchase
Cash PrioritiesCash Priorities
$250m debt reduction ‘06
$100m repurchase
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Financial PlatformFinancial Platform
Creating Shareholder
Value
Focused Cash Management
ReducingCyclicality
EarningsGrowth
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Creating Shareholder ValueCreating Shareholder Value
50
100
150
200
250
300
350
400
Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05
Sto
ck P
rice
Inde
x Average Total Shareholder
Return for 2003/04
77.4%
CMI S&P 500 Peer Avg.
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Creating Shareholder ValueCreating Shareholder Value
Creating Shareholder
Value
Focused Cash Management
ReducingCyclicality
EarningsGrowth
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A New CumminsA New Cummins
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The Right TechnologyThe Right Technology
Dr. John WallVice President and
Chief Technical OfficerSeptember 26, 2005
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Cummins Technology TodayCummins Technology Today
Innovation + Productivity
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Cummins Technology TodayCummins Technology Today
Innovation– Emission technology best in world – Invested in right technologies– Stable architecture– System integration– Global presence – Best products for each market
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Cummins Technology TodayCummins Technology Today
Productivity– Six Sigma– Analysis Led Design– Global access
– R&E: 5% 3% sales
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Our Products Must Meet Customer Requirements
Low Initial Cost
Low Maintenance
ElectronicIntegration
Low Emissions
Reliable and Durable
High Performance
Fuel Efficient
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Diversity – Vehicles& Applications
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Product Architecture forThe Right Technology
• Develop broad range of modular technical building blocks– Analytical models– Product hardware and software
• Create integrated products tailored to meet customer needs– Low cost High feature content– On-highway Off-highway– North America India
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Power Generation System Architecture
SystemMaster Control
ControlsControls
Alternator
Networking Software
Load Transfer Switch
System Integration
Modular Noise Attenuation Enclosures
Emissions After Treatment
Builds on Cummins Synergies
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OptiAir
Patente
d Des
ign
Twist Loc
k
Patente
d Design
Modula
r Des
ign
Option
s
Aftermarket
Small Engine / Rec Vehicles
Heavy Duty / Off Road
Product Line Architecture in Filtration
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The Right Technology … for Emissions Control
• Integrating critical subsystems
– Combustion
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The Right Technology … for Emissions Control
• Integrating critical subsystems
– Combustion– Air handling
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The Right Technology … for Emissions Control
• Integrating critical subsystems
– Combustion– Air handling– Fuel systems
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The Right Technology … for Emissions Control
• Integrating critical subsystems
– Combustion– Air handling– Fuel systems– Electronic
controls– Aftertreatment
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The Right Technology … for Emissions Control
… to deliver best customervalue at low emissions
• Integrating critical subsystems
– Combustion– Air handling– Fuel systems– Electronic controls– Aftertreatment
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Fleetguard Emission Solutions• System platforms
– Mobile Selective Catalytic Reduction (SCR)
– Particulate Filtration– Euro 4 and EPA 07
• Current product sales– Over 1,500,000 MD/HD Diesel Oxidation
Catalysts– Over 10,000 Particulate Filters – No.1 in US retrofit market– Plants in US, UK, South Africa
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2002 HD Emission ControlFoundation for the Future
Charge Air Cooler
Variable GeometryTurbocharger
EGR
-Coo
ler
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2007 HD Emission Control
Charge Air Cooler
Variable GeometryTurbocharger
ExhaustFilter
EGR
-Coo
ler
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EGR and CGI
Charge Air Cooler
Variable GeometryTurbocharger
EGR
-Coo
ler
ExhaustFilter
EGR-Cooler
VariableValve
Mechanism
Charge Air Cooler
Charge A
ir Cooler
“CGI”
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2007 HD Emission Control
Charge Air Cooler
Variable GeometryTurbocharger
ExhaustFilter
EGR
-Coo
ler
Cummins EGR•Simple•Reliable•Cummins subsystems•Stable architecture
beyond 2010
