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A New Cummins

Investor Presentation
November 2006
Disclosure Regarding Forward-Looking Statements
& non-GAAP Financial Measures


This presentation contains certain forward...
Since 2003 The New Cummins Has
Grown Faster Than Our Peer Group

                                      134% Growing net in...
The New Cummins is Creating
 Greater Value Than Ever Before
                Excess Return (ROIC- WACC)
25%
               ...
2007 Creates Investment Opportunity


 We have fundamentally changed our business
 2007 emission downturn is a known,
 pre...
The New Cummins


Diversified to mitigate the cyclicality of our end
markets
Building greater stability in earnings
Focuse...
Diversified Global Power Leader

          Four Complementary Businesses




Engines        Power       Components     Dis...
Lower Concentration of Revenue From
North America Heavy Duty Truck

                                        Q3 2006LTM
   ...
Greater Percentage of Revenue From
Outside US

                                        Q3 2006LTM
   1999




            ...
Capitalizing on Established Position
               in Emerging Markets
                                                  ...
Growing Stable Diversified Earnings

                           EBIT
                                                  Lar...
Increasing Ownership in Distribution




Company-owned

Joint Venture

Independent



                                    ...
Growing Profits from Joint Venture
                                              Earnings from Unconsolidated JVs
        ...
Maintain Strong Balance Sheet


                          $550 M debt reduction
Reducing debt
                          in...
Investing in Profitable Growth

 New light-duty diesel in North America
 New 13-liter engine – Dongfeng
 11-liter engine –...
Focusing Capital on Returns
                                                                               Increasing
    ...
Returning Value to Our Shareholders
                                              Operating Cash Flow
                    ...
Virtually Integrating Through
OEM Partnerships
 Cost
 Brand
 Global presence
 Technology
 Strong partnerships




        ...
Unique Technology Integration

 Fuel Systems
 Electronic Controls
 Air Handling Systems
 Filtration and Aftertreatment
 Co...
Technology Leadership Creates
Advantage in 2007
 Building on current product architecture
 Comparable fuel economy
 Field ...
This is the New Cummins


                       Improved
                        Improved
    Global
     Global         ...
Appendix
Cummins
                                     Q3 2006LTM Revenue by Segment
                                              C...
Cummins
           Q3 2006LTM Revenue by Marketing Territory
                                             Africa/Middle Ea...
Cummins – Historical Performance

                           Sales                                                       E...
Engine Segment
                                    Q3 2006LTM Revenue by Product
         Emission regulations            ...
Engine Segment
                        Q3 2006LTM Revenue by Market Application
         Heavy-duty Truck                 ...
Engines – Historical Performance

                    Sales                                                       Segment ...
Power Generation Segment
                                   Q3 2006LTM Revenue by Product
         Turnaround complete    ...
Power Generation – Historical Performance

                          Sales                                                ...
Components Segment
                                    Q3 2006LTM Revenue by Product
                                     ...
Components – Historical Performance

                     Sales                                                      Segme...
Distribution Segment
                                     Q3 2006LTM Revenue by Product
                                  ...
Distribution – Historical Performance

                          Sales                                              Segmen...
Non-GAAP Reconciliation – EBIT

                                                                                    Twelve...
Non-GAAP Reconciliation – Net
Assets

                                                     September 25,    October 1,
Mil...
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Cummins_06/11/28

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Transcript of "Cummins_06/11/28"

