Cummins_Investor_Conference_SEP_18-07

Cummins Inc. - 2007 Investor Conference Tim Solso

WelcomeCummins Investor ConferenceJamestown Engine Plant

September 2007

2

Agenda

Welcome

9:15 a.m. to 10:40 a.m. – Presentations

10:40 a.m. to 10:55 a.m. – Break

10:55 a.m. to noon – Presentations

Noon to 1 p.m. – Q and A

1 p.m. to 3 p.m. – Lunch, plant tours, exhibits

Presenters• Tim Solso,

Chairman and CEO

• Joe Loughrey, President and COO

• John Wall, Chief Technical Officer

• Jim Kelly, President, Engine Business

• Tom Linebarger, President, Power Generation

• Rich Freeland, President, Distribution

• Rick Mills, President, Components

• Steve Chapman, Group Vice President, Emerging Markets

• Anant Talaulicar, Vice President, Cummins India

• Jean Blackwell, Chief Financial Officer

Cummins Inc. - 2007 Investor Conference Tim Solso

3

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 61 of our 2006 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 those measures to GAAP financial measures.

4

Earnings Growth

Strong balance sheet and cash flows

Technical leadership

Global presence

Cummins Inc. - 2007 Investor Conference Joe Loughrey

Cummins Inc.Joe LoughreyChief Operating Officer

2

Agenda

Macro trends moving our way

Well positioned to take advantage

Sustained profitable growth


3

Tougher Emission Standards

Mexico2008

Mexico2008

Australia2008

Australia2008

Brazil2009

Brazil2009

Europe2009

Europe2009US /

Canada2010

US / Canada

2010

India2010India2010

China2010

China2010

Off-highway2011-14

Off-highway2011-14

4

Demand for Energy and Fuel Efficiency

Higher fuel costs and electricity consumption

Energy independence and fuel economy

Dependence on reliable electric supply


5

Emerging Markets

IndiaGDP 8%

ChinaGDP 9-11%

VietnamGDP 7-8%

NigeriaGDP 7%

TurkeyGDP 5%

CISGDP 6-7%

6

Global diesel engine market growth 6 - 7% CAGR

Gasoline engine markets shifting to diesel

Clean diesel engine markets growing faster

Real Growth Opportunity

2003

Global Use of Clean Diesel

2014


7

Well Positioned for Growth

Deep technology capability

Strong global network

Major strategic partnerships

New products

Capacity expansion

Global market leadership

Continuous improvement and change

8

Deep Technology Capability

Investing in the right technology

Great partners

World class methods and tools

Reflected in results


9

Strong Global NetworkTechnical Centers

10

Strong Global NetworkManufacturing


11

Company-owned

Joint Venture

Independent

Strong Global NetworkDistribution

12

Major Strategic Partnerships

Daimler

MerCruiser


13

New Products

Light-duty engines Comfort Guard Filtration

Tier 2 HHPXPI fuel system

14

Capacity Expansion

EnginesGensetsAlternatorsTurbochargersFuel systemsCatalytic exhaust systems


15

Global Market Leadership

MD Truck

MD Truck Power GenIndustrialFiltrationTurbos

TurbosAlternators

SCR SystemsMD Truck

MiningExcavators

Bus

Power Gen

HD TruckHD pick-up

Bus, RVMarineTurbos

Catalytic ExhaustFiltration

Power Gen

Power GenFiltration

16

Continuous Improvement and Change

Cummins Operating System

Global sourcing

Expansion of Six Sigma

Partnering to ensure customer success

Global recruiting and development


17

Profitable Growth

$1.2

$2.1

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

2006 2011$

Bill

ions

$11

$20

$0

$5

$10

$15

$20

$25

2006 2011

$ B

illio

ns

EBITSales

12% CAGR

12% CAGR

Cummins Inc. - 2007 Investor Conference John Wall

Technology Leadership

Dr. John WallChief Technical Officer

22

FranceQuimper

DarlingtonDaventryRamsgateStamfordHuddersfield

UK

IndiaPuneIndoreJamshedpur

ChinaChongqingXiangfanWuhanBeijingWuxi

BrazilSao Paulo

MexicoSan Luis Potosi

USARocky MountJamestownCookevilleStoughtonFridleyCharlestonSeymour Columbus

JapanOyama

Cummins Major Engineering Centers including Joint Ventures


33

4000 Engineers worldwide• 2500 US• Growth in India and China

• Mechanical Eng• Materials Eng• Electrical Eng• Chemical Eng• Chemistry

1200 Engineering Technicians

Global Engineering Workforce

US – 2,474

UK - 646

India 506

China 207 Mexico 26

Brazil 37

44

EuropeQuimper

10 Test Stands

2 CVS Cells19 Test Cells

1 Cold Cell6 Gen Set Cells

UK

India11 Test Cells

1 Gen Test CellChina

11 Test Cells4 Turbo Test StandsBrazil

6 Test Cells

USA USA Plant Engr2 CVS Cells

21Test Cells27 Test Stands

CPG-Fridley31 Gen Test Cells

2 Cold Cell24 End Gen Test Cells

CES/CF-Stoughton9 Test Cells

22 Test Stands

Columbus-2 Chassis Rolls17 CVS Cells81 Perf/End Test Cells2 Altitude2 Cold Cells3 Noise Cells3 Single Cylinder Cells4 Gen Set Cells