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Summer 2004
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Winter 2004-5
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The Right Technology… for Industrial and Power Generation Engines
• Tier 3 : No EGR, No aftertreatment– Lowest cost engine
– Lowest cost installation
• Stable Architecture
=Tier 2 Tier 3
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The Right Technology … for Technical ProductivityThe Right Technology … for Technical Productivity
• Six Sigma
• Analysis Led Design
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Product Design
Process Improvement
Six Sigma Tools and Methodology
TDFSS
Technology Development
Six Sigma Tools for DevelopingThe Right Technology
DFSSProcess
Six Sigma
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2000
1900
1800
1700
1600
1500
1400
1300
1200
1100
1000
900
800
700
600
500
400
300
200
100
0
Design For Six Sigma TrainingD
esig
n f
or
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
L-1 22 L-2 23
L-3 20
L-3B 13
L-4 23
L-5 28
L- 6 25
V-LDA 17
Fltg -1 21
CCR 8
L-7 18
L-8 27
L- 9 29
L-10 26
CWI - 1 20
UK-1 25
PGG-1
Fltg -2 15
TDFSS-1
26
27
India -1 20
Brazil -1 18
Supply 51
Apr-04 32
Aug-04 30
Nov-04 44
TDFSS-2 33
CWI-2 10
UK-2
CRTI-1 10
26
Jan-05 30
Mar-05 33
CHS-05 25
Jul-05 31
Sep-05 31
Nov-05 32
CRTI-2
India-2 30
11
Brazil-2
PGG-2 23
16
UK-May
China-1 19
22
First Supplier Launch
Jan-06
PGG-Jan
Feb-06
May-06
Col-Jul
Col-Aug
Col-Sep
Col-Nov
CIL-Nov
Brazil-3
UK-Feb
Mar-06
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
China-2
CRTI-3
TDFSS-3• International• US
• International• US 892 Trained
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Analysis-Led Design …Analysis-Led Design …
• Computer analysis and simulation• Virtual product build• Eliminate expensive prototypes• More designs evaluated in shorter time
• Engineering Standard WorkAdded 2500 hours analysisEliminated 5500 hours testing / prototypes
Better Designs Faster at Lower Cost
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Analysis-Led Design …Analysis-Led Design …Better Designs Faster at Lower Cost• Combustion Analysis
12 months 5 months per design10 1000 designs evaluated
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Diffusion flame betweenhot soot and air
Rich premixedreaction zone
Rapid conversion ofprecursors to soot
Soot growth region
Entrainment ofhot products
Entrainmentof air
Combustion Modeling in Analysis Led DesignCombustion Modeling in Analysis Led Design
Injector Cylinder wall
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Diffusion flame betweenhot soot and air
Rich premixedreaction zone
Rapid conversion ofprecursors to soot
Soot growth region
Entrainment ofhot products
Entrainmentof air
3-D Fluid dynamics code with improved
spray model
FlameletModel
Combustion Modeling in Analysis Led DesignCombustion Modeling in Analysis Led Design
Injector Cylinder wall
Soot Model
Temperature (K)500100015002000
HRR (MW/gm fuel)
0
50
100
150
Detailed Kinetics
1100+ equations
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Diesel Combustion Analysis
LiquidFuel
FuelRich
PM
NOx
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Analysis-Led Design …Analysis-Led Design …
• Combustion Analysis12 months 5 months per design10 1000 designs evaluated
• Filter 35 months 21 months design-to-production5 50 designs evaluated60% fewer prototypes
• Generator Set Structure75 days 28 days per design60% fewer prototypes
Better Designs Faster at Lower Cost
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System Level Results:
• 2007 Heavy Duty Engine Program 100% more analysis hours
20% lower total program cost
• 2007 Midrange Engine Programs 200% analysis hours
29% lower total program cost
Analysis-Led Design …Analysis-Led Design …Better Designs Faster at Lower Cost
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FranceQuimper
DarlingtonDaventryRamsgateStamfordHuddersfield
UK
IndiaPuneIndore
ChinaChongqingXiangfanWuhanBeijingWuxi
BrazilSao Paulo
MexicoSan Luis Potosi
USARocky MountJamestownCookevilleStoughtonFridleyCharleston Columbus
Japan
Oyama
Global Presence / Global AccessGlobal Presence / Global Access
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FranceQuimper
DarlingtonDaventryRamsgateStamfordHuddersfield
UK
IndiaPuneIndore
ChinaChongqingXiangfanWuhanBeijingWuxi
BrazilSao Paulo
MexicoSan Luis Potosi
USARocky MountJamestownCookevilleStoughtonFridleyCharleston Columbus
Japan
Oyama
Global Presence / Global AccessGlobal Presence / Global Access
Cummins Research & Technology India Cummins Research & Technology India
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750 km
270 km
700 km
1100 km
Beijing (CCI)Xiangfan (DCEC)Xi’an (Shaanxi)Chongqing (CCEC)Shanghai FleetguardWuxi Holset & NewageWuhan (EAR&D)Hong Kong
660 km
940 km
