A New Cummins: Sustainable Performance Investor Relations Presentation May 2007
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 forwardlooking 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 EBIT to GAAP financial measures. 2
Creating Greater Shareholder Value Doubled our revenue in 5 years Highest period of net earnings as a percent of sales in over 40 years Generated $4.2 billion in EBITDA since 2003 Improved debt to capital from 60% in 2003 to 19% today Actively repurchased 3.2 million shares in 2 years Exceeded both ROANA and ROE targets for over three years 3
Continuing to Deliver on Commitments Target 2006 Revenue Growth 8 to 10% EBIT Margin 7 to 10% Cap Ex 3% of Sales Debt to Capital Ratio 30 to 40% Credit Rating Investment Grade ROE 18% ROANA 22% 14.6% 10.4% 2.2% of Sales 22% S&P: BBB- Moody s: Baa3 25% 31% 4
We Have Outperformed Our Peer Group CAGR Since 2003 22% 13% 137% 37% Growing net income faster than revenue 75% 18% Converting more income into cash Revenue Net Income Operating Cash Flow CMI Peer Group Median 5
Confident in Our Ability to Perform in 2007 and Beyond We are executing on our Strategic Principles Our customers recognize Cummins for our technology leadership We are investing in the next generation of profitable growth opportunities 6
Executing on Our Strategic Principles to... Diversify to mitigate the cyclicality of our end markets Aggressively pursue low cost leadership Build greater stability in earnings Utilize focused cash management strategy 7
Diversified Global Power Leader Four Complementary Businesses Engines Power Generation Components Distribution 8
Reducing Cyclicality through Geographic Diversity 1999 2006 39% 61% 50% 50% US Consolidated Net Sales ROW Consolidated Net Sales 9
End Market Diversity Mitigates Economic Cycles 10
Aggressively Pursuing Low Cost Leadership Drive for Productivity Net Sales and Net Earnings Manufacturing $12,000 $11,362 $800 Technical Shared Services Six Sigma Global Sourcing Net Sales ($M) $10,000 $8,000 $6,000 $4,000 $2,000 $6,296 $8,438 $9,918 $700 $600 $500 $400 $300 $200 $100 Net Earnings ($M) $0 2003 2004 2005 2006 $0 Net Sales Net Earnings 11
Building Stable Diversified Earnings Base Significant contributor to total EBIT China Distribution India Aftermarket 12
Focused Cash Management Strategy Maintaining strong balance sheet Investing in profitable growth Returning value to our shareholders Operating Cash Flow ($M) $900 $800 $700 $600 $500 $400 $300 $200 $100 $0 2003 2004 2005 2006 13
Our Customers Recognize Cummins for Our Technology Leadership Virtually integrating through OEM partnerships Global technology leader in constantly changing emissions environment 14
Virtually Integrating Through OEM Partnerships Low Cost Strong Brand Global Presence Strong Partnerships Technology Leadership 15
Unique Technology Integration Fuel Systems Electronic Controls Air Handling Systems Filtration and Aftertreatment Combustion Technologies 16
Technology Leadership: Growing to Support our Customers Medium-Duty Truck and Bus Shipments Up 25% Cummins Turbo Technologies Revenue Up 28% 2006 2007 2006 2007 17
Investing in Profitable Growth New Product Increase share of wallet Pursue underserved markets Current Product Increase share in core markets Pursue untapped markets Current Market/Customer New Market/Customer 18
Growth From New Engine Platforms 1,400 Engine Production (Thousands) 1,200 1,000 800 600 400 200 0 2006 Organic Growth New Platforms 2010 19