Technical Testing Laboratories

237 Test Cells21 Emission cells63 Test stands2 vehicle chassis cells


55

FranceQuimper


UK

IndiaPuneIndoreJamshedpur


BrazilSao Paulo

MexicoSan Luis Potosi

USARocky MountJamestownCookevilleStoughtonFridleyCharlestonSeymour Columbus

JapanOyama

Global IntegrationGlobal Integration

66

Innovation + Productivity

Common Technical ObjectivesWorldwide


77

Technical Productivity

$0$1,000$2,000

$3,000$4,000$5,000$6,000

$7,000$8,000$9,000

$10,000

$11,000$12,000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

0.5%

1.5%

2.5%

3.5%

4.5%

5.5%

Sales R&E % Sales

$ M

illio

ns

Sales

R/E %

88

Common ProcessesProduct Line ArchitectureEngineering Standard WorkAnalysis Led DesignSix Sigma



99



1010

Diversity - Applications


1111

Global Emission Requirements - 2010

5

3

3

3

44

2

2

2

2

3

UnregulatedGroup 1Group 2Group 3Group 4Group 5

Stringency

1212

Diversity – Engine Technology

3500 hp

31 hp


1313

Product Line Architecture

Principles: Standardization, Modularity, Reuse

Develop broad range of modular technical building blocks– Product hardware and software– Simulation tools

Leverage capability to create integrated products tailored to meet customer needs worldwide– Low cost High feature content– On-highway Off-highway– North America IndiaMatch technology to application

1414

2002 2007

+Requires a Long Term View

Particulate FilterR&D Since Late 1980’s

EGR R&D Since Early 1990’s

Stable Emissions Architecture


1515

2010 Products Another Evolutionary Step

Key EnablersAdvanced Combustion TechnologyNext-Generation Cooled EGRFlexible Common-Rail Fuel SystemCummins AftertreatmentCummins VG TurbochargerElectronic ControlsCapable Base Engine Design

2010

1616

Tier 2 Tier 3

In-Cylinder. No EGR. No Aftertreatment

Stable Emissions Architecture


1717

OptiAir FilterProduct Architecture

Patented features

1818




1919

Engineering Standard Work

“Current best practices uniformly applied.”

– Structured approach to product design

– Critical for global collaboration

2020

Base Engine Component Warranty

$0

$10

$20

$30

$40

$50

$60

2002 2003 2004 2005 2006

War

rant

y C

ost (

Mill

ions

)

50% Reduction


2121

Warranty ExpensePercent of Sales

EGRDPF

0

1%

2%

3%

4%

5%

2000 2001 2002 2003 2004 2005 2006 2007

2222




2323

Use computer analysis and simulation to eliminate expensive prototypes and testing

More designs evaluated in shorter timeVirtual product buildComplex system optimization

Implemented through Engineering Standard WorkAdded 2500 hours analysisEliminated 5500 hours testing / prototypes

Analysis Led Design

Better Designs Faster at Lower Cost

2424

Analysis Led Design



2525

2007 Heavy Duty Engine Program 100% more analysis hours20% lower total program cost

2007 Midrange Engine Programs 200% analysis hours29% lower total program cost


Analysis Led Design

2626

FranceQuimper


UK

IndiaPuneIndore


BrazilSao PauloMexico

San Luis Potosi

USARocky MountJamestownCookevilleStoughtonFridleyCharleston Columbus

JapanOyama

Cummins Research & Technology India

Cummins Research & Cummins Research & Technology India Technology India


2727

FranceQuimper


UK

IndiaPuneIndore


BrazilSao PauloMexico

San Luis Potosi

USARocky MountJamestownCookevilleStoughtonFridleyCharleston Columbus

JapanOyama

Cummins Research & Technology India

Cummins Research & Cummins Research & Technology India Technology India • CRTI opened January 2004

• Pure analysis and design • CFD: #1 India, Top 2 CMI• Structural Analysis: Top 5 India, #1 CMI

• 160 engineers today• 250 engineers YE 2008• $25/hr vs. $60/hr: $10 million savings 2007

2828

Process

Six Sigma

Process Improvement

Product Design

Technology Development

Six Sigma in Technology and Product Development

Design For

Six Sigma

Technology

Development

For Six Sigma

Six Sigma Tools and Methodologies

Higher Quality Products and Processes


2929

Our Products Must Meet Customer Requirements

3030

Our Products Must Meet Customer Requirements

Low Maintenance

Reliable and Durable

High Performance

Low Initial Cost

Fuel Efficient

High Qualityand Aesthetics

Low Emissions

Connected and Integrated

SystemsHighly

Sociable


3131

Emission technology best in world Invested in right technologies across all our businessesMatch right technology to applicationBetter quality through stable architectureSystem integration builds on Cummins synergies

Innovation

3232

50% CMI50% Other 70% CMI

30% Other

70% CMI30% Other

20% CMI80% Other

Innovation in Critical ComponentTechnologies


3333


3434

50% CMI50% Other 70% CMI

30% Other

70% CMI30% Other

#1 US DPF#1 Euro SCR

20% CMI80% Other

Closed Crankcase Ventilation100% US Light Duty Diesel 2010

#1 US HD VGT



3535

Hybrid Powertrain100kW Cummins Power Module

Cummins is No. 1 in diesel power

for hybrids today

3636

NOx Adsorber Catalyst

Periodic Fuel InjectionNOx AdsorberActive Particulate Filter

NOx Control Using Urea SCRUrea (NH3)