  1. 1. A New Cummins Investor Presentation November 2006
  2. 2. 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 60 of our 2005 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 GAAP financial measures. 2
  3. 3. Since 2003 The New Cummins Has Grown Faster Than Our Peer Group 134% Growing net income CAGR Since 2003 faster than revenue 84% Converting more income into cash 31% 21% 18% 13% Revenue Net Income Operating Cash Flow CMI Peer Group Median 3
  4. 4. The New Cummins is Creating Greater Value Than Ever Before Excess Return (ROIC- WACC) 25% r de 20% l ho re ha 15% g S alue n ati V 10% e Cr 5% 0% -5% -10% -15% 1999 2000 2001 2002 2003 2004 2005 Q306 LTM 4
  5. 5. 2007 Creates Investment Opportunity We have fundamentally changed our business 2007 emission downturn is a known, predictable, finite event We are confident in our ability to perform in 2007 and beyond 5
  6. 6. The New Cummins Diversified to mitigate the cyclicality of our end markets Building greater stability in earnings Focused cash management strategy Virtually integrating through OEM partnerships Global technology leader in constantly changing emissions environment 6
  7. 7. Diversified Global Power Leader Four Complementary Businesses Engines Power Components Distribution Generation 7
  8. 8. Lower Concentration of Revenue From North America Heavy Duty Truck Q3 2006LTM 1999 Engines 12% Components 2% 14% 19% 81% 86% NA HD Truck Original Equipment Sales Sales to All Other Markets 8
  9. 9. Greater Percentage of Revenue From Outside US Q3 2006LTM 1999 49% 39% 61% 51% US Consolidated Net Sales ROW Consolidated Net Sales 9
  10. 10. Capitalizing on Established Position in Emerging Markets India China $900 GR R $1,200 CA AG %C $800 % 27 18 US$ Millions $1,000 $700 $600 $800 $500 $600 $400 ` $300 $400 $200 $200 $100 $0 $0 2000 2001 2002 2003 2004 2005 2000 2001 2002 2003 2004 2005 Consolidated Unconsolidated Net Sales JV Net Sales 10
  11. 11. Growing Stable Diversified Earnings EBIT Larger contributor to $1,250 $1,145M total EBIT $1,000 US$ Millions Less cyclical $750 Growth demonstrates $306M * $500 return on investment $250 Distribution Channel Emerging Markets $0 Aftermarket Q3 '06LTM 1999* Stable Cyclical * Excludes restructuring charges 11
  12. 12. Increasing Ownership in Distribution Company-owned Joint Venture Independent 12
  13. 13. Growing Profits from Joint Venture Earnings from Unconsolidated JVs $160 Access local market $133 Develop new $120 US$ Millions technologies $80 Achieve low cost leadership $40 $0 ($40) ($27) LTM 1999 Q3 '06 13
  14. 14. Maintain Strong Balance Sheet $550 M debt reduction Reducing debt in 2006 $255 - $260 M global Funding our liabilities pension funding in 2006 Target: 15.5% - 16.5% Working capital of sales management 14
  15. 15. Investing in Profitable Growth New light-duty diesel in North America New 13-liter engine – Dongfeng 11-liter engine – Shaanxi New 2.8 to 3.8-liter engine – Foton New product introductions for Components Increased capacity 15
  16. 16. Focusing Capital on Returns Increasing 8% 35% Reducing ROANA capex as % 7% 30% of revenue Capex/Revenue (%) 6% 25% ROANA (%) 5% 20% 4% 15% 3% 10% 2% 5% 1% 0% 0% -5% 06 95 96 97 98 99 00 01 02 03 04 05 3' 19 19 19 19 19 20 20 20 20 20 20 Q ROANA Capex/Revenue 16
  17. 17. Returning Value to Our Shareholders Operating Cash Flow $1,200 $988 $1,000 Dividends $760 $800 Share repurchase US$ Millions $614 $600 Total shareholder return $400 $158 $200 $0 2003 2004 2005 Q3 '06 LTM 17
  18. 18. Virtually Integrating Through OEM Partnerships Cost Brand Global presence Technology Strong partnerships 18
  19. 19. Unique Technology Integration Fuel Systems Electronic Controls Air Handling Systems Filtration and Aftertreatment Combustion Technologies 19
  20. 20. Technology Leadership Creates Advantage in 2007 Building on current product architecture Comparable fuel economy Field tests with end-users receiving very positive feedback EPA certification in process for MR and HD platforms Well positioned to grow on-highway market share significantly in 2007 20
  21. 21. This is the New Cummins Improved Improved Global Global Power-Generation Power-Generation Engine Business Engine Business Business Business Strong Global Growing Key Strong Global Growing Key Distribution Technologies in Distribution Technologies in Network Components Network Components 21
  22. 22. Appendix
  23. 23. Cummins Q3 2006LTM Revenue by Segment Components Best 3rd Quarter Ever Segment 17% Double-digit revenue Engine growth in each segment Segment 56% Earnings grew faster Distribution than revenue Segment 10% On pace for record cash flow from operations for the year Power Gen Segment 17% Q3 2006LTM Data Sales: $11.1 billion EBIT: $1,145 million EBIT Margin: 10.3% (Target: 7-10%) 23
