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cmi_050926

  1. 1. A New Cummins Tim Solso Chairman and Chief Executive Officer
  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 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 GAAP financial measures.
  3. 3. Cummins Management Team Executive 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
  4. 4. Cummins Management Team Components • 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
  5. 5. Delivering on Commitments Target 2005LTM Revenue Growth 8% -10% 9.5% EBIT Margin 6% - 9% 7.7% Cap Ex < D&A 67% of D&A Debt to Capital Ratio 35% - 45% 43% Investment Grade 2005 S&P BBB- Moody Ba1 ROE 15% 26%
  6. 6. Delivering on Commitments er ol d 400 ar eh 4 h t al S 003/ 0 To r 2 ge 350 o a ver eturn f A . 4% R 77 300 Stock Price Index 250 200 150 100 50 Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 CMI S&P 500 Peer Avg.
  7. 7. Delivering on Commitments • Six Sigma • Market share gains • Best products • Recognition
  8. 8. Key Strategic Principles • Increase Profitability • Leverage Complementary and Cash Flow Businesses • Reduce Debt and • Create Invest in Growth Shareholder Value • Low-Cost Producer • Create Shareholder Value • Grow in Related Markets • Performance Ethic
  9. 9. P/E Valuation – Opportunity 20 18 15 14 15 13 P/E Multiplier 10 9 10 5 0 1999 2004 2005 CMI Peer Group
  10. 10. Investment Community • Cyclicality • Cash management • OEM vertical integration • ’07 emission impact • Volatility in performance
  11. 11. Growing Stable Diversified Earnings 1999 EBIT* 2004 EBIT $316M $543M Stable & Diversified EBIT Cyclical EBIT * Excludes restructuring charges
  12. 12. Growing International Sales Consolidated Net Sales 2004 1999 9% 14% US Asia Mexico / Latin America Australia Europe Canada Africa / Middle East
  13. 13. Growing International Sales Consolidated & Unconsolidated Net Sales 1999 2004 11% 20% US Asia Mexico / Latin America Australia Europe Canada Africa / Middle East
  14. 14. Emerging Markets India China 700 1,200 GR GR CA 600 CA % 1,000 14 % 35 500 800 US$ Millions 400 600 300 400 200 200 100 0 0 2000 2001 2002 2003 2004 2000 2001 2002 2003 2004 Consolidated Unconsolidated Net Sales JV Net Sales
  15. 15. N. America Heavy-duty Truck Total Revenue 1999 2004 14% 19% 81% 86% NA HD Truck Original Equipment Sales Sales to All Other Markets
  16. 16. Growth in Chrysler Shipments 180,000 160,000 140,000 GR CA 120,000 2 4% 100,000 80,000 60,000 40,000 20,000 0 1988 1990 1992 1994 1996 1998 2000 2002 2004
  17. 17. Distribution Ownership – 1999 Company-owned Joint Venture Independent
  18. 18. Distribution Ownership – Today Company-owned Joint Venture Independent
  19. 19. Profitable Joint Venture Growth Number of JV's Earnings from JV's 40 120 35 100 30 80 25 60 20 40 15 20 10 0 5 1999 2004 -20 0 1999 2004 -40
  20. 20. A New Cummins
  21. 21. Creating Shareholder Value Jean Blackwell Chief Financial Officer