Soot

Ash

Soot

Ash

2007 And Beyond . . . Integrating Engine and Aftertreatment

1st introduction in US


3737

This is how it all comes together:

Cummins components

Including the most complex and effective diesel exhaust aftertreatment system in production today

Integrated into a power system with our OEM partner Chrysler to deliver -

More power50% less noise2010 emission levels

Cummins Powered Dodge Ram video

3838

Technical Capability and Global PresenceFuel Future Growth

4 New Engines:2.8L, 3.8L, LDD, Mid-bore HD

New Fuel System3 New Turbocharger PlatformsNew Integrated Filter Modules

New Aftertreatment


3939

Cummins Inc. - 2007 Investor Conference Jim Kelly

Engine Business

Jim Kelly, President

2

Construction& Ag 16%

Market Application Marketing Territory

Mining/RailGovt/O&G

Marine 14%

Light-duty Automotive & RV 17%

US/Canada 63%

Heavy-dutytruck 28%

Medium-dutyTruck & bus 14%

Power Generation 11%

EMEA, 12%

Latin America &

Mexico, 13%

East Asia, 5%SE/NE Asia, 4%

India, 3%South Pacific,1%

Engine Sales – LTM $7.7B

Who We Are


3

Where We’ve BeenEngine Business – Historical Performance

$3.6

$5.4

$6.7

$7.5$7.7

$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0

$7.0

$8.0

$9.0

2003 2004 2005 2006 LTM

$ B

illio

ns

$0.8

$1.2 $1.3

$1.5

$1.6

$0.0

$0.2

$0.4

$0.6

$0.8

$1.0

$1.2

$1.4

$1.6

$1.8

2003 2004 2005 2006 LTM

$ B

illio

ns

Joint Venture Sales Unconsolidated

Consolidated Sales

4

$7.5 $7.7

$13.3

$0.0

$2.0

$4.0

$6.0

$8.0

$10.0

$12.0

$14.0

2006 LTM 2011

$ B

illio

ns

Where We’re HeadedEngine Business – Future Performance

$1.5$1.6

$3.7

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

$4.0

2006 LTM 2011

$ B

illio

ns

13% CAGR

20% CAGR


Consolidated Sales


Engine Business – Sales Volume Growth

Rest of World2006: 154,0002011: 193,000

China2006: 122,0002011: 423,000

India2006: 97,0002011: 201,000

North America2006: 397,0002011: 708,000

EMEA2006: 63,000

2011: 110,000

2006 Total = 833,000

2011 Total = 1,635,000

6

How We’re Getting There

Growth driversEmission regulations

Emerging markets

Strategic OEM partnerships

New engine platforms

Steady aftermarket revenue growth


7

How We’re Getting ThereEmission Regulations

Competitive advantageRight technology

Growing market share

Expect regulatory changes to continueOn board diagnostics

Global emissions alignment

Carbon regulations

Industrial segments: global presence / partnerships

8

How We’re Getting ThereEmerging Markets

ChinaMedium Duty TruckHeavy Duty TruckLight Commercial VehicleConstruction

IndiaMedium Duty TruckLight Commercial Vehicle

RussiaMedium Duty Truck

BrazilMedium Duty TruckConstruction/Agriculture


9

How We’re Getting ThereStrategic OEM Partnerships

10

How We’re Getting ThereNew Engine Platforms

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2006 OrganicGrowth

NewPlatforms

2011

Engi

ne P

rodu

ctio

n (T

hous

ands

)


11

How We Are Getting ThereSteady Aftermarket Revenue Growth

$2B sales by 2011Strong margins create solid earnings platformGrowth opportunities

Increasing engine population in all platforms, territoriesRemanufactured product growth

Leverage outstanding distribution

12

Growing Margin DollarsEngines

Segm

ent

EBIT

($ M

)

12% CAGR

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

2003 2006 2011


13

Key Joint Ventures

Dong Feng Cummins

Foton Cummins

Tata Cummins

Cummins Mercruiser

Growth in JV Income

Segm

ent J

V In

com

e ($

M)

$0

$20

$40

$60

$80

$100

$120

$140

$160

2003 2006 2011

14

Earnings Growth

Global Growth Opportunities

Positioned Well TechnologyPartners

Leveraging Revenue Growth To Earnings 8.5%7 – 10%Segment

EBIT %

13%8 – 10%Revenue Growth

New Targets

Old Targets

Cummins Inc. - 2007 Investor Conference Tom Linebarger

Power Generation

Tom Linebarger, President

2

Power Generation Sales – LTM $2.7B

Who We Are

Marketing Territory

North America36%

EMEA34%

Latin America8%

India10%

China5%Asia Pacific

7%

Market Application

StandbyPower

56%

Distributed Generation

32%

Mobile Power12%


3

Where We’ve BeenPower Generation – Historical Performance

Consolidated Sales

23% CAGR

Segment EBIT

411% CAGR

$1.3

$1.8$2.0

$2.4

$2.7

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

2003 2004 2005 2006 LTM

$ B

illio

ns

($19)

