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cmi_050926
1. A New Cummins
Tim Solso
Chairman and Chief Executive Officer
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. 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. 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. 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. Delivering on Commitments
er
ol d
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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.
13. Growing International Sales
Consolidated & Unconsolidated Net Sales
1999 2004
11%
20%
US Asia Mexico / Latin America Australia
Europe Canada Africa / Middle East
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. 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. 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
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
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. 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. 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
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. Creating Shareholder Value
Earnings
Growth
Creating
Shareholder
Value
Focused Cash Reducing
Management Cyclicality
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
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. 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. Product Line Architecture in Filtration
He
a vy
Du
ty
Sm /O
a ll ff
Ro
En
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ne
/R
ec
Af Ve
te h
rm icl
ar e s
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Ai D
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O ck e s
te
Lo d D
Pa n
te ig
is
w tent es
Ta
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P a
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66. The Right Technology …
for Emissions Control
• Integrating
critical
subsystems
– Combustion
67. The Right Technology …
for Emissions Control
• Integrating
critical
subsystems
– Combustion
– Air handling
68. The Right Technology …
for Emissions Control
• Integrating
critical
subsystems
– Combustion
– Air handling
– Fuel systems
69. The Right Technology …
for Emissions Control
• Integrating
critical
subsystems
– Combustion
– Air handling
– Fuel systems
– Electronic
controls
– Aftertreatment
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. 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. 2002 HD Emission Control
Foundation for the Future
Charge Air Cooler
EGR-Cooler
Variable Geometry
Turbocharger
73. 2007 HD Emission Control
Charge Air Cooler
EGR-Cooler
Exhaust
Filter
Variable Geometry
Turbocharger
74. EGR and CGI
Charge Air Cooler
Charge Air Cooler
EGR-Cooler
“CGI”
EGR-Cooler
Variable
Valve
Mechanism Exhaust
Filter
Variable Geometry
Turbocharger
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
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. The Right Technology …
for Technical Productivity
• Six Sigma
• Analysis Led Design
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
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. 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
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. 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. 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. 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. 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
93. A New Cummins
Joe Loughrey
President and Chief Operating Officer
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
101. What’s Different
Across the Company
• Converting sales into profits
• Leaner cost structure
• Strong global truck business
102. Significant Global Player In Trucks
• North America
• Europe
• India
• China
• Mexico
• Brazil
• Engines
• Filters
• Emission Solutions
• Turbochargers
• Fuel Systems
103. What’s Different
Across the Company
• Converting sales into profits
• Leaner cost structure
• Strong global truck business
• Partnerships working
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. What’s Different
Across the Company
• Converting sales into profits
• Leaner cost structure
• Strong global truck business
• Partnerships working
• Leveraging complementary businesses
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
109. What’s Different by Business
• Profitable NA HD truck business
• PowerGen turnaround successful
• Distribution business growing profitably
• Emission Solutions successfully launched
111. Business Update
Joe Loughrey
President and Chief Operating Officer
112. Agenda
• Focused on profitable growth
– Engine
– Power Generation
– Components
– Distribution
• Well positioned in emerging markets
– China
– India
• Summary
113. Agenda
• Focused on profitable growth
– Engine
– Power Generation
– Components
– Distribution
• Well positioned in emerging markets
– China
– India
• Summary
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
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. Ready For 2007
Emissions Change
• Limited pre-buy
• Best product in ‘07
• End user field testing underway
119. Profitable Growth Opportunities
• Emissions driven share gain
• High horsepower
– Oil & Gas
– Marine
– Power Generation
• Parts sales
• Emerging markets
• Below 8500 lbs
120. Agenda
• Focused on profitable growth
– Engine
– Power Generation
– Components
– Distribution
• Well positioned in emerging markets
– China
– India
• Summary
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. Power Generation
Three Major Markets
• Standby Power 2004 Sales: $1.8 Billion
• Mobile Power
Distributed Standby
• Distributed
Generation
Mobile
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. 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. Agenda
• Focused on profitable growth
– Engine
– Power Generation
– Components
– Distribution
• Well positioned in emerging markets
– China
– India
• Summary
127. Components Segment –
Four Businesses
• Four businesses within the segment
– Fleetguard
– Emission Solutions
– Holset
– Fuel Systems
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. 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
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. Agenda
• Focused on profitable growth
– Engine
– Power Generation
– Components
– Distribution
• Well positioned in emerging markets
– China
– India
• Summary
135. Distribution Segment
• Strengthen the network
• Capture more profitability
• Outstanding customer support
139. Positioned for Profitable Growth
• Broadening product offering
• Expanding internationally
• Increasing equity ownership
• Excelling in customer support
140. Agenda
• Focused on profitable growth
– Engine
– Power Generation
– Components
– Distribution
• Well positioned in emerging markets
– China
– India
• Summary
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. All Four Business Segments
in China
• Entered China in 1975
• Largest foreign investor
• Strong market positions
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. 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
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. 2010 China Market Size $11-13 B
Over 600K Trucks By 2010
Bus &
Key Drivers
Coach
Power Truck
Diesel Rail
Gen
• Road construction
Mining
• Economic growth
Oil &
Gas
• Government policies
Marine
LCV
Construction
148. Well Positioned
for Future Growth
• East Asia R&D Center
• Medium duty electronic products
• Heavy duty entry
• Expanded component manufacturing
149. Agenda
• Focused on profitable growth
– Engine
– Power Generation
– Components
– Distribution
• Well positioned in emerging markets
– China
– India
• Summary
150. India’s GDP Growth also Outpaced the US
Cumulative Real GDP Growth 1980-2004
8.00
7.00
GDP Multiple (1980 = 1.00)
6.00
5.00
CAGR = 5.7%
4.00
3.00
2.00
1.00
CAGR = 2.6%
0.00
1980 1984 1988 1992 1996 2000 2004
India USA
Source: International Monetary Fund
151. All Four Business Segments
in India
• Started in 1962
• Strong market positions
152. Solid Foundation In India
Tata Holset Ltd
Dewas
Valvoline Cummins
New Delhi
Nelson Engine Systems (I) Ltd.
Daman
Tata Cumm ins
Jamshedpur
Cummins India Ltd.
Cummins Diesel Sales & Service Ltd.
KPIT Cumm ins Infosystems Ltd.
New age Electrical India Ltd.
Ahmednagar
International Purchasing Office
Fleetguard Filters Ltd.
Cummins Research & Technology India
Pune
153. CMI India Market Position in 2004
Engine shipment > 75,000 engines
Installed population > 350,000 engines
Large Cummins NG bus fleet Delhi
Large Cummins truck OEM Tata
155. India Sales Have Been Strong
CMI Consolidated and Unconsolidated Sales
700
R
G
% CA
600
14
500
US$ Millions
400
300
200
100
0
2000 2001 2002 2003 2004
Consolidated Net Sales Unconsolidated JV Net Sales
156. 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. Well Positioned for Future Growth
• Increased exports
• Local electronic products
• Major capacity increases
– Turbochargers 46%
– KV Engines 70%
– Valvoline 50%
158. China / India - Summary
• Long operating experience
• All businesses strong
• Healthy partnerships
• Leveraging assets
• Synergies growing
• Many growth opportunities
159. Agenda
• Focused on profitable growth
– Engine
– Power Generation
– Components
– Distribution
• Well positioned in emerging markets
– China
– India
• Summary
160. This is the New Cummins
Profitable
Restructured
Power-Gen
Engine Business
Business
Growing
Strong Footprint in Components
Emerging Markets and Distribution
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%
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. 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.