  22. 22. A New Cummins 1999 2005 LTM Sales $ 6,639m $ 9,241m JV Income $ (27m) $ 130m EBIT $ 260m $ 715m PAT % 2.0% 5.1% EPS $ 3.41 $10.10 - $10.30* ROE 10% 26% ROANA 11% 24% *2005 Guidance ($9.60 EPS LTM)
  23. 23. Financial Platform Earnings Growth Creating Shareholder Value Focused Cash Reducing Management Cyclicality
  24. 24. Financial Platform Earnings Growth Creating Shareholder Value Focused Cash Reducing Management Cyclicality
  25. 25. Turning Sales into Higher Earnings Total Sales $9,241 $10,000 $8,438 $8,000 $6,639 $6,597 $6,296 $5,853 $5,681 $6,000 $4,000 $2,000 $0 ($2,000) ($4,000) LTM 1999 2000 2001 2002 2003 2004 2005 Total Sales
  26. 26. Turning Sales into Higher Earnings Total Sales and Net Earnings $9,241 $10,000 $560 $8,438 $8,000 $480 $6,639 $6,597 $6,296 $5,853 $400 $5,681 $6,000 $320 $4,000 $240 $160 $2,000 $80 $0 $0 ($80) ($2,000) ($160) ($4,000) ($240) LTM 1999 2000 2001 2002 2003 2004 2005 Total Sales Net Earnings
  27. 27. Growing Margin Gross Margin 25.0% 21.0% 20.7% 19.9% 19.2% 20.0% 17.9% 17.8% 17.8% 15.0% 10.0% LTM 1999 2000 2001 2002 2003 2004 2005
  28. 28. Controlling Expenses Selling, Administrative and R&D Expense 20.0% 18.0% 16.6% 16.4% 16.0% 15.7% 16.0% 15.4% 14.9% 14.6% 14.0% 12.0% 10.0% LTM 1999 2000 2001 2002 2003 2004 2005
  29. 29. Generating More from JVs Income from Joint Ventures $130 $140 $111 $120 $100 $70 $80 Millions USD $60 $40 $22 $10 $20 $7 $0 ($20) ($27) ($40) LTM 1999 2000 2001 2002 2003 2004 2005
  30. 30. Growing EBIT Earnings Before Interest and Income Tax 9.0% 7.7% 8.0% 7.0% 6.4% 6.0% 5.0% 3.9% 4.0% 2.9% 2.4% 3.0% 1.4% 2.0% 1.0% 0.0% -1.0% -0.8% -2.0% LTM 1999 2000 2001 2002 2003 2004 2005 EBIT as % of Sales Target EBIT as % of Sales
  31. 31. Increasing Earnings per Share Guidance for 2005 $12.00 $10.10 - $ 10.30 $10.00 $7.39 $8.00 $6.00 $3.41 $4.00 $2.13 $1.27 $2.00 $0.35 $0.00 ($2.00) ($2.70) ($4.00) 1999 2000 2001 2002 2003 2004 2005
  32. 32. Improving Return on Equity 30% 25.80% 25% 21.30% 20% 15% 10.00% 10% 6.90% 3.80% 5% 1.10% 0% -5% -10% -8.60% -15% LTM 1999 2000 2001 2002 2003 2004 2005 Return on Equity Target Return on Equity
  33. 33. Setting New Targets Cummins Sales Growth 8 % - 10 % EBIT 7 10 % 6%-9% ROANA 22 18 % ROE 18 % 15 Debt to Capital 35 % - 45% 30 40%
  34. 34. Looking for the Future With those targets, here is the view of Cummins in 2010…. 2005 2010 LTM $ 13.5 - $ 15 B Sales $ 9.2 B $ 950 - $ 1,500 M EBIT $ 715 M
  35. 35. Financial Platform Earnings Growth Creating Shareholder Value Focused Cash Reducing Management Cyclicality
  36. 36. Balancing Revenue and Income Sources • All businesses are profitable • Less cyclical businesses growing faster
  37. 37. Heavy Duty Engine Business Low Point 2005LTM 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
  38. 38. Heavy Duty Engine Business Low Point 2005LTM 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 Reduced Break Even more than 50%