$60

$145

$220

$284

-$50

$0

$50

$100

$150

$200

$250

$300

2003 2004 2005 2006 LTM

$ M

illio

ns

4

Where We’re GoingPower Generation – Future Performance

$220

$284

$480

$0

$100

$200

$300

$400

$500

$600

2006 LTM 2011

$ M

illio

ns

Segment EBITConsolidated Sales

$2.4$2.7

$4.8

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

2006 LTM 2011

$ B

illio

ns

15% CAGR

17% CAGR


5


Capitalize on industry growth

Leverage existing market leadership

Establish leadership in all major markets

Expand into new and adjacent markets

6

How We’re Getting ThereCapitalize on Industry Growth

Electricity demand

Dependence on electricity

Developing economies

Low investment in generation and distribution


7 Source: Parkinson and company estimates

How We’re Getting ThereLeverage Existing Market Leadership

Mobile Power

Motorized RV

85%

Commercial Mobile

40%

Recreational Marine

33%

DistributedGeneration

Basic Power

30%

Standby Power

High-spec Standby

40%

Alternators 25%

8

How We’re Getting ThereEstablish Leadership in All Major Markets

Cummins Leadership Positions

0%

5%

10%

15%

20%

25%

30%

35%

NorthAmerica

WesternEurope

China MiddleEast

India SoutheastAsia

LatinAmerica

Africa

Not a market leader

Leader in some segments

Market leader (#1 or #2)

Top 8 regions92% of total


9

How We’re Getting ThereExpand Into New and Adjacent Markets

10

Strong growth opportunities

Solid leadership team

Low cost producer

Increased value-add

10%7 – 9%Segment EBIT %


New Targets

Old Targets

Earnings Growth

Cummins Inc. - 2007 Investor Conference Rich Freeland

Distribution Business

Rich Freeland, President

1

Historical strength of CumminsGlobal reachIndependent franchises

Strategy changed in 2002 Consolidate into fewer, larger distributorsCummins takes equity stake• Favorable markets• Diversified / growing / profitable• Counter cyclical

Outstanding customer support – consistent

Who We Are


2

Who We Are

Market TerritoryMarket Application

Distribution – LTM Sales $1.4B

NorthAmerica

6%

M.E.13%

Europe30%

Asia Pacific29%

Africa5%

LA 3%

China6%

India8%

Parts andConsumables

6%

Service18%

Engine20%

Power Gen26%

3

2006

Joint Venture

Consolidated

Independent

2001

$3.2B $5.4B

CMI ownership increased from 28% to 67% of total revenues

Where We’ve Been

Cummins participation$3.2B @ 28% = $0.9B



4

$0.8$1.1

$1.3

$2.2

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

2003 2004 2005 2006

$ B

illio

ns

Where We’ve BeenDistribution – Historical Performance

$0.7

$1.0$1.2

$1.4

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

2003 2004 2005 2006

$ B

illio

ns


Consolidated Sales

5

$0.7

$1.0

$1.2

$1.4

$0.0

$0.2

$0.4

$0.6

$0.8

$1.0

$1.2

$1.4

$1.6

2003 2004 2005 2006

$ B

illio

ns

Sales EBIT

Where We’ve Been

27% CAGR

41% CAGR

$51

$79

$107

$144

$0

$20

$40

$60

$80

$100

$120

$140

$160

2003 2004 2005 2006

$ M

illio

ns


6

In 2011, 88% of revenue will flow through fully or partially owned distributors.

20062011

$5.4B $8.9B

Where We’re Headed



Joint Venture

Consolidated

Independent

7

How We’re Getting ThereAcquisitions and Consolidations

North AmericaEquity in 14 of 16 Distributors

Latin AmericaFormation of new Joint Ventures

AfricaGrow/expand West Africa JV

AsiaGrow/expand Thailand/Vietnam JV


8

Where We’re HeadedDistribution – Future Performance

15% CAGR18% CAGR

$2.2

$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

2006 2011

$ B

illio

s

$1.4

$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

2006 2011

$ B

illio

ns $2.8

$5.0


Consolidated Sales

9

How We’re Getting ThereGrow Organically

Parts and ServiceGrowing engine population worldwide

Complexity of products increasing

Adding service outlets in emerging markets

Power Generation: Building sales capabilities

Engines: Small OEMs


10

How We’re Getting ThereBuild Capabilities

Common processesEnterprise resource planning

Distributor and BU synergies

Customer Support ExcellenceProactive and predictive services

Re-engineer customer contact centers

11

($ M

illio

ns)

Consolidation and acquisitions

All distributors/regions to profit target

Leveraging sales volume

Build capabilities –invest in growing regions

New Targets

$0

$50

$100

$150

$200

$250

$300

$350

$51

$310

2003 2011

Segment EBIT

17% C

AGR

$144

2006


12

$16

$134

2003 2011

Almost half of profits by 2011 coming from the JV Income line

Leverage North America JVs – act as one

Continue acquisitions and consolidations and expand markets in newly formed JVs around the globe

Segment JV Income

Growth in JV Income

$0

$20

$40

$60

$80

$100

$120

$140

$160

($ M

illio

ns)