Global Presence / Global AccessEast Asia R&DGlobal Presence / Global AccessEast Asia R&D
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The Right Technology for…
A New Cummins
The Right Technology for…
A New Cummins
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Joe LoughreyPresident and Chief Operating Officer
A New CumminsA New Cummins
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Summary -What you have heard so farSummary -What you have heard so far
• Diversified by markets, products, customers and regions
• Well positioned in emerging markets
• Generating higher returns and setting new targets
• Focused on cash management
• Invested in the right technologies
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What’s Different Across the CompanyWhat’s Different Across the Company
• Converting sales into profits
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Converting Increased Sales into Higher ProfitsConverting Increased Sales into Higher Profits
8%
34%10%
30%
200%
32%
0%
50%
100%
150%
200%
250%
2002-03 2003-04 2004-05
Revenue Growth EBIT Growth
LTM
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Incremental EBIT%Incremental EBIT%
9%
17%
21%
0%
5%
10%
15%
20%
25%
2002-03 2003-04 2004 - 2005 LTM
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What’s Different Across the CompanyWhat’s Different Across the Company
• Converting sales into profits
• Leaner cost structure
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LeanerCost
Structure
Global SourcingGlobal
Sourcing
RationalizedManufacturing
Capacity
RationalizedManufacturing
Capacity
Six SigmaCulture
Six SigmaCulture
TechnicalProductivityTechnical
Productivity
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Increasing Gross Margins Leveraging SARIncreasing Gross Margins Leveraging SAR
SAR %
GM %
Gross Margin % SAR %
13%
15%
17%
19%
21%
23%
Q1-03 Q2-03 Q3-03 Q4-03 Q1-04 Q2-04 Q3-04 Q4-04 Q1-05 Q2-05
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What’s Different Across the CompanyWhat’s Different Across the Company
• Converting sales into profits
• Leaner cost structure
• Strong global truck business
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Significant Global Player In TrucksSignificant Global Player In Trucks
• North America• Europe• India• China• Mexico• Brazil
• Engines• Filters• Emission Solutions• Turbochargers• Fuel Systems
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What’s Different Across the CompanyWhat’s Different Across the Company
• Converting sales into profits
• Leaner cost structure
• Strong global truck business
• Partnerships working
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Partnerships WorkingPartnerships Working
• New common rail fuel system JV
• Tata Cummins grew by 2.5 times• Tata Holset grew fourfold
•Manufacturing JVs are booming•Successful joint development •B3.3 and QSK78 are success stories
• CMD at 20% CAGR
K P I T • 25% of all IT work• Electronic controls partner
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What’s Different Across the CompanyWhat’s Different Across the Company
• Converting sales into profits• Leaner cost structure• Strong global truck business• Partnerships working• Leveraging complementary businesses
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Leveraging Complementary BusinessesLeveraging Complementary Businesses
• Technology
• Cross selling• Excellence in customer support
• Shared services
• Common operating system
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What’s Different Across the CompanyWhat’s Different Across the Company
• Converting sales into profits• Leaner cost structure• Strong global truck business• Partnerships working• Leveraging complementary businesses• Major profitable growth opportunities
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Major Profitable Growth OpportunitiesMajor Profitable Growth Opportunities
• Share growth
• New products
• After-market sales
• Emerging markets
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What’s Different by BusinessWhat’s Different by Business
• Profitable NA HD truck business
• PowerGen turnaround successful
• Distribution business growing profitably
• Emission Solutions successfully launched
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BreakBreak
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Joe LoughreyPresident and Chief Operating Officer
Business UpdateBusiness Update
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AgendaAgenda
• Focused on profitable growth– Engine– Power Generation– Components– Distribution
• Well positioned in emerging markets– China– India
• Summary
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AgendaAgenda
• Focused on profitable growth– Engine– Power Generation– Components– Distribution
• Well positioned in emerging markets– China– India