  39. 39. Increasing Global Presence Total Sales $10,000 $9,000 $8,000 $7,000 50% Millions USD 48% $6,000 39% 43% $5,000 47% 46% 45% $4,000 $3,000 50% 52% 61% 57% $2,000 53% 55% 54% $1,000 $0 LTM 1999 2000 2001 2002 2003 2004 2005 United States International
  40. 40. Financial Platform Earnings Growth Creating Shareholder Value Focused Cash Reducing Management Cyclicality
  41. 41. Generating More Cash from Operations Operating Cash Flow $700 $614 $600 $517 $472 $500 Millions USD $400 $307 $300 $193 $200 $158 $152 $100 $0 LTM 1999 2000 2001 2002 2003 2004 2005
  42. 42. Creating a Strong Cash Position Cash and Marketable Securities $800 $673 $700 $600 Millions USD $500 $457 $400 $298 $300 $195 $200 $94 $75 $64 $100 $0 2005 * 1999 2000 2001 2002 2003 2004 *Balance as of June’05
  43. 43. Cash Priorities • Operational: – Reducing debt – Investing in the business – Funding our liabilities
  44. 44. Reducing Debt Levels Total Debt- 2005 $1,800 80% $1,626 $1,600 70% $1,429 $1,368 $1,400 60% Debt in millions USD Debt to Capital Ratio $1,215 $1,197 $1,137 $1,200 50% $945 $1,000 40% $800 30% $600 20% $400 10% $200 $0 0% 2005 * 1999 2000 2001 2002 2003 2004 * As of June’05
  45. 45. Using Capital Wisely Capital Expenditures $450 $405 $400 $350 $304 $300 $271 Millions USD $228 $250 $223 $215 $206 $192 $200 $151 $150 $111 $90 $100 $50 $0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 LTM
  46. 46. Using Capital Wisely CAPEX as % of Depreciation & Amortization 300% 256% 250% 204% 200% 156% 136% 150% 95% 92% 90% 100% 67% 56% 50% 41% 50% 0% LTM 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
  47. 47. Using Capital Wisely CAPEX as % of Sales 8% 7.2% 7% 5.8% 6% 5% 4.3% 4.3% 3.6% 3.5% 4% 3.2% 3% 2.1% 1.8% 1.8% 2% 1.5% 1% 0% LTM 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
  48. 48. Effective Balance Sheet Management 24.3% Return on Average Net Assets 25% 19.7% 20% 15% 11.1% 10% 6.5% 7.8% 4.1% 5% -2.1% 0% LTM 1999 2000 2001 2002 2003 2004 2005 -5%
  49. 49. Funding Liabilities Pensions • Exceeded statutory contributions for past 5 years • Changed retirement plan structure beginning in 1997
  50. 50. Funding Pension Obligations Actual Funding $160 $137 $140 $127 $113 $120 Millions USD $100 $81 $81 $80 $62 $60 $40 $20 $20 $0 2005 LTM 1999 2000 2001 2002 2003 2004
  51. 51. Funding Liabilities OPEB • Capped future liabilities in 1991 • $80 million liability reduction expected from Medicare Bill in 2006
  52. 52. Cash Priorities • Operational $250m debt reduction ‘06 – Reducing debt – Investing in the business – Funding our liabilities • Returning value to shareholders – Dividends – Share repurchase $100m repurchase
  53. 53. Financial Platform Earnings Growth Creating Shareholder Value Focused Cash Reducing Management Cyclicality
  54. 54. Creating Shareholder Value 400 er ol d ar eh 4 h t al S 003/ 0 350 To r 2 ge o a ver eturn f A . 4% 300 R Stock Price Index 77 250 200 150 100 50 Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 CMI S&P 500 Peer Avg.