$54

2006

20% C

AGR

13

Leverage Cummins equipment growth

Continue acquisitions, consolidations and integrations

World-class customer support

Make best Distribution System even better

Cannot be duplicated

Earnings Growth


15%10%Revenue Growth

New Targets

Old Targets

Cummins Inc. - 2007 Investor Conference Rick Mills

Components

Rick Mills, President

2

Who We Are

Emission Solutions

Filtration

Fuel Systems

Turbo Technologies

Four distinct business units


3

Who We Are

Marketing TerritoryMarket Application

Components Revenue – Q2 LTM $2.6B

N America61%

LA 5%

AsiaPac11%

EMEA23%

Turbos 28%

Fuel Systems 14%

Catalytic Exhaust

11%

AcousticExhaust

11%

EngineFiltration

20%

Specialty 6%

Air Intake 11%

4

Where We’ve BeenComponents – Historical Performance

Consolidated Sales

$1.3

$1.8$2.0

$2.3$2.6

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

2003 2004 2005 2006 LTM

$ B

illio

ns


5

Consolidated Sales

2.32.6

6.0

$0.5

$1.5

$2.5

$3.5

$4.5

$5.5

$6.5

2006 LTM 2011

$ B

illio

ns

Where We’re GoingComponents – Future Performance

20% CAGR

6

How We’re Getting ThereGrowth Focus

Emissions

Fuel Economy

Engine Performance


7

How We’re Getting ThereEmission Solutions

$0

$1

$2

$3

$4

$5

$6

2006 2010

Glo

bal M

arke

t Siz

e ($

B)

Successful 2007 product launches

Significant growth opportunity

Capacity expansion

$1.5B Revenues in 2011

Evolving Global Emission Standards Accelerates Market Growth for Diesel

Catalytic Exhaust

We have 30%of the market

today

8

How We’re Getting ThereFiltration

Most profitable business in the segment

Profit margins improving

Emissions creating new growth opportunities

$2B Revenues in 2011


9

How We’re Getting ThereFuel Systems

Critical to engine performance and emissions

Industry leading common rail fuel system

Scania partnership

Increasing demand

$0.5B Revenues in 2011

10

3.9

1.21.5

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

2005 2006 2011

How We’re Getting There Turbo Technologies

Critical to emissions, fuel economy and engine performance

Cummins has the leading technology

Demand driving significant capacity expansion

$2B Revenues in 2011

Turbo Unit Volumes

22% CAGR

Mill

ions


11

How We’re Getting ThereLeverage Cummins Strengths

Grow with Cummins engines

Grow with Cummins OEM partners

Leverage global distribution to grow aftermarket

12

How We’re Getting ThereGrowth With Cummins OEM Partners

Turbos

Komatsu

Daimler

Paccar

Scania

Volvo

CNH

Navistar

Fuel SystemsFiltrationAftertreatment


13

Business Challenges

New plant/product launches

High demand causing capacity constraints

High start-up costs

Escalating metal costs

Underperforming businesses

14

Actions

Increasing capacity

Focus on operating efficiencies

Pricing actions

Divesting unprofitable businesses


15

Transitioning

New products launched

Industry leading technology

Capacity expansion

Divesting of non-strategic businesses

New target margin of 9%

Components

Segm

ent

EBIT

($ M

)

$0

$100

$200

$300

$400

$500

$600

2003 2006 2011

16

Earnings Growth



New TargetsOld Targets

Cummins Inc. - 2007 Investor Conference Steve Chapman

Emerging MarketsChinaSteve Chapman,Group Vice President

2

“ Cummins has succeeded in nations renowned for being tough on foreign investors … Cummins figured it out well before the competition.”

(BusinessWeek, August 22/29, 2005)

Partnerships local production and minimized capital

Empowered local management and employees

Global sourcing and exporting

Local engineering potential

Emerging MarketsHow Cummins Does It


3

Evolution of Cummins in China

LicenseeManufacturing

JointVentures

Local IPand Support

ImportedProducts

1975-1985

1985- 1995

1995- 2005

Today

$25M $200MConsolidated

> $650MUnconsolidated

> $650M

Growth

4

Shenyang• Shenyang Distributor

Beijing• China Headquarters• Genset Assembly Plant• BFCEC JV Engine Plant

(under construction)• Beijing Distributor• Emissions Solutions Plant

(under construction)

Wuxi• CTT JV Plant• Vanewheel JV Plant• CGT Plant

Shanghai• Filtration Campus• Filtration JV Plant• IPO & Marine Offices• China PDC• Valvoline JV• Shanghai Distributor

Taiwan• Taiwan Distributor

Guangdong area• Hong Kong Distributor• Guangzhou Distributor• Shenzhen JV Distributor

Kunming• Kunming Distributor

Chengdu• Chengdu Distributor

Chongqing• CCEC JV Engine Plant

Wuhan• DCEC JV Engine Plant• Nelson Exhaust JV Plant• Fuel Systems Plant

(under construction)• EA R&D Center• Wuhan Distributor

Xi’an• XCEC JV Engine Plant• Xi’an Distributor

Urumqi• Urumqi Distributor

Xi’an

Urumqi

ChengduChongqing

Wuhan

GuangdongKunming

Taiwan

Shanghai

Wuxi

Beijing

Shenyang

Who We Are


5

Who We Are

12 plants, 1 technical center12 service centers, 1 PDC, 240+ dealers5000+ employees in wholly-owned and JV entities$140M investment, over $200M committed

