Cummins Engine Company, Inc. is a leading global designer and manufacturer of diesel engines from 55 to 2,700 horsepower. In 1999, Cummins reported $6.6 billion in sales and employed 28,500 people. Key highlights from 1999 include record sales and earnings before interest and taxes of $356 million, a 46% increase in earnings per share from 1998, and increased dividends. Cummins focuses on performance across its engine, power generation, and filtration businesses to deliver value to shareholders and customers.

2. Business Unit Products Customers and Markets
Engine Business
q Medium-duty engines q Two broad classes of customers: Original
Largest supplier of diesel
ISB and ISC for light commercial automotive, equipment manufacturers (OEMs) who install
engines for the North American
truck, transit bus, RVs, and specialty vehicles. Cummins engines in their vehicles and
heavy-duty truck market and
Automotive applications are available in equipment, and end-use customers who use
leading global supplier of diesel
diesel and alternate-fueled versions from the Cummins-powered equipment in their
and natural gas engines for
175 horsepower to 350 horsepower. business endeavors.
heavy-duty trucks, medium-duty
trucks, buses, and recreational B3.3, B3.9, B5.9, QSB, QSC for agriculture,
vehicles (RVs). Exclusive supplier construction and marine applications from
of diesel engines for the Dodge 55 to 340 horsepower.
Ram pickup truck.
q Heavy-duty engines
A leading global supplier ISL, ISM, N14, ISX and Signature Series
of engines for the agriculture, for trucking applications from 280 to 650
construction, government, horsepower.
mining, rail and marine markets.
QSM, M11, N14 and QSX15 engines for
construction, mining, marine, and agriculture
applications from 225 to 600 horsepower.
q High-horsepower engines
QSK19, V903, QST30, K38/50, QSK45 and QSK60
for marine, rail, mining and government
applications from 295 to 2,700 horsepower.
Power Generation
q Power Systems q Public- and investor-owned utilities; telecom-
Global supplier of diesel and
Diesel and natural gas-powered generator sets; munications providers; self-generating
natural gas-powered generator
digital control systems; paralleling switchgear. manufacturers; any business or public facility
sets and generator set components
with a need for self-generated or standby power.
from 5kW to multi-megawatt q Mobile Systems
installations. North American market q RV, specialty vehicle and marine
Onan gasoline, liquified propane, and diesel-
leader in auxiliary generator sets fueled auxiliary generator sets from 3kW to pleasurecraft OEMs.
for recreational vehicles (RVs) and 12.5kW and associated controls. q Alternators for industrial, marine, commercial,
recreational marine applications.
q Alternators construction, telecommunications, mining and
Newage synchronous AC alternators and other standby or continuous power applications.
associated control systems.
Filtration and Other
Global leader of advanced integrated q Heavy-Duty Systems q OEMs, distributors, dealers and end users of
filtration systems for heavy-duty Air intake filtration, emission and noise heavy-duty on- and off-highway diesel-powered
equipment, both on- and off-highway. reduction, engine filtration and mobile hydraulic equipment.
Leading North American supplier filtration systems. q OEMs of small engine systems for recreational,
of filtration and silencing systems for
q Small Engine Systems and lawn and garden equipment, both gasoline-
gas turbine, industrial, small engine
Air intake filtration and exhaust systems. and diesel-powered.
and passenger car applications.
q Other Systems q OEMs of gas turbine generators, industrial
“Other”includes Holset turbochargers Air intake and silencing systems for gas turbine machinery, passenger cars and industrial
and company-owned distributorships. applications, in-tank filtration for passenger cars hydraulic equipment including distribution.
and hydraulic filtration for industrial applications. q Turbochargers for Cummins, Cummins joint
q All integrated systems sold under the ventures and selected OEM customers.
Fleetguard and Nelson brand names. q Cummins ownership of 16 distributorships links
q Turbochargers us closely to our end-use customers in strategic
Holset variable geometry, variable wastegate, locations worldwide.
power turbine, high pressure ratio and multi-
stage solutions.