  55. 55. Creating Shareholder Value Earnings Growth Creating Shareholder Value Focused Cash Reducing Management Cyclicality
  56. 56. A New Cummins
  57. 57. The Right Technology Dr. John Wall Vice President and Chief Technical Officer September 26, 2005
  58. 58. Cummins Technology Today Innovation + Productivity
  59. 59. Cummins Technology Today Innovation – Emission technology best in world – Invested in right technologies – Stable architecture – System integration – Global presence – Best products for each market
  60. 60. Cummins Technology Today Productivity – Six Sigma – Analysis Led Design – Global access – R&E: 5% 3% sales
  61. 61. Our Products Must Meet Customer Requirements Low Initial Cost Fuel Efficient High Performance Reliable and Durable Low Emissions Electronic Integration Low Maintenance
  62. 62. Diversity – Vehicles & Applications
  63. 63. Product Architecture for The 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
  64. 64. Power Generation System Architecture Builds on Cummins Synergies Load Transfer Switch Emissions After Treatment Networking Software Modular Noise Attenuation Enclosures Alternator Controls System Master Control System Integration
  65. 65. Product Line Architecture in Filtration He a vy Du ty Sm /O a ll ff Ro En a gi d ne /R ec Af Ve te h rm icl ar e s ke n ig t es r Ai D i d pt n te ig n O ck e s te Lo d D Pa n te ig is w tent es Ta rD P a ul s od ion M pt O
  66. 66. The Right Technology … for Emissions Control • Integrating critical subsystems – Combustion
  67. 67. The Right Technology … for Emissions Control • Integrating critical subsystems – Combustion – Air handling
  68. 68. The Right Technology … for Emissions Control • Integrating critical subsystems – Combustion – Air handling – Fuel systems
  69. 69. The Right Technology … for Emissions Control • Integrating critical subsystems – Combustion – Air handling – Fuel systems – Electronic controls – Aftertreatment
  70. 70. The Right Technology … for Emissions Control • Integrating critical subsystems – Combustion – Air handling – Fuel systems – Electronic controls – Aftertreatment … to deliver best customer value at low emissions
  71. 71. 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
  72. 72. 2002 HD Emission Control Foundation for the Future Charge Air Cooler EGR-Cooler Variable Geometry Turbocharger
  73. 73. 2007 HD Emission Control Charge Air Cooler EGR-Cooler Exhaust Filter Variable Geometry Turbocharger
  74. 74. EGR and CGI Charge Air Cooler Charge Air Cooler EGR-Cooler “CGI” EGR-Cooler Variable Valve Mechanism Exhaust Filter Variable Geometry Turbocharger
  75. 75. 2007 HD Emission Control Cummins EGR •Simple Charge Air Cooler •Reliable •Cummins subsystems •Stable architecture beyond 2010 EGR-Cooler Exhaust Filter Variable Geometry Turbocharger
  76. 76. Summer 2004
  77. 77. Winter 2004-5
  78. 78. 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
  79. 79. The Right Technology … for Technical Productivity • Six Sigma • Analysis Led Design
  80. 80. Six Sigma Tools for Developing The Right Technology Process Technology Product Improvement Development Design Process TDFSS DFSS Six Sigma Six Sigma Tools and Methodology
  81. 81. Design for Design For Six Sigma Training 2000 1900 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 1800 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1700 1600 International 1500 •• TDFSS-3 International 892 Trained 1400 CRTI-3 •• USUS 1300 China-2 1200 19 Brazil-3 China-1 1100 22 18 CIL-Nov Brazil -1 UK-May 1000 20 23 Col-Nov India -1 PGG-2 900 16 27 Col-Sep Brazil-2 TDFSS-1 800 15 10 30 Col-Aug Fltg -2 CRTI-1 India-2 700 26 26 11 Col-Jul PGG-1 UK-2 CRTI-2 600 8 25 10 32 May-06 CCR UK-1 CWI-2 Nov-05 500 21 20 TDFSS-2 33 31 Fltg -1 CWI - 1 Mar-06 Sep-05 400 17 26 44 31 Feb-06 V-LDA L-10 Nov-04 Jul-05 300 13 25 29 30 25 L-3B L- 6 L- 9 Aug-04 CHS-05 UK-Feb 200 20 28 27 32 33 L-3 L-5 L-8 Apr-04 Mar-05 PGG-Jan 100 22 23 23 18 51 30 Jan-06 L-1 L-2 L-4 L-7 Supply Jan-05 0 First Supplier Launch