Consolidated > $650MUnconsolidated > $650MStrong profitability and returnsOver 1 million engines in operation

6

Engine75%

Engine43%

PowerGeneration

28%

Components17%

Who We Are

LTM Sales - $669M

Distribution12%

PowerGeneration

13%

Components7%

Distribution5%

LTM Sales - $691M


Consolidated Sales


7

Where We’ve BeenChina – Historical Performance

$286

$454

$580 $572

$669

$0

$100

$200

$300

$400

$500

$600

$700

$800

2003 2004 2005 2006 LTM

$ M

illio

ns

$357

$643

$488

$579

$691

$0

$100

$200

$300

$400

$500

$600

$700

$800

2003 2004 2005 2006 LTM

$ M

illio

ns

24% CAGR

18% CAGR


Consolidated Sales

88

Where We’re HeadedChina – Future Performance

20% CAGR

$572$669

$1,450

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000

2006 LTM 2011

$Mill

ions

27% CAGR

$579$691

$1,900

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000

2006 LTM 2011

$ M

illio

ns


Consolidated Sales


9

GDP growthSignificant infrastructure developmentRegulations converging to international standardsStrong market growth

How We’re Getting ThereKey Growth Drivers

10

How We’re Getting ThereWell Positioned for Growth

Long-term partnershipsStrong network– Complementary businesses

Market leadershipCapacity growthContinuous improvement and change– People

Local technology capabilityNew products


11

How We’re Getting ThereNew Product Platforms

Joint Venture Engine Products – 2.8L and 3.8L– 13L

Power GenerationSub Systems & Components– Filtration– Air Handling– Fuel Systems– Emissions Solutions

12

CCEC

XCEC

DCEC

BFCEC

Engine JVs

3819151111138.9

4.5/6.78.98.3

3.9/5.93.82.8

Liters

1080-1609550-899176-450176-350335-440420-540286-369138-282296-354217-320123-232147-174107-161

HP range

QSK38

ISF

M11NTQSK19

ISMISZISLISDLCB

ISE Product

How We’re Getting There2011 JV Engine Products


1313

Earnings Growth

Strong position headed into Euro III and IV emission standard changes

High localization of content minimizes currency impact

Increased share of wallet with key OEM partners

Joint Venture income increasing dramatically

China EBIT

($ M

illio

ns)

22% CAGR

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

2003 2006 2011

1414

Growth in JV Income

Growth from new JVs: Foton Cummins and Xi’an Cummins

Increased contribution: Dongfeng Cummins

Expanded role: Chongqing Cummins

($ M

illio

ns)

14% CAGR

$0

$20

$40

$60

$80

$100

$120

$140

$160

2003 2006 2011

China JV Income


15

Earnings Growth

China strategically important to CMI– Great domestic market

– Multiple, strong OEM partnerships

– Fantastic infrastructure

Well positioned for growth

Cummins Inc. - 2007 Investor Conference Anant Talaulicar

Emerging Markets IndiaAnant TalaulicarVice President

2

Evolution of Cummins in India

ComponentInvestments

Tata Partnership Services

Joint Venture

1960s-1970s

Late1980s

Mid1990s

Early2000s

KirloskarCummins

andCDSS

Filtrationand

GeneratorTechnologies

Tata CumminsAnd

Tata Holset

KPITCummins

andCRTI

MajorityPosition

1997

CumminsIndiaLtd.


3

Who We Are

Valvoline Cummins

Tata CumminsFleetguard Filters

Cummins Generator Technologies

Fleetguard Filters

Cummins India Ltd.Cummins Sales & Service KPIT CumminsCummins Business ServicesInternational Purchasing Office Fleetguard FiltersCummins Research & Technology India

New Delhi

JamshedpurDewas

Daman

Pune

Ahmednagar

Hosur

DewasCummins Turbo Technologies

New Delhi

Jamshedpur

Ahmednagar

GeneratorsCummins Exhaust

Daman

Pune

Hosur

4

Who We Are

15 plants, 2 technical centers1 service center, 1 PDC, 75 dealers6500+ employees in wholly-owned and JV entities$275M investment from 2004 through 2010

Consolidated > $650MUnconsolidated > $500MStrong profitability and returnsOver 763,000 engines in operation


5

Engine71%Distribution

17%

PowerGeneration

44%

Components7%

Engine32%

Components11%

Distribution18%

Who We Are


Consolidated Sales

LTM Sales - $650M LTM Sales - $500M

6

Where We’ve BeenIndia – Historical Performance

$267

$354

$432

$518

$691

$0

$100

$200

$300

$400

$500

$600

$700

$800

2003 2004 2005 2006 LTM

$ M

illion

s

Domestic Export

$192

$284$335

$486$516

$0

$100

$200

$300

$400

$500

$600

$700

$800

2003 2004 2005 2006 LTM

$ M

illion

s

Domestic Export

27% CAGR

28% CAGR


Consolidated Sales


7

$518

$691

$1,350

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

2006 LTM 2011

$ M

illio

ns

$486 $516

$1,200

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

2006 LTM 2011

$ M

illio

ns

Where We’re HeadedIndia – Future Performance

21% CAGR

20% CAGR


Consolidated Sales

8

GDP growthSignificant infrastructure developmentRegulations converging to international standards12% peak power deficitLeveraging low cost products/services globally