  24. 24. Cummins Q3 2006LTM Revenue by Marketing Territory Africa/Middle East International revenue Canada 5% 7% continues to be above 50% Mexico/Latin America Pre-emission demand 9% has accelerated US growth rate United States Most international 49% areas growing at Asia/Australia 16% double digit rate Softer demand in Europe/CIS China and SE Asia 14% 24
  25. 25. Cummins – Historical Performance Sales EBIT $12,000 $1,400 $11,082 $9,918 $1,145 $1,200 $10,000 $8,438 $1,000 $907 $8,000 $800 $6,296 $5,853 $M $M $6,000 $543 $600 $4,000 $400 $181 $2,000 $139 $200 $0 $0 LTM 2005 Q3 '06 LTM 2002 2003 2004 2005 Q3 '06 2002 2003 2004 25
  26. 26. Engine Segment Q3 2006LTM Revenue by Product Emission regulations Parts and Service 20% create opportunities Midrange (3-9L) 37% Aftermarket revenue creates stable earnings Emerging markets Strategic OEM partnerships High Horsepower (19-91L) 14% Q3 2006LTM Segment Data Heavy-Duty Sales: $7.4 billion (10-15L) 29% EBIT: $708 million EBIT Margin: 9.6% (Target: 7-10%) 26
  27. 27. Engine Segment Q3 2006LTM Revenue by Market Application Heavy-duty Truck Stationary Power 10% demand remains strong Mining/Rail Heavy-duty Govt/O&G truck 33% Share gains in Medium- Marine 12% duty Truck & Bus Off-highway markets supported by non- Construction residential construction & Ag 15% and commodity markets Medium-duty Light-duty Truck & bus 13% Q3 2006LTM Segment Data Automotive Sales: $7.4 billion & RV 17% EBIT: $708 million EBIT Margin: 9.6% (Target: 7-10%) 27
  28. 28. Engines – Historical Performance Sales Segment EBIT 8000 $800 $7,397 $708 $6,657 7000 $700 $582 6000 $600 $5,424 5000 $500 $M $M 4000 $400 $3,435 $3,582 $328 3000 $300 2000 $200 1000 $100 $62 $37 0 $0 LTM Q3 '06 LTM 2002 2003 2004 2005 Q3 '06 2002 2003 2004 2005 28
  29. 29. Power Generation Segment Q3 2006LTM Revenue by Product Turnaround complete Alternators Commercial 18% 56% Strengthening markets Expanding market share Rental 2% Consumer growth opportunities Growing project business Consumer 14% capability Power Electronics 7% Q3 2006LTM Segment Data Energy Sales: $2.3 billion Solutions 3% EBIT: $207 million EBIT Margin: 8.9% (Target: 7-9%) 29
  30. 30. Power Generation – Historical Performance Sales Segment EBIT 2500 $250 $2,333 $207 $1,999 $200 2000 $1,842 $145 $150 1500 $1,329 $1,226 $M $M $100 $60 1000 $50 500 $0 ($19) ($25) 0 ($50) LTM Q3 '06 LTM 2002 2003 2004 2005 Q3 '06 2002 2003 2004 2005 30
  31. 31. Components Segment Q3 2006LTM Revenue by Product Specialty Strategic advantage in Filtration 6% Air Intake emissions compliance Systems Turbocharger 11% Significant future growth 26% in revenue and earnings Multiple new product Acoustic introductions Exhaust 12% Winning non-CMI Fuel business Systems 18% Engine Filtration Q3 2006LTM Segment Data Catalytic 21% Sales: $2.2 billion Exhaust EBIT: $106 million 6% EBIT Margin: 4.8% (Target: 7-9%) 31
  32. 32. Components – Historical Performance Sales Segment EBIT $120 2500 $2,216 $106 $2,000 $100 $94 2000 $89 $86 $1,783 $84 $80 1500 $1,292 $M $M $60 $951 1000 $40 500 $20 0 $0 LTM Q3 '06 LTM 2002 2003 2004 2005 2002 2003 2004 2005 Q3 '06 32
  33. 33. Distribution Segment Q3 2006LTM Revenue by Product Service Broadening product 18% offering Engines 20% Expanding global coverage Increasing equity ownership Excelling in customer Parts, support Filters, & Consumables Power 40% Generation Q3 2006LTM Segment Data 22% Sales: $1.3 billion EBIT: $138 million EBIT Margin: 10.3% (Target: 8-10%) 33
  34. 34. Distribution – Historical Performance Sales Segment EBIT $160 1600 $138 $1,345 $140 1400 $1,191 $120 1200 $107 $973 $100 1000 $79 $M $M $80 800 $669 $574 $60 600 $51 $33 $40 400 $20 200 $0 0 LTM Q3 '06 LTM 2002 2003 2004 2005 2002 2003 2004 2005 Q3 '06 34
  35. 35. Non-GAAP Reconciliation – EBIT Twelve Months Ended Millions October 1, 2006 Segment EBIT $ 1,145 Interest Expense $ (102) Earnings before income taxes and minority interests $ 1,043 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 earnings before income taxes and minority interests, for each of the applicable periods. 35
  36. 36. Non-GAAP Reconciliation – Net Assets September 25, October 1, Millions 2005 2006 Net assets for operating segments $ 3,312 $ 4,138 Liabilities deducted in computing net assets 3,421 3,541 Minimum pension liability excluded from net assets (826) (837) Deferred tax assets not allocated to segments 928 712 Debt-related costs not allocated to segments 27 25 Total assets $ 6,862 $ 7,579 36
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