  82. 82. Analysis-Led Design … • Computer analysis and simulation • Virtual product build • Eliminate expensive prototypes • More designs evaluated in shorter time • Engineering Standard Work Added 2500 hours analysis Eliminated 5500 hours testing / prototypes Better Designs Faster at Lower Cost
  83. 83. Analysis-Led Design … Better Designs Faster at Lower Cost • Combustion Analysis 12 months 5 months per design 10 1000 designs evaluated
  84. 84. Combustion Modeling in Analysis Led Design Rapid conversion of precursors to soot Rich premixed reaction zone Soot growth region Injector Cylinder wall Entrainment of air Entrainment of hot products Diffusion flame between hot soot and air
  85. 85. Combustion Modeling in Analysis Led Design Detailed Soot Rapid conversion of Kinetics HRR (MW/gm fuel) precursors to soot Model Rich premixed 150 1100+ equations reaction zone Soot growth region 100 50 0 500100015002000 Temperature (K) Injector Cylinder wall Entrainment of air Entrainment of hot products 3-D Fluid dynamics Diffusion flame between Flamelet hot soot and air code with improved Model spray model
  86. 86. Diesel Combustion Analysis Liquid Fuel Fuel Rich PM NOx
  87. 87. Analysis-Led Design … Better Designs Faster at Lower Cost • Combustion Analysis 12 months 5 months per design 10 1000 designs evaluated • Filter 35 months 21 months design-to-production 5 50 designs evaluated 60% fewer prototypes • Generator Set Structure 75 days 28 days per design 60% fewer prototypes
  88. 88. Analysis-Led Design … Better Designs Faster at Lower Cost 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
  89. 89. Global Presence / Darlington Daventry Global Access Ramsgate France UK Stamford Quimper Huddersfield USA Rocky Mount Jamestown Japan Cookeville Stoughton Oyama Fridley Charleston China Columbus Chongqing India Xiangfan Pune Mexico Brazil Wuhan Indore Beijing San Luis Potosi Sao Paulo Wuxi
  90. 90. Global Presence / Darlington Daventry Global Access Ramsgate France UK Stamford Quimper Huddersfield USA Rocky Mount Jamestown Japan Cookeville Stoughton Oyama Fridley Charleston China Columbus Chongqing India Xiangfan Pune Mexico Brazil Wuhan Indore Beijing San Luis Potosi Sao Paulo Wuxi Cummins Research & Technology India
  91. 91. Global Presence / Global Access East Asia R&D Beijing (CCI) Xiangfan (DCEC) Xi’an (Shaanxi) Chongqing (CCEC) Shanghai Fleetguard Wuxi Holset & Newage Wuhan (EAR&D) Hong Kong 1100 km 270 km 660 km 700 km 750 km 940 km
  92. 92. The Right Technology for… A New Cummins
  93. 93. A New Cummins Joe Loughrey President and Chief Operating Officer
  94. 94. Summary - 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
  95. 95. What’s Different Across the Company • Converting sales into profits
  96. 96. Converting Increased Sales into Higher Profits 250% 200% 200% 150% 100% 50% 34% 32% 30% 10% 8% 0% 2004-05 LTM 2002-03 2003-04 Revenue Growth EBIT Growth
  97. 97. Incremental EBIT% 25% 21% 20% 17% 15% 9% 10% 5% 0% 2004 - 2005 LTM 2002-03 2003-04
  98. 98. What’s Different Across the Company • Converting sales into profits • Leaner cost structure
  99. 99. Rationalized Manufacturing Capacity Leaner Cost Six Sigma Technical Culture Productivity Structure Global Sourcing
  100. 100. Increasing Gross Margins Leveraging SAR 23% GM % 21% 19% 17% SAR % 15% 13% Q1-03 Q2-03 Q3-03 Q4-03 Q1-04 Q2-04 Q3-04 Q4-04 Q1-05 Q2-05 Gross Margin % SAR %