• Summary
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Engine Business Engine Business
Products Markets
2004 Revenue
MR
HD
HHP
PartsConst/Ag
Mining/Marine
HD Truck
MD Truck/BusLDA
PowerGen
Parts
Other
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$M
Engines – Historical Performance$M
Segment EBITSales
$3,121$3,435 $3,582
$5,424
$6,070
0
1000
2000
3000
4000
5000
6000
7000
2001 2002 2003 2004 2005-$95
$37$62
$328
$469
-100
0
100
200
300
400
500
2001 2002 2003 2004 2005LTM
LTM
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Strong Global Presence2004 Global Production > 700,000 Engines
South America59,000
Japan 42,000
China136,000
India75,000
North America348,000
Europe43,000
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Ready For 2007Emissions ChangeReady For 2007Emissions Change
• Limited pre-buy
• Best product in ‘07
• End user field testing underway
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Living With Vertical IntegrationLiving With Vertical Integration
• Cost
• Brand
• Global presence
• Technology
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Profitable Growth OpportunitiesProfitable Growth Opportunities
• Emissions driven share gain
• High horsepower
– Oil & Gas
– Marine
– Power Generation
• Parts sales
• Emerging markets
• Below 8500 lbs
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AgendaAgenda
• Focused on profitable growth– Engine– Power Generation– Components– Distribution
• Well positioned in emerging markets– China– India
• Summary
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Power GenerationSix Lines of BusinessPower GenerationSix Lines of Business
2004 Sales: $1.8 Billion Lines of Business
• Commercial• Consumer• Alternators• Power Electronics• Energy Solutions• Rental
Commercial
Alternators
Rental
Consumer
Power ElectronicsEnergy
Solutions
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Power GenerationThree Major MarketsPower GenerationThree Major Markets
2004 Sales: $1.8 Billion
Distributed Standby
Mobile
• Standby Power
• Mobile Power
• Distributed Generation
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$M
Segment EBIT
Power Generation –Historical Performance
Sales
$M
$1,422
$1,226$1,329
$1,842$1,933
0
400
800
1200
1600
2000
2001 2002 2003 2004 2005
$82
-$25-$19
$60
$87
-50
-30
-10
10
30
50
70
90
110
2001 2002 2003 2004 2005
LTM
LTM
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Turnaround Demonstrating ResultsTurnaround Demonstrating Results
• New Management Team
• Global Organization
• Cost Reduction
• Pricing Improvement
• Collaborative Effort with Engine Business
•Significant Profitability Improvement
• Increased Market Penetration
• Global Growth
Actions Results
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Well Positioned forProfitable GrowthWell Positioned forProfitable Growth
• Most markets still strengthening• Expanding market share
– New products– Improving distribution network
• Consumer growth– Portables
• Growing project business capability
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AgendaAgenda
• Focused on profitable growth– Engine– Power Generation– Components– Distribution
• Well positioned in emerging markets– China– India
• Summary
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Components Segment –Four BusinessesComponents Segment –Four Businesses
• Four businesses within the segment– Fleetguard– Emission Solutions– Holset– Fuel Systems
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Components – Historical Performance
Segment EBITSales
$M $889 $951
$1,292
$1,783$1,907
0
400
800
1200
1600
2000
2001 2002 2003 2004 2005
$M
$60
$94
$86 $84$80
0
20
40
60
80
100
2001 2002 2003 2004 2005LTM LTM
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Components Segment StrategyComponents Segment Strategy
• Improve profitability
• Grow share of business
• Introduce new products
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Improve Profitability - FleetguardImprove Profitability - Fleetguard
• Price increases in 2005
• Eliminate low margin products
• New low cost products in 2006
• Global sourcing
• Positioned for growth in China and India
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Grow Share - HolsetGrow Share - Holset
• Commercial diesel market leader• OEMs moving to single source• VG turbo is technology leader• Supports OEMs globally• Additional capacity
– Charleston, SC– Wuxi, China– Indore, India
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• Started with retrofit business
• Leveraged existing relationships
• Low cost plant in South Africa
Emission Solutions Business Successfully LaunchedEmission Solutions Business Successfully Launched
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New Fuel SystemNew Fuel System
• Common rail ‘XPI’• Applied on 8 to 16 litre engines• Introduced in Q3, 2006• Partnership with Scania