How We’re Getting ThereKey Growth Drivers


9

How We’re Getting ThereWell Positioned for Growth

Market leadership– Dominance in heavy commercial vehicles, generators

Strong network– Complementary businesses

Long-term partnershipsContinuous improvement and change– People – Six Sigma and Zero Defect

New productsLocal technology capabilityCapacity growth – new campus near Pune

10

($ M

illio

ns)

Earnings Growth

Strong position headed into Euro III and IV emission standard changes

High localization of content minimizes currency impact

Manufacturing scale

Increasing share of wallet with key OEM partners

Strong distribution and customer support

Joint Venture earnings $0

$50

$100

$150

$200

$250

$300

2003 2006 2011

India EBIT


11

Growth in JV Income

Tata Cummins capacity to more than double

$0

$10

$20

$30

$40

$50

$60

2003 2006 2011

India JV Income

($ M

illio

ns) 42% CAGR

12

Earnings Growth

India strategically important to CMI– Great domestic market

– Low cost producer leverage

– Fantastic infrastructure

Well positioned for growth

Cummins Inc. - 2007 Investor Conference Jean Blackwell

Cummins Inc.

Jean Blackwell, CFO

2


0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2003 2004 2005 2006

Mill

ions

$

Who We AreGrowing Sales Across the Business

Consolidated Sales

0

2,000

4,000

6,000

8,000

10,000

12,000

2003 2004 2005 2006

Mill

ions

$


3

Who We AreGrowing Earnings Faster Than Sales

Total Sales and Net Earnings

$6.3B

2003

$8.4B

2004

$9.9B

2005

$11.4B

2006$0

$0.1

$0.2

$0.3

$0.4

$0.5

$0.6

$0.7

$0.8

Total Sales Net Earnings

$0

$2

$4

$6

$8

$10

$12

$14

$16

In B

illio

ns

4

Who We AreGenerating Strong Cash Flow

Ope

ratin

g C

ash

Flow

(M$)

158

2003

614

2004

760

2005

840

20060

100

200

300

400

500

600

700

800

900


5

Who We AreDelivering on Commitments

Strong balance sheetReduced debtFunded our liabilities

Grew our businessInvested for the future

Returned value to shareholdersReturn on equityShare appreciationDividendsShare repurchase

$815M debt reduction

67% dividend increase

$787M cap ex

$800M global pension funding

50% CAGR since 2003

$370M

exceeding target

6

Where We’re Headed

Consolidated Sales Joint Venture Sales Unconsolidated

Mill

ions

$

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

2006 20110

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

2006 2011

Mill

ions

$

12% CAGR

18% CAGR


7

Where We’re HeadedGeographic Diversity

US Consolidated Net SalesROW Consolidated Net Sales

19992006

50% 50%61%39%

2011

47%53%

8

Where We’re HeadedDelivering on Commitments

Strong balance sheetLiquidityFunding commitments

Growing our businessInvesting for the future

Returning value to shareholdersShare appreciationDividendsShare repurchase


9

Where We’re Headed Business Performance Targets

10%15%Power Generation

11%15%Distribution

9%20%Components

8.5%13%Engine Business

EBIT %Sales Growth

10

Where We’re Headed Cummins Inc. Performance Targets

Sales growth 12%

EBIT 10%

ROANA 25%

ROE 20%


11

How We’re Getting ThereContinued Focus on Strategic Principles

Leverage complementary businesses

Create shareholder value

Low cost producer

Grow in related markets

Create the right environment for success

12

Creating Shareholder

Value

Disciplined Cash Management

ManagingRisk

EarningsGrowth

How We’re Getting ThereA Disciplined Growth Model


14

Disciplined Cash Management


Creating Shareholder

Value

ManagingRisk

EarningsGrowth

ROANA 25%ROE 20%

Cash on hand $300 to $500MWorking capital 16.5 to 17.5%

Debt/EBITDA 1.25-1.50Liquidity $2B

Sales growth 12%EBIT 10%R&D 3%Capital exp. 3- 4%

16


Cash

Liquidity

Investment Opportunities

Dividends

Share Repurchase

$300 – 500M

$2B

$3.5B

Stable and Growing

Continuing

App

endi

x

Join

t V

entu

re S

ales

Unc

onso

lidat

ed

$529

$1,4

74

$1,2

85$1

,232

$0

$200

$400

$600

$800

$1,0

00

$1,2

00

$1,4

00

$1,6

00

2003

2004

2005

2006

$ Millions

$1,3

16

$1,0

29$1

,204

$1,7

15

$2,4

97

$0

$500

$1,0

00

$1,5

00

$2,0

00

$2,5

00

$3,0

00

2003

2004

2005

2006

$ Millions

Eng

ines

Dis

tribu

tion

In 2

003,

sal

es fr

om c

erta

in J

Vs

(col

ored

red

abov

e) w

ere

treat

edas

unc

onso

lidat

ed; a

dopt

ion

of F

IN 4

6R in

200

4 re

quire

d th

e co

mpa

ny to

con

solid

ate

the

resu

lts o

f cer

tain

JV

s.