  101. 101. What’s Different Across the Company • Converting sales into profits • Leaner cost structure • Strong global truck business
  102. 102. Significant Global Player In Trucks • North America • Europe • India • China • Mexico • Brazil • Engines • Filters • Emission Solutions • Turbochargers • Fuel Systems
  103. 103. What’s Different Across the Company • Converting sales into profits • Leaner cost structure • Strong global truck business • Partnerships working
  104. 104. Partnerships 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 • 25% of all IT work KPIT • Electronic controls partner
  105. 105. What’s Different Across the Company • Converting sales into profits • Leaner cost structure • Strong global truck business • Partnerships working • Leveraging complementary businesses
  106. 106. Leveraging Complementary Businesses • Technology • Cross selling • Excellence in customer support • Shared services • Common operating system
  107. 107. What’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
  108. 108. Major Profitable Growth Opportunities • Share growth • New products • After-market sales • Emerging markets
  109. 109. What’s Different by Business • Profitable NA HD truck business • PowerGen turnaround successful • Distribution business growing profitably • Emission Solutions successfully launched
  110. 110. Break
  111. 111. Business Update Joe Loughrey President and Chief Operating Officer
  112. 112. Agenda • Focused on profitable growth – Engine – Power Generation – Components – Distribution • Well positioned in emerging markets – China – India • Summary
  113. 113. Agenda • Focused on profitable growth – Engine – Power Generation – Components – Distribution • Well positioned in emerging markets – China – India • Summary
  114. 114. Engine Business Products Markets Other Const/Ag Parts Mining/Marine MR Parts HD Truck HHP Power Gen MD Truck/Bus LDA HD 2004 Revenue
  115. 115. Engines – Historical Performance Sales Segment EBIT 7000 500 $469 $6,070 6000 $5,424 400 $328 5000 300 4000 $3,435 $3,582 $3,121 200 3000 $M $M 2000 100 $62 $37 1000 0 2001 2002 2003 2004 2005LTM 0 2001 2002 2003 2004 2005 LTM -100 -$95
  116. 116. Strong Global Presence 2004 Global Production > 700,000 Engines Europe China North America 136,000 348,000 43,000 Japan India 42,000 75,000 South America 59,000
  117. 117. Ready For 2007 Emissions Change • Limited pre-buy • Best product in ‘07 • End user field testing underway
  118. 118. Living With Vertical Integration • Cost • Brand • Global presence • Technology
  119. 119. Profitable Growth Opportunities • Emissions driven share gain • High horsepower – Oil & Gas – Marine – Power Generation • Parts sales • Emerging markets • Below 8500 lbs
  120. 120. Agenda • Focused on profitable growth – Engine – Power Generation – Components – Distribution • Well positioned in emerging markets – China – India • Summary
  121. 121. Power Generation Six Lines of Business Lines of Business 2004 Sales: $1.8 Billion Commercial • Alternators Consumer Commercial • Rental Alternators • Power Electronics • Energy Solutions • Consumer Rental • Power Energy Electronics Solutions
  122. 122. Power Generation Three Major Markets • Standby Power 2004 Sales: $1.8 Billion • Mobile Power Distributed Standby • Distributed Generation Mobile
  123. 123. Power Generation – Historical Performance Sales Segment EBIT $1,933 2000 110 $1,842 $87 90 $82 1600 $1,422 70 $1,329 $60 $1,226 1200 50 $M $M 30 800 10 400 2002 2003 2001 2004 2005 LTM -10 -$19 0 -30 -$25 2001 2002 2003 2004 2005LTM -50