3. 1999 Highlights
q Completed the replacement of the entire auto-
motive product line as part of a $1.7 billion
investment from 1994 –1999, which included the
ISB, ISC, ISL, ISM, ISX and Signature 600 engines.
q Introduced the QSM full authority electronic
engine for marine markets.
q Introduced the QSK60 engine with up to 2,700
horsepower for powering mine haul trucks up
to 300 tons and 90 cubic yard front-end loaders.
q Supplied a record number of ISB engines
for the Dodge Ram pickup, powering over
100,000 trucks.
q Supplied 800 natural gas-powered engines for
Beijing city buses.
q Expanded the QuickServe program to provide
superior parts and service support to customers
in all market segments.
q Profitability growth in excess of 100 percent
due to restructuring steps taken during 1998.
q Introduced new generator set rental program
in North America.
q Introduced new 2,000 kW generator set.
q Opened new national RV service center concept
facility in North America.
q Unveiled natural gas-powered 81 and 91 liter
engines to tap a market for clean, cost-effective
heat and power systems.
q Launched global original equipment sales
program, which led to increased market
penetration in heavy-duty systems.
q Expanded small engine business by 27 percent.
q Introduced on-line catalogs, and continued
to provide support from 12 worldwide
customer service centers, capable of speaking
16 languages.
q Offered new million-mile exhaust system and
coolant packages extending performance for
the long term.

4. A powerful performance...
Cummins Engine Company, Inc.
is a leading worldwide designer
and manufacturer of diesel engines
from 55 to 2,700 horsepower and
the world’s largest producer of diesel
engines above 200 horsepower.
The company provides products and
services for customers in markets
worldwide for engines, power
generation and filtration, including
engine components, natural gas
engines, filtration systems and
information products and services.
In 1999, Cummins reported
sales of $6.6 billion and employed
28,500 people.

5. Highlights
Cummins Engine Company, Inc.
$ Millions, except per share amounts 1999 1998
Net sales $ 6,639 $ 6,266
Gross profit 1,418 1,249
Selling and administrative expenses 781 787
Research and engineering expenses 245 255
Other expense (income), net 8 (13)
Earnings before interest and taxes:
Before unusual charges 356 282
As reported 296 65
Net earnings (loss) 160 (21)
Basic earnings (loss) per share 4.16 (0.55)
Diluted earnings (loss) per share 4.13 (0.55)
Dividends per share 1.125 1.10
Contents
2 Letter to the Shareholders
6 Engine Business
10 Power Generation Business
14 Filtration Business and Other
18 Management’s Discussion and Analysis
24 Statement of Earnings
25 Statement of Financial Position
26 Statement of Cash Flows
27 Statement of Shareholders’ Investment
28 Notes to Consolidated Financial Statements
40 Responsibility for Financial Statements
40 Report of Independent Public Accountants
41 Five-Year Supplemental Data
42 Board of Directors
44 Executives and Officers
45 Shareholder Information
46 Cummins Worldwide Locations