$162

$72

$105

$130

$0$20

$40

$60

$80

$100

$120

$140

$160

$180

2003

2004

2005

2006

$ Millions

$72

$94

$110

$123

$0$20

$40

$60

$80

$100

$120

$140

2003

2004

2005

2006

$ Millions

Join

t V

entu

re S

ales

Unc

onso

lidat

ed

Pow

er G

ener

atio

nC

ompo

nent

s

Non

-GA

AP

R

econ

cilia

tion

s

Non

-GA

AP

Rec

onci

liati

on –

EB

IT

We

defin

e E

BIT

as

earn

ings

bef

ore

inte

rest

exp

ense

, pro

visi

on fo

r inc

ome

taxe

s an

d m

inor

ity in

tere

sts

in e

arni

ngs

of

cons

olid

ated

sub

sidi

arie

s.W

e us

e E

BIT

to a

sses

s an

d m

easu

re th

e pe

rform

ance

of o

ur o

pera

ting

segm

ents

and

als

o as

a

com

pone

nt in

mea

surin

g ou

r var

iabl

e co

mpe

nsat

ion

prog

ram

s. T

he ta

ble

abov

e re

conc

iles

EBIT

, a n

on-G

AAP

finan

cial

m

easu

re, t

o ou

r con

solid

ated

ear

ning

s be

fore

inco

me

taxe

s an

d m

inor

ity in

tere

sts,

for e

ach

of th

e ap

plic

able

per

iods

.

We

belie

ve E

BIT

is a

use

ful m

easu

re o

f our

ope

ratin

g pe

rform

ance

for t

he p

erio

ds p

rese

nted

as

it illu

stra

tes

our o

pera

ting

perfo

rman

ce w

ithou

t reg

ard

to fi

nanc

ing

met

hods

, cap

ital s

truct

ure

or in

com

e ta

xes.

This

mea

sure

is n

ot in

acc

orda

nce

with

, or

an

alte

rnat

ive

for,

acco

untin

g pr

inci

ples

gen

eral

ly a

ccep

ted

in th

e U

nite

d S

tate

s of

Am

eric

a (G

AA

P) a

nd m

ay n

ot b

e co

nsis

tent

with

mea

sure

s us

ed b

y ot

her c

ompa

nies

. It

shou

ld b

e co

nsid

ered

sup

plem

enta

l dat

a.

$

9

1

$

9

0

$

181

2003

$ 1

,083

$

798

$

432

Ear

ning

s be

fore

inco

me

taxe

s an

d m

inor

ity

inte

rest

s

$

9

6$

1

09$

1

11Le

ss: I

nter

est E

xpen

se

$ 1

,179

$

907

$

543

EB

IT

2006

2005

2004

Mill

ions

Yea

rs E

nded

Non

-GA

AP

Rec

onci

liati

on –

EB

IT

We

defin

e E

BIT

as

earn

ings

bef

ore

inte

rest

exp

ense

, pro

visi

on fo

r inc

ome

taxe

s an

d m

inor

ity in

tere

sts

in e

arni

ngs

of

cons

olid

ated

sub

sidi

arie

s.W

e us

e E

BIT

to a

sses

s an

d m

easu

re th

e pe

rform

ance

of o

ur o

pera

ting

segm

ents

and

als

o as

a

com

pone

nt in

mea

surin

g ou

r var

iabl

e co

mpe

nsat

ion

prog

ram

s. T

he ta

ble

abov

e re

conc

iles

EBIT

, a n

on-G

AAP

finan

cial

m

easu

re, t

o ou

r con

solid

ated

ear

ning

s be

fore

inco

me

taxe

s an

d m

inor

ity in

tere

sts,

for e

ach

of th

e ap

plic

able

per

iods

.

We

belie

ve E

BIT

is a

use

ful m

easu

re o

f our

ope

ratin

g pe

rform

ance

for t

he p

erio

ds p

rese

nted

as

it illu

stra

tes

our o

pera

ting

perfo

rman

ce w

ithou

t reg

ard

to fi

nanc

ing

met

hods

, cap

ital s

truct

ure

or in

com

e ta

xes.

This

mea

sure

is n

ot in

acc

orda

nce

with

, or

an

alte

rnat

ive

for,

acco

untin

g pr

inci

ples

gen

eral

ly a

ccep

ted

in th

e U

nite

d S

tate

s of

Am

eric

a (G

AA

P) a

nd m

ay n

ot b

e co

nsis

tent

with

mea

sure

s us

ed b

y ot

her c

ompa

nies

. It

shou

ld b

e co

nsid

ered

sup

plem

enta

l dat

a.

$

283

$

20

$

303

Q4

’06

$

273

$

23

$

296

Q3

’06

$ 1,

123

$

340

$

227

Ear

ning

s be

fore

inco

me

taxe

s an

d m

inor

ity in

tere

sts

$

73

$

14

$

16

Less

: Int

eres

t Exp

ense

$ 1,

196

$

354

$

243

EB

IT

LTM

Q2

’07

Q1

’07

Mill

ions

Qua

rters

End

ed

Cummins_Investor_Conference_SEP_18-07

Economy & Finance

Transcript of Cummins_Investor_Conference_SEP_18-07