Power Generation Growth Through Market Leadership 35% Global Generator Set Consumption (Total Output) Approximate $7 Billion Annual Global Market 30% 25% 20% 15% Top 8 regions 92% of total Market Leader (# 1 or # 2) Leader in some segments Not a market leader 10% 5% 0% North America Western Europe China Middle East India Southeast Asia Latin America Africa All Others 20 Source: Parkinson Associates
Evolving Global Emission Standards Creates Growth Opportunities Global Market Size for On-highway Commercial Vehicle Diesel Catalytic Exhaust ($B) $0 $1 $2 $3 $4 $5 $6 2006 2010 21
Investing in Our Distribution Channel Company-owned Joint Venture Independent 22
Confident in Our Ability to Perform in 2007 and Beyond We are executing on our Strategic Principles Our customers recognize Cummins for our technology leadership We are investing in the next generation of profitable growth opportunities 23
24
Non-GAAP Reconciliations
Non-GAAP Reconciliation EBIT Three Months Ended Millions April 1, 2007 April 2, 2006 December 31, 2006 Segment EBIT $ 243 $ 255 $ 303 Less: Interest Expense $ 16 $ 27 $ 20 Earnings before income taxes and minority interests $ 227 $ 228 $ 283 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. 26
Non-GAAP Reconciliation EBITDA Three Months Ended Millions April 1, 2007 April 2, 2006 December 31, 2006 Segment EBIT $ 243 $ 255 $ 303 Depreciation & Amortization $ 68 $ 74 $ 74 EBITDA $ 311 $ 329 $ 377 EBITDA = Earnings before interest, taxes, minority interests, depreciation, and amortization. 27
Non-GAAP Reconciliation Cash From Operations Excluding Pension Contributions Millions Cash provided by operations Three Months Ended April 1, 2007 April 2, 2006 $ (113) $ 18 Add back: pension contributions $ 61 $ 41 Cash provided by operations excluding pension contributions $ (52) $ 59 We believe cash provided by operations excluding pension contributions is a useful measure of our operating performance for the periods presented as it illustrates our operating performance without regard to funding decisions. This measure is not in accordance with, or an alternative for, GAAP and may not be consistent with measures used by other companies. It should be considered supplemental data. 28
Non-GAAP Reconciliation Net Assets Millions Net assets for operating segments Liabilities deducted in computing net assets Minimum pension liability excluded from net assets Pension and other postretirement liabilities Deferred tax assets not allocated to segments Debt-related costs not allocated to segments Total assets April 1, 2007 $ 4,041 3,516 - (824) 689 26 $ 7,448 April 2, 2006 $ 3,609 3,385 (837) - 814 26 $ 6,997 29
Non-GAAP Reconciliation Equity Used for Return on Equity Calculation Millions Equity used for return on equity calculation less Defined other postretirement benefits less Defined benefit pension plans less Minimum pension liability adjustment Total shareholder s equity April 1, 2007 $ 3,480 5 538 - $ 2,937 April 2, 2006 $ 2,501 - - 523 $ 1,978 30
Appendix
Cummins Inc. Q1 2007 LTM Revenue by Segment Q1 2007 Great Quarter Strong global demand for our product Year-over-year growth in revenue and earnings Investing in profitable growth opportunities Distribution Segment 10% Components Segment 17% Engine Segment 54% Q1 2007 LTM Data Sales: $11.5 billion EBIT: $1,167 million EBIT Margin: 10.1% (Target: 7-10%) Power Gen Segment 19% 32
Cummins Inc. Q1 2007 LTM Revenue by Marketing Territory International revenue is 49% of consolidated revenue International revenue was 54% in the first quarter Most international areas growing at double digit rate Mexico/Latin America 8% Asia/Australia 17% Canada 6% Africa/Middle East 5% United States 49% Europe/CIS 15% 33