6. Our revenue and profit diversifi-
cation continues to pay off. In 1999,
Dear Fellow Shareholders: strength in the North American
heavy-duty truck market, record
sales to DaimlerChrysler and
Our 1998 Annual Report emphasized
improved profitability in power
VALUE, the fundamental by which
generation offset weakness
any endeavor is judged.At Cummins
in agricultural and mining markets.
we recognize that companies
On the following pages, leaders
delivering superior value to their
of our three businesses — Engine,
shareholders over time are the Power Generation, and Filtration —
ones that deliver superior value to describe results and the outlook
their customers. To increase the
Sales by Segment
for their organizations.
1999 Sales $6.6 Billion
value we deliver to shareholders
Power
Generation
Business
and customers, we focused on Performance for Our Shareholders
20%
PERFORMANCE throughout 1999. Our emphasis on performance
enabled us to move toward our
Cummins 1999 performance financial goal of earning nine
Filtration
Engine
represents a significant step toward percent before interest and taxes.
Business
Business
and Other
64%
achieving our financial goals.
16%
Revenue grew by six percent to In 1998, we introduced several
$6.6 billion, thereby setting a initiatives which were designed
record for the eighth consecutive to improve profitability. These
year. Exclusive of a $60 million initiatives included improvement in
charge associated with the disso- product cost, operating expense
Sales by Geographic Region
lution of our joint venture with and cash flow. Our people have
Wärtsilä, Cummins Earnings made solid progress towards each
12%
Asia /Australia
Before Interest and Tax (EBIT) of intiative. We have benefited from
12%
Europe/CIS
Focused on performance,
7%
Canada
6%
61% Mexico/Latin America
United States 2%
$356 million were a record, and lower production costs as volumes
Africa/Middle East
net earnings per share were increase for our new engines. We
$5.29, a 46 percent increase over have achieved substantial savings in
1998, excluding unusual charges. material costs and we continue to
As reported, Cummins’ EBIT work hard to improve product cover-
Sales
$ Millions
was $296 million and net earnings age costs. We have completed a
per share were $4.13 in 1999. highly successful program to reduce
7000
the costs of goods and services like
As a result of stronger profits office supplies, computers, freight,
6000
and a significant reduction in capital travel and health care, and teams are
spending, free cash flow was now cycling through the categories
5000
$84 million, and we reduced our again, seeking further savings.
debt-to-capital ratio by three per-
4000
1997 1998 1999
centage points to 46 percent. We The restructuring we announced in
also returned value to our share- the third quarter of 1998 was nearly
holders in 1999 by increasing our complete by year-end 1999. Late
Earnings Before Interest and Tax*
$ Millions
dividend, and we repurchased in 1999, we concluded the sale of
650,000 shares of Cummins stock. Atlas Crankshaft to ThyssenKrupp
Automotive, one of the world’s
300
leading automotive suppliers. As a
200
major supplier of crankshafts and
camshafts, the new company,
100
known as TKA Atlas, will continue
to be an important supplier to
0
Cummins.
1997 1998 1999
*Excludes unusual charges
2

7. Information technology, which is
revolutionizing business, is enabling
Cummins to create a comparative
In addition, as we announced in advantage for our customers.
December, Cummins and Wärtsilä We are the exclusive supplier of
NSD of Finland have agreed to software for the electronic control
dissolve the joint venture formed modules on all our engines, and People — the Key to Performance
in 1995 to design and develop two we are actively devising more ways As a global company, we understand
families of high-speed, high-horse- to offer value over the product that having a diverse, achievement-
power engines. Now that engine lifecycle by using the Internet and oriented workforce is the key to
development has been completed, continuously improving performance.
increasingly sophisticated commu-
each company will focus its Our people in plants, offices and
nication methods and service tools.
sales and distribution network on distributorships around the world
We continue to use information
the engines that have the greatest are extraordinarily talented and
technology to operate more effi-
potential for growth in its own dedicated. To enable them to give
ciently, improve customer service
markets. Cummins will retain their best, we are committed to
and accelerate growth in business
responsibility for diesel and natural providing a safe working environ-
and consumer markets, thereby
gas engines produced at our ment, clear performance
creating sustainable value for our
plant in Daventry, England, and expectations and two-way com-
shareholders.
Cummins and Wärtsilä will continue munication which enables them
to be customers and suppliers of to share ideas.
In addition, we are working hard
each other. to build on our alliances with OEM
customers, moving beyond simple Performance for the Future
We continue to be pleased with buy-sell relationships to partner- Around the world, businesses in
the growth prospects and profit ships which involve, in many cases, the industries which we supply,
opportunities of our other joint product design, manufacturing and including many of our customers,
ventures around the world. distribution. One successful are consolidating. In addition,
driven by results.
Performance for Our Customers many countries are mandating that
example is our partnership with
Cummins has the most advanced diesel engines meet increasingly
Iveco and CNH Global NV (formerly
and complete engine product line Case and New Holland) through the stringent emissions requirements,
in the industry. In 1999, we com- European Engine Alliance (EEA), and natural gas-fueled engines are
pleted the major cycle of product which was formed to design and emerging as an attractive option
development which we began in manufacture midrange engines, for more and more customers.
1994 — upgrading or replacing as well as a new generation of As a global, independent engine
every engine in our product line and one-litre-per-cylinder diesel engines. manufacturer, Cummins is uniquely
adding new engines at both ends Another important alliance partner well equipped to thrive in this new
of our horsepower spectrum. Our is Komatsu Ltd., with whom environment. Our comprehensive
engines, which range from 55 to we have three joint ventures, the product line, which includes natural
2,700 horsepower, feature advanced scope of which includes the joint gas engines over a wide range
electronics, combustion, and manufacture of midrange and high- of horsepower levels, is the most
fluid- and air-handling technology. horsepower engines as well as advanced in the industry. Our
Our engines, generator sets, turbo- technical collaboration regarding leadership in air-handling systems,
chargers and filtration technologies the design and development of fuel systems, electronics and
give our customers cost-effective new engines for industrial markets. emissions control makes Cummins
performance while contributing a logical supplier and alliance partner
to a cleaner environment. As the to companies in many markets
industry’s technical leader, we worldwide.
will continue to invest substantial
resources to meet increasingly
tough emissions standards and
rising customer expectations.
3