  124. 124. Turnaround Demonstrating Results Actions Results • New Management Team •Significant Profitability Improvement • Global Organization • Increased Market • Cost Reduction Penetration • Pricing Improvement • Global Growth • Collaborative Effort with Engine Business
  125. 125. Well Positioned for Profitable Growth • Most markets still strengthening • Expanding market share – New products – Improving distribution network • Consumer growth – Portables • Growing project business capability
  126. 126. Agenda • Focused on profitable growth – Engine – Power Generation – Components – Distribution • Well positioned in emerging markets – China – India • Summary
  127. 127. Components Segment – Four Businesses • Four businesses within the segment – Fleetguard – Emission Solutions – Holset – Fuel Systems
  128. 128. Components – Historical Performance Sales Segment EBIT 100 2000 $1,907 $94 $1,783 $86 $84 $80 80 1600 $1,292 $60 60 1200 $M $951 $M $889 800 40 20 400 0 0 2001 2002 2003 2004 2005 LTM 2001 2002 2003 2004 2005 LTM
  129. 129. Components Segment Strategy • Improve profitability • Grow share of business • Introduce new products
  130. 130. Improve 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
  131. 131. Grow 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
  132. 132. Emission Solutions Business Successfully Launched • Started with retrofit business • Leveraged existing relationships • Low cost plant in South Africa
  133. 133. New 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
  134. 134. Agenda • Focused on profitable growth – Engine – Power Generation – Components – Distribution • Well positioned in emerging markets – China – India • Summary
  135. 135. Distribution Segment • Strengthen the network • Capture more profitability • Outstanding customer support
  136. 136. Distribution Footprint Company-owned Joint Venture Independent
  137. 137. Distribution Footprint Company owned 75 Independent • 17 Owned • 11 - US/Canada • 9 JVs • 27 - Latin America • 89 countries • 12 - Europe • 220 Locations • 11 - Middle East • 4000+ employees • 8 - Africa • 6 - Asia
  138. 138. Distribution – Historical Performance Sales Segment EBIT 100 1200 $94 $1,099 $973 $79 1000 80 800 60 $669 $M $51 $574 $M $562 600 40 $33 400 $27 20 200 0 0 2001 2002 2003 2004 2005 2001 2002 2003 2004 2005
  139. 139. Positioned for Profitable Growth • Broadening product offering • Expanding internationally • Increasing equity ownership • Excelling in customer support
  140. 140. Agenda • Focused on profitable growth – Engine – Power Generation – Components – Distribution • Well positioned in emerging markets – China – India • Summary
  141. 141. China’s GDP Growth Outpaced the US Cumulative Real GDP Growth 1980-2004 8 7 CAGR = 8.6% GDP Multiple (1980 = 1) 6 5 4 3 CAGR = 2.6% 2 1 0 1980 1984 1988 1992 1996 2000 2004 China USA Source: International Monetary Fund
  142. 142. All Four Business Segments in China • Entered China in 1975 • Largest foreign investor • Strong market positions
  143. 143. Solid Foundation in China Wuxi Newage Xi’an Cummins Cummins Engine Alternators Co.,Ltd. Engine Co., Ltd. Wuxi Holset Engineering (Beijing) Co., Ltd. Co., Ltd. Dongfeng Cummins Beijing Engine Co., Ltd. Shanghai Fleetguard Xi’an Filter Co., Ltd. XiangfanWuxi Shanghai Chongqing Wuhan Chongqing Cummins Engine Company Ltd. EA Tech Center
  144. 144. CMI China Market Position in 2004 Engine shipment > 150,000 engines Installed population > 850,000 engines Largest Cummins bus OEM King Long Largest Cummins NG bus fleet Beijing Large Cummins truck OEM Dongfeng
  145. 145. 2004 Market Share Commercial trucks 20% Buses 17% Excavators 33% Mine trucks 85% Track equipment 73% Gensets 26% Alternators 33% Turbochargers 32% Source: Company estimates