– Jointly developed– Manufacturing locations
• Columbus, IN• Juarez, Mexico
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AgendaAgenda
• Focused on profitable growth– Engine– Power Generation– Components– Distribution
• Well positioned in emerging markets– China– India
• Summary
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Distribution SegmentDistribution Segment
• Strengthen the network
• Capture more profitability
• Outstanding customer support
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Distribution FootprintDistribution Footprint
Company-owned
Joint Venture
Independent
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Distribution FootprintDistribution Footprint
Company owned• 17 Owned • 9 JVs• 89 countries• 220 Locations • 4000+ employees
75 Independent• 11 - US/Canada• 27 - Latin America• 12 - Europe• 11 - Middle East• 8 - Africa• 6 - Asia
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Distribution – Historical Performance
Segment EBITSales
$M
$562 $574
$669
$973
$1,099
0
200
400
600
800
1000
1200
2001 2002 2003 2004 2005
$M
$27$33
$51
$79
$94
0
20
40
60
80
100
2001 2002 2003 2004 2005
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Positioned for Profitable GrowthPositioned for Profitable Growth
• Broadening product offering
• Expanding internationally
• Increasing equity ownership
• Excelling in customer support
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AgendaAgenda
• Focused on profitable growth– Engine– Power Generation– Components– Distribution
• Well positioned in emerging markets– China– India
• Summary
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0
1
2
3
4
5
6
7
8
1980 1984 1988 1992 1996 2000 2004
China’s GDP Growth Outpaced the USChina’s GDP Growth Outpaced the US
Cumulative Real GDP Growth 1980-2004
Source: International Monetary Fund
China USA
GD
P M
ultip
le (1
980
= 1)
CAGR = 8.6%
CAGR = 2.6%
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All Four Business Segmentsin ChinaAll Four Business Segmentsin China
• Entered China in 1975
• Largest foreign investor
• Strong market positions
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WuxiShanghai
XiangfanChongqing
Chongqing Cummins Engine Company Ltd.
Dongfeng CumminsEngine Co., Ltd.
Cummins Engine (Beijing) Co., Ltd.
Wuxi Newage Alternators Co.,Ltd.
Wuxi Holset Engineering Co., Ltd.
Shanghai Fleetguard Filter Co., Ltd.
Beijing
EA Tech Center
Solid Foundation in ChinaSolid Foundation in China
Wuhan
Xi’an
Xi’an CumminsEngine Co., Ltd.
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CMI China Market Position in 2004CMI China Market Position in 2004
Engine shipment > 150,000 engines
Installed population > 850,000 engines
Largest Cummins bus OEM King Long
Largest Cummins NG bus fleet Beijing
Large Cummins truck OEM Dongfeng
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2004 Market Share
Commercial trucks 20%Buses 17%Excavators 33%Mine trucks 85%Track equipment 73%
Gensets 26%Alternators 33%
Turbochargers 32%
Source: Company estimates
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China Sales Have Been StrongChina Sales Have Been Strong
CMI Consolidated and Unconsolidated Sales
35% CAGR
Consolidated Net Sales Unconsolidated JV Net Sales
0
200
400
600
800
1,000
1,200
2000 2001 2002 2003 2004
US$
Mill
ions
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2010 China Market Size $11-13 BOver 600K Trucks By 20102010 China Market Size $11-13 BOver 600K Trucks By 2010
Key Drivers
• Road construction
• Economic growth
• Government policies
Bus &Coach
Mining
PowerGen
Diesel Rail
Oil &Gas
Truck
Marine
LCV
Construction
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Well Positionedfor Future GrowthWell Positionedfor Future Growth
• East Asia R&D Center
• Medium duty electronic products
• Heavy duty entry
• Expanded component manufacturing
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AgendaAgenda
• Focused on profitable growth– Engine– Power Generation– Components– Distribution
• Well positioned in emerging markets– China– India
• Summary
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0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
1980 1984 1988 1992 1996 2000 2004
India’s GDP Growth also Outpaced the USIndia’s GDP Growth also Outpaced the USG
DP
Mul
tiple
(198
0 =
1.00
)
Cumulative Real GDP Growth 1980-2004
Source: International Monetary Fund
India USA
CAGR = 5.7%
CAGR = 2.6%
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All Four Business Segmentsin IndiaAll Four Business Segmentsin India
• Started in 1962• Strong market positions
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Valvoline CumminsNew Delhi
Tata Holset LtdDewas
Nelson Engine Systems (I) Ltd.Daman
Cummins India Ltd.Cummins Diesel Sales & Service Ltd.KPIT Cummins Infosystems Ltd.