8. The Policy Committee leads the focus
on performance.
Members of the Committee:
(from left to right) Christine Vujovich,
Kiran Patel, Jack Edwards, Jean Blackwell,
Tim Solso, Mark Gerstle, Joe Loughrey,
Pamela Carter, Frank McDonald, Rick Mills
4

9. The Cummins management team
Today’s global business environment invites you to join us on Tuesday,
is fiercely competitive. Tomorrow’s international markets. We also April 4 for our annual shareholders’
will be even more so. We believe expect continuing, intense cost meeting to learn more about
that this environment is tailor-made reduction efforts to contribute to today’s performance and tomor-
for Cummins’ continued success. higher margins. row’s potential.
We are focused on continuing to Cummins enters the new millen-
improve our financial performance nium as a balanced, global company
in 2000. While there is uncertainty positioned well to weather down-
and possible decline in the North turns. We have a diverse, seasoned Tim Solso
American heavy-duty truck market, group of managers in place, and we Chairman and
we expect to offset any revenue are focusing relentlessly on per- Chief Executive Officer
and margin loss with gains from our formance for our customers and Cummins Engine Company, Inc.
power generation, filtration, and our shareholders. March 1, 2000
Transition
Cummins’ entry into the twenty- the company’s product line. challenges, and he will be remem-
first century is marked by some We would not have achieved the bered, along with Irwin Miller and
significant transitions, including record results or be positioned Jim Henderson, as a builder of
the retirement of three members as well as we are for the future Cummins’ reputation for business
of our Board of Directors. without Jim’s leadership and excellence and ethical behavior in the
vision. On behalf of the company latter half of the twentieth century.
At the end of 1999, Jim Henderson and its customers, I thank Jim
retired from Cummins after serving for his contributions and wish him Harold Brown, Counselor at the
five years as Chairman and Chief the very best in retirement. Center for Strategic and International
Executive Officer, eighteen as Studies, a partner in E.M. Warburg,
President and Chief Operating Two other directors will be retiring Pincus & Co., and formerly U.S.
Officer and twenty-six as a member from the Board in April. Secretary of Defense, has reached
of the Board of Directors. Through- age 72, the mandatory age for
out his thirty-five years with the Henry Schacht, Director and Senior retirement from the Cummins
company, Jim has been dedicated Advisor of E.M. Warburg, Pincus Board. During his fifteen years as
to innovation and involving Cummins & Co., formerly Chairman and CEO a member of the Board, Harold’s
people in improvement for our of Lucent Technologies and a profound grasp of science, tech-
customers. In the 1970s, Jim led member of the Cummins Board nology and world affairs has been
the way in introducing team-based since 1969, has decided not to of inestimable value to Cummins.
work systems to U.S. industry. stand for re-election in April. Henry In addition to serving as Chair of the
Faced with competition from Japan has been associated with Cummins Board’s Technology Committee,
in the 1980s, Jim initiated a for 35 years, serving as President Harold has been Chairman of
Total Quality Systems approach, from 1969 to 1977, as CEO from Cummins Science and Technology
Customer Led Quality, which 1973 to 1994 and as Chairman of the Advisory Council, a group of emi-
achieved substantial gains in both Board from 1977 to early 1995. nent scientists whose expertise
quality and productivity. During Throughout his career, Henry has encompasses a wide range of
his tenure as Chief Executive, Jim demonstrated foresight, wisdom technical developments. We are
brought a renewed focus on share- and courage in the face of tough pleased that we will continue to
holder value as he led the most benefit from Harold’s leadership
aggressive investment in Cummins of the Council after his retirement
history to modernize and expand from the Board.
5