  146. 146. China Sales Have Been Strong CMI Consolidated and Unconsolidated Sales 1,200 R AG 1,000 C 35 % 800 US$ Millions 600 400 200 0 2000 2001 2002 2003 2004 Consolidated Net Sales Unconsolidated JV Net Sales
  147. 147. 2010 China Market Size $11-13 B Over 600K Trucks By 2010 Bus & Key Drivers Coach Power Truck Diesel Rail Gen • Road construction Mining • Economic growth Oil & Gas • Government policies Marine LCV Construction
  148. 148. Well Positioned for Future Growth • East Asia R&D Center • Medium duty electronic products • Heavy duty entry • Expanded component manufacturing
  149. 149. Agenda • Focused on profitable growth – Engine – Power Generation – Components – Distribution • Well positioned in emerging markets – China – India • Summary
  150. 150. India’s GDP Growth also Outpaced the US Cumulative Real GDP Growth 1980-2004 8.00 7.00 GDP Multiple (1980 = 1.00) 6.00 5.00 CAGR = 5.7% 4.00 3.00 2.00 1.00 CAGR = 2.6% 0.00 1980 1984 1988 1992 1996 2000 2004 India USA Source: International Monetary Fund
  151. 151. All Four Business Segments in India • Started in 1962 • Strong market positions
  152. 152. Solid Foundation In India Tata Holset Ltd Dewas Valvoline Cummins New Delhi Nelson Engine Systems (I) Ltd. Daman Tata Cumm ins Jamshedpur Cummins India Ltd. Cummins Diesel Sales & Service Ltd. KPIT Cumm ins Infosystems Ltd. New age Electrical India Ltd. Ahmednagar International Purchasing Office Fleetguard Filters Ltd. Cummins Research & Technology India Pune
  153. 153. CMI India Market Position in 2004 Engine shipment > 75,000 engines Installed population > 350,000 engines Large Cummins NG bus fleet Delhi Large Cummins truck OEM Tata
  154. 154. 2004 Market Share Trucks 40% Mining 40% Compressors 55% Pumps 30% Rail 50% Commercial Marine 25% Construction 18% Gensets 55% Alternators 65% Turbochargers 45% Filtration 22% Source: Company estimates
  155. 155. India Sales Have Been Strong CMI Consolidated and Unconsolidated Sales 700 R G % CA 600 14 500 US$ Millions 400 300 200 100 0 2000 2001 2002 2003 2004 Consolidated Net Sales Unconsolidated JV Net Sales
  156. 156. 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
  157. 157. Well Positioned for Future Growth • Increased exports • Local electronic products • Major capacity increases – Turbochargers 46% – KV Engines 70% – Valvoline 50%
  158. 158. China / India - Summary • Long operating experience • All businesses strong • Healthy partnerships • Leveraging assets • Synergies growing • Many growth opportunities
  159. 159. Agenda • Focused on profitable growth – Engine – Power Generation – Components – Distribution • Well positioned in emerging markets – China – India • Summary
  160. 160. This is the New Cummins Profitable Restructured Power-Gen Engine Business Business Growing Strong Footprint in Components Emerging Markets and Distribution
  161. 161. Focused On Execution 24.3% Return on Average Net Assets 25% 19.7% 20% 15% 11.1% 10% 6.5% 7.8% 4.1% 5% -2.1% 0% 2005 LTM 1999 2000 2001 2002 2003 2004 -5%
  162. 162. A New Cummins
  163. 163. Non-GAAP Reconciliation – EBIT $ Millions Year ended LTM 12/31/99 12/31/04 6/30/05 Earnings before interest, income taxes, minority interest and restructuring charges $ 316 $ 543 $ 715 Restructuring, asset impairment and other (56) - - Earnings before interest, income taxes and $ 260 $ 543 $ 715 minority interest Interest Expense (75) (111) (113) Provision for income taxes (47) (56) (100) Minority Interests in earnings of unconsolidated (6) (26) (29) subsidiaries Net Earnings $ 132 $ 350 $ 473 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.
  164. 164. Additional Disclosures As 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.

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