International Purchasing OfficeFleetguard Filters Ltd.Cummins Research & Technology IndiaPune
Tata CumminsJamshedpur
Newage Electrical India Ltd.Ahmednagar
Solid Foundation In India
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CMI India Market Position in 2004CMI India Market Position in 2004
Engine shipment > 75,000 engines
Installed population > 350,000 engines
Large Cummins NG bus fleet Delhi
Large Cummins truck OEM Tata
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2004 Market Share
Trucks 40%Mining 40%Compressors 55%Pumps 30%Rail 50%Commercial Marine 25%Construction 18%
Gensets 55%Alternators 65%
Turbochargers 45%
Filtration 22%Source: Company estimates
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14% CAGR
India Sales Have Been StrongIndia Sales Have Been Strong
CMI Consolidated and Unconsolidated Sales
Consolidated Net Sales Unconsolidated JV Net Sales
0
100
200
300
400
500
600
700
2000 2001 2002 2003 2004
US$
Mill
ions
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Leveraging Strong Base Leveraging Strong Base
Low Cost Manufacturing• Global Source
– V28– K38 and K50 Power Generation Engines– Components supply base
Services & Solutions• Valvoline Cummins 30% CAGR• KPIT Cummins 60% CAGR• CRTI - R&D worldwide
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Well Positioned for Future GrowthWell Positioned for Future Growth
• Increased exports • Local electronic products• Major capacity increases
– Turbochargers 46%– KV Engines 70%– Valvoline 50%
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China / India - SummaryChina / India - Summary
• Long operating experience
• All businesses strong
• Healthy partnerships
• Leveraging assets
• Synergies growing
• Many growth opportunities
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AgendaAgenda
• Focused on profitable growth– Engine– Power Generation– Components– Distribution
• Well positioned in emerging markets– China– India
• Summary
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Profitable Power-Gen Business
Profitable Power-Gen Business
RestructuredEngine Business
RestructuredEngine Business
Strong Footprint inEmerging MarketsStrong Footprint inEmerging Markets
Growing Components
and Distribution
Growing Components
and Distribution
This is the New CumminsThis is the New Cummins
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11.1%
19.7%
24.3%
4.1% 7.8%
-2.1%
6.5%
-5%
0%
5%
10%
15%
20%
25%
1999 2000 2001 2002 2003 2004 2005
Focused On ExecutionFocused On Execution
Return on Average Net Assets
LTM
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A New CumminsA New Cummins
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Non-GAAP Reconciliation – EBITNon-GAAP Reconciliation – EBIT
$ 473
(29)(100)(113)
$ 715-
$ 715
6/30/05LTM
$ 350$ 132Net Earnings
(26)(6)Minority Interests in earnings of unconsolidated subsidiaries
(56)(47)Provision for income taxes(111)(75)Interest Expense
$ 543$ 260Earnings before interest, income taxes and minority interest
-(56)Restructuring, asset impairment and other$ 543$ 316
Earnings before interest, income taxes, minority interest and restructuring charges
12/31/0412/31/99Year ended$ Millions
EBIT = Earnings before interest, taxes, and minority interests.
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 net earnings, for each of the applicable periods.
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Additional DisclosuresAdditional DisclosuresAs previously announced, effective May 2, 2005, CMI made certain leadership changes within its management team and subsequently on July 21, 2005 in Form 8-K, restated operating segment data for the periods of 2003 to the present.
Operating segment data used in these presentations for the periods of 1999 through 2002 has not been adjusted for the changes in segment reporting.
The segment EBIT used in these presentations excludes restructuring, asset impairment and other charges, minority interest and preferred dividends.