10. Gulf Freight Services, based in Australia, depends on Cummins
automotive and industrial engines to move mountains.

11. Performance required. Road optional.

12. Cummins continues to expand
Engine Business the availability of information
products in all markets, in order to
help our customers manage their
Engine Business revenues of businesses more successfully.
$4.2 billion grew by six percent in During 1999, we released updated
1999. Profitability increased 34 per- versions of our Inform and Insite
cent compared to 1998. Shipments software and a new version of our
of engines to the heavy-duty truck in-cab computer, RoadRelay4,
market increased by 18 percent which assist customers with the
while unit sales to the medium-duty service and business management
truck markets also increased by of their engines.
eight percent in 1999, reflecting
strong market conditions. In addition, Advisor software
assists industrial OEMs in designing
Shipments of engines in industrial more reliable equipment with our
markets declined by six percent engines, and INTERCEPT provides
in 1999 as agriculture and mining comprehensive parts and service
markets fell sharply, driven by information, reducing search times
generally lower commodity prices. by up to 90 percent.
Shipments to the construction
markets remained near 1998 levels Throughout the world, Cummins
as a result of strong sales in North supplies engines for buses in urban
America, offsetting continued weak- areas that demand the least possible
ness in Asian markets.The number emissions. In Beijing, China, we
of engine shipments to the marine will supply 800 natural gas-powered
1999 Sales $4.2 Billion
segment increased by 16 percent, engines for buses, and Cummins
reflecting strong demand for recre- powers over 3,000 low emissions
Industrial
products
ational marine products. diesels in Hong Kong.
24%
Heavy-duty
trucks
42%
Performance for our
Medium-duty
trucks
12%
DaimlerChrysler, Cummins’
Bus and light
largest customer, for the first time
commercial vehicles
22%
purchased more than 100,000
ISB engines for the Dodge Ram
Sales
pickup truck. In addition, Cummins
$ Millions
expanded its overall share in the
Class A recreational vehicle market
4000
from 18 percent to 24 percent,
reflecting the trend from gasoline-
3750
powered vehicles to diesel.
Cummins maintains a 75 percent
3500
share of the diesel segment as a
Cummins’ investment in new prod-
3250
result of strong customer preference.
1997 1998 1999
ucts provides the best capability
for current and future emissions
1999 marked the 27th consecutive
requirements, consistent with
Earnings Before Interest and Tax*
year of market leadership in the
$ Millions
our long-standing commitment to
North American heavy-duty truck
the environment.
market. Two new engine platforms,
250
the ISL and ISX, were introduced
200
The B3.3 engine, available from
in 1999, completing the Interact
150
55 –85 horsepower, further extends
System automotive engine product
the product range in the industrial
100
line and positioning Cummins as
markets and builds upon the intro-
50
the industry leader in technology,
duction of the QSB, QSC, and QSK60
0
fuel economy and performance.
1997 1998 1999
electronic engines, completed in
*Excludes unusual charges
1999. Cummins continues to offer
the broadest product range of any
manufacturer in industrial markets.
8

13. In addition to sales growth,
reduced levels of expense on sell-
ing, research and engineering,
and manufacturing costs helped
to offset the start-up costs on
new products. Initiatives to reduce
material and plant conversion
costs, launched in 1999, provided
additional benefits but will have
even more significant favorable
impact in 2000.
Cummins continued to expand
QuickServe in order to provide
superior support to customers in all
market segments. By providing
the best products and outstanding
customer support we will earn
the customer loyalty we aspire to
achieve.
Joe Loughrey
Executive Vice President
President, Engine Business
customers to run hard and dream big.
Left: Marine sales revenue Over 200 owners of Signature engines
jumped 24 percent thanks to converged in late August for the first
a strong performance in Signature Owners Appreciation Days,
the recreational boat market. held at the Columbus Engine Plant.