Cummins Historical Performance Sales EBIT $14,000 $1,400 $12,000 $11,501 $11,362 $1,200 $1,179 $1,167 $10,000 $8,438 $9,918 $1,000 $907 $ Millons $8,000 $6,000 $6,296 $ Millons $800 $600 $543 $4,000 $400 $2,000 $200 $181 $0 2003 2004 2005 2006 Q1 '07 LTM $0 2003 2004 2005 2006 Q1 '07 LTM 34
Engine Segment Q1 2007 LTM Revenue by Product Emission regulations create opportunities Aftermarket revenue creates stable earnings Emerging markets Strategic OEM partnerships High Horsepower (19-91L) 15% Parts and Service 21% Midrange (3-9L) 37% Q1 2007 LTM Segment Data Sales: $7.5 billion EBIT: $682 million EBIT Margin: 9.1% (Target: 7-10%) Heavy-Duty (10-15L) 27% 35
Engine Segment Q1 2007 LTM Revenue by Market Application Heavy-duty Truck demand remains strong Share gains in Mediumduty Truck & Bus Off-highway markets supported by nonresidential construction and commodity markets Mining/Rail Govt/O&G Marine 14% Construction & Ag 16% Stationary Power 10% Heavy-duty truck 31% Q1 2007 LTM Segment Data Sales: $7.5 billion EBIT: $682 million EBIT Margin: 9.1% (Target: 7-10%) Light-duty Automotive & RV 16% Medium-duty Truck & bus 13% 36
Engines Historical Performance Sales Segment EBIT $8,000 $7,000 $6,657 $7,511 $7,455 $800 $700 $733 $682 $6,000 $5,424 $600 $582 $5,000 $500 $ M $4,000 $3,582 $ M $400 $328 $3,000 $300 $2,000 $200 $1,000 $100 $62 $0 2003 2004 2005 2006 Q1 '07 LTM $0 2003 2004 2005 2006 Q1 '07 LTM 37
Power Generation Segment Q1 2007 LTM Revenue by Product Turnaround complete Strengthening markets Expanding market share Consumer growth opportunities Growing project business capability Commercial 56% Alternators 19% Rental 2% Consumer 13% Q1 2007 LTM Segment Data Sales: $2.6 billion EBIT: $252 million EBIT Margin: 9.9% (Target: 7-9%) Energy Solutions 4% Power Electronics 6% 38
Power Generation Historical Performance Sales Segment EBIT $3,000 $300 $2,500 $2,416 $2,555 $250 $220 $252 $ M $2,000 $1,500 $1,000 $1,329 $1,842 $1,999 $ M $200 $150 $100 $50 $60 $145 $500 $0 $0 2003 2004 2005 2006 Q1 '07 LTM ($50) ($19) 2003 2004 2005 2006 Q1 '07 LTM 39
Components Segment Strategic advantage in emissions compliance Significant future growth in revenue and earnings Multiple new product introductions Winning non-cmi business Q1 2007 LTM Segment Data Sales: $2.4 billion EBIT: $100 million EBIT Margin: 4.2% (Target: 7-9%) Q1 2007 LTM Revenue by Product Acoustic Exhaust 12% Specialty Filtration Air Intake 6% Systems 11% Turbocharger 27% Engine Filtration 20% Catalytic Exhaust 8% Fuel Systems 16% 40
Components Historical Performance Sales Segment EBIT $3,000 $2,500 $2,000 $1,783 $2,000 $2,281 $2,383 $120 $100 $80 $86 $84 $89 $107 $100 $ M $1,500 $1,292 $ M $60 $1,000 $40 $500 $20 $0 2003 2004 2005 2006 Q1 '07 LTM $0 2003 2004 2005 2006 Q1 '07 LTM 41
Distribution Segment Q1 2007 LTM Revenue by Product Broadening product offering Expanding global coverage Increasing equity ownership Excelling in customer support Q1 2007 LTM Segment Data Sales: $1.4 billion EBIT: $152 million EBIT Margin: 11.0% (Target: 8-10%) Parts, Filters, & Consumables 37% Service 18% Engines 20% Power Generation 25% 42
Distribution Historical Performance Sales Segment EBIT $1,600 $1,400 $1,385 $1,377 $160 $140 $144 $152 $1,200 $1,000 $973 $1,191 $120 $100 $107 $ M $800 $669 $ M $80 $79 $600 $60 $51 $400 $40 $200 $20 $0 2003 2004 2005 2006 Q1 '07 LTM $0 2003 2004 2005 2006 Q1 '07 LTM 43