14. Nedalo, an ESCO (Energy Supply Company), specializes in greenhouse systems
and uses Cummins Power Generation natural gas generating sets to maximize efficiency
and minimize environmental impact. Carbon dioxide and heat, both normally
waste by-products of generating electricity, are instead used to promote plant growth.
With electricity being sold into the grid, this makes a beautiful environmental solution.

15. Power Generation growth in profits...

16. Power Generation
Business
1999 Sales $1.3 Billion
Alternators
11%
Mobile
systems
16%
…led by an outstanding
Power
systems
73%
In 1999, the Power Generation Cummins also introduced
Business made an outstanding PowerRent, a power generator
improvement in performance for rental business in North America
shareholders by doubling profits targeted at providing responsive
Sales
on relatively flat sales. temporary power to a broad range
$ Millions
of customers — from industrial
1200
Our strong performance was led and commercial businesses to large
1000
by the major turnaround in North event organizers.
800
America where we reaped the
600
benefits from our restructuring, While Asian markets remained flat,
400
the immediate acceptance of down from record sales levels in
200
our new products and a buoyant 1997, Cummins continued to hold
0
marketplace. its strong market share position
1997 1998 1999
in both India and China.
The robust North American
Earnings Before Interest and Tax*
economy boosted the recreational Newage, our UK-based alternator
$ Millions
vehicle market where our Onan subsidiary, contributed an excellent
50
brand of mobile generator sets has year by providing our customers
40
over 80 percent market share. with improved efficiencies on our
30
Our 1998 consolidation of two plants traditionally high performance prod-
20
into one resulted in the most ucts. In 1999, Newage introduced
10
cost-effective product offerings in a new high output range of alter-
0
the booming mobile market. nators, extending the product range
–10
well beyond its previous levels.
1997 1998 1999
*Excludes unusual charges
12

17. Left: Strong performance
by employees at our
Fridley, Minnesota facility
has led to a turnaround
in North America.
We improved our performance
significantly in 1999 by making
decisions closer to customers,
focusing on the vital few projects
around the globe, involving our
people and providing customers
better products and support.
In 1999, Cummins Power Generation
introduced a new generator set The future is bright for Cummins
range with outputs up to two mega- Power Generation Group; the
watts. These generator sets are restructuring is complete and
based on the new Cummins QSK60 most markets remain healthy.
engine. Also unveiled in1999 were
the new 81 and 91 liter gas gener- We look forward to improving our
ator sets, which deliver clean, performance for our customers
cost-effective power to a growing and shareholders with excitement
market segment. The market for and anticipation.
natural gas-fueled power will grow
more rapidly than the overall power
generation markets in the coming
years as customers (such as the
greenhouse on the previous page) Jack K. Edwards
look for clean, cost-effective Executive Vice President
power and heat recovery systems. Group President, Power Generation
performance in North America.
13

18. Our Filtration business
Cummins’ commitment to joint ventures, such as Tata Cummins,
provides the access to developing markets for the company’s entire
product range. In India, our engine joint venture established in 1992 has been
a springboard for other joint ventures in filtration and exhaust products.

19. improves equipment performance…

20. Filtration Business
and Other At 11.5 percent of sales, earnings
before interest and taxes for the
segment continued to be strong in
1999 despite level sales.
we set have been achieved. By
Filtration Business combining the leading supplier of
Certain sectors remained strong exhaust systems and the leading
all year. Sales to lawn and garden supplier of filtration systems,
equipment and recreational vehicle Cummins’ Filtration Business has
manufacturers increased 27 per- created a product platform that
cent. Sales grew seven percent in positions us for continued growth.
the North American heavy- and
medium-duty truck markets. Japan During 1999, we developed new
and Africa continued to be robust, products and technologies to
finishing up 16 percent from 1998. enhance vehicle performance and
Agricultural equipment markets, increase customer value. Our
however, together with mining and innovative Open Flow air filtration
some construction markets, con- system, for example, increases
tinued to be depressed throughout filtration capacity 30 percent while
1999, with sales declining by five reducing airflow restriction.
percent.
In addition, we developed new
Volumes for our China joint venture applications of our proprietary
1999 Sales $1.1 Billion
finished the year up 45 percent. StrataPore-filtration media, intro-
Company-owned
Our Kuss subsidiary set another duced advanced high-pressure
distributors
18%
record for both sales and profits. spin-on filters for hydraulic appli-
Holset
… by providing a single
8%
Filtration
74%
Last year, we successfully com- cations, developed a new abrasivity
pleted the integration of Nelson sensor, and introduced our new
Industries. The acquisition has million-mile exhaust system and
been accretive to earnings from million-mile coolant package.
Sales
the start, and all of the objectives
$ Millions
1200
1000
The Filtration Business
800
provides superior performance
600
by designing integrated
400
air intake, engine filtration
200
and exhaust systems.
0
1997 1998 1999
Earnings Before Interest and Tax*
$ Millions
120
100
80
60
40
20
0
1997 1998 1999
*Excludes unusual charges
Fleetguard
s
Nelson
s
16

21. To reduce emissions, we continue
to aggressively invest in advanced Our global capability gives cus-
aftertreatment technologies. tomers a single supplier that can
The new aftertreatment system provide broad product platforms
we developed in 1999 enables and support services worldwide.
our customers to meet stringent Intensive global OEM sales efforts
emissions standards worldwide. with our new product platforms
This system can be expected to are expected to deliver additional
add to future volumes. sales growth in the years ahead.
We are constantly improving cus- Today, Cummins Filtration
tomer service worldwide through Business is better positioned than
our new Internet catalogs and any of our major competitors to
our customer assistance centers capitalize on the coming decade’s
providing support in16 languages global economy and market
to customers worldwide. expansion. Going forward, we are Distributorships and Holset
focused on execution — perfor- The Holset Turbocharger Business
Our ability to manufacture more cost mance for our customers and supplies state-of-the-art turbo-
effectively by localizing production performance for our shareholders. chargers to Cummins, Cummins
around the world grew in 1999. We expect to grow and maintain Joint Ventures and selected OEM
Our acquisition of Tubengineers Pty. global leadership, and we face the customers to meet their increasingly
Ltd., Australia’s leading exhaust future with confidence. stringent performance, durability
system manufacturer, was accretive and emissions requirements.
in its first year. In addition, we
extended our global manufacturing Cummins’ ownership of 16 distribu-
base through building or expanding Rick Mills torships links us closely to our
Vice President, Filtration
plants in India, Mexico, Brazil and end-user customers in strategic
President, Fleetguard, Inc.
South Africa. locations worldwide.
source for integrated product platforms.
17

22. Management’s Discussion and Analysis
of Results of Operations and Financial Condition
Overview The Company’s net sales for each of its key
Net sales were a record $6.6 billion in 1999, segments during the last 3 years were:
6 percent higher than in 1998, and 18 percent
higher than in 1997. Earnings before interest $ Millions 1999 1998 1997
and taxes of $356 million in 1999, or 5.4 percent Automotive markets $ 3,203 $ 2,928 $2,622
of sales, were also a record, excluding a Industrial markets 1,022 1,054 1,044
$60 million pretax charge in connection with Engine Business 4,225 3,982 3,666
the dissolution of the Cummins Wärtsilä Power Generation
joint venture. This compares to $282 million Business 1,356 1,230 1,205
Filtration Business
in 1998, excluding charges of $217 million
and Other 1,058 1,054 754
pretax for product coverage costs, restructuring
and exit activities and a settlement with $ 6,639 $ 6,266 $5,625
the U.S. Environmental Protection Agency. As
reported, earnings before interest and taxes Cummins’ Engine Business, the Company’s
were $296 million in 1999, $65 million in largest business segment, produces engines
1998 and $312 million in 1997. Net earnings and parts for sale to customers in both auto-
in 1999 were $160 million or $4.13 per share motive and industrial markets. Engine Business
compared to a net loss of $21 million or customers are each serviced through
$(.55) per share in 1998 and net earnings of the Company’s worldwide distributor network.
$212 million or $5.48 per share in 1997. The engines are used in trucks of all sizes,
buses and recreational vehicles, as well as a
Results of Operations variety of industrial applications including
Net Sales: construction, mining, agriculture, marine, rail
In 1999, the Company attained its eighth con- and military. Engine Business revenues
secutive year of record sales, totaling $6.6 bil- were $4.2 billion in 1999, a 6 percent increase
lion. Revenues from sales of engines were over 1998 and 15 percent over 1997.
55 percent of the Company’s net sales in 1999,
with engine revenues 6 percent higher than Sales of $3.2 billion in 1999 for automotive
in 1998 and 15 percent above 1997. The markets were 9 percent higher than in 1998
Company shipped a record 426,100 engines and 22 percent higher than in 1997. In 1999,
in 1999, compared to 403,300 in 1998 and heavy-duty truck engine revenues were
369,800 in 1997 as follows: 18 percent higher than in 1998 due to the
strong market in North America, partially
Unit shipments 1999 1998 1997
offset by reduced demand in international
Midrange engines 298,400 287,400 264,300 heavy-duty truck markets. Within the North
Heavy-duty engines 117,900 106,100 94,900 American heavy-duty truck market, unit
High-horsepower
shipments were up 21 percent over 1998,
engines 9,800 9,800 10,600
and Cummins continued to be the market
426,100 403,300 369,800 leader. International unit shipments for the
heavy-duty market in 1999 were 7 percent
Revenues from non-engine products, which lower than in 1998 due primarily to reduced
were 45 percent of net sales in 1999, were demand in Mexico.
6 percent higher than in 1998. The major
increases within non-engine revenues were Revenues from the sales of engines for
achieved in sales of generator sets and medium-duty trucks in 1999 were 1 percent
PowerCare sales (which include new parts lower than in 1998 on an 8 percent increase
and remanufactured engines and parts). in units. This variance reflected a mix shift
Sales of the remaining non-engine products, towards smaller 4-cylinder engines, which
in the aggregate, were essentially level have a lower selling price and margin, as
with 1998. well as the impact of the devaluation of the
Brazilian Real, which reduced revenues in
this market.
For the bus and light commercial vehicle mar-
ket, engine revenues in 1999 were 7 percent
higher than in 1998, on a 7 percent increase in
unit shipments. Record unit shipments to
DaimlerChrysler for the Dodge Ram pickup
18

23. International distributor sales included in this
were 3 percent higher than in 1998 and 30 per-
segment decreased 1 percent from 1998,
cent higher than in 1997. The Company also
while sales of Holset turbochargers increased
had record shipments to the North American
13 percent as compared to a year ago.
bus and recreational vehicle market, where
volumes were 30 percent higher than in 1998
Net sales by marketing territory for each of
and 39 percent higher than in 1997. Shipments
the last 3 years were:
for international bus markets declined 10 per-
cent from 1998, due to lower sales into Mexico.
$ Millions 1999 1998 1997
In 1999, revenues of $1.0 billion from industrial United States $ 4,064 $ 3,595 $3,123
markets were 3 percent lower than in 1998 Asia/Australia 818 806 898
Europe/CIS 800 791 796
and 2 percent lower than in 1997, due to
Canada 473 459 318
decreased volume and a shift in product mix.
Mexico/Latin America 375 468 364
Engine revenues for this market were down
Africa/Middle East 109 147 126
6 percent on a 6 percent decrease in units.
$ 6,639 $ 6,266 $5,625
Construction equipment business was 2 percent
higher than the year-ago level, while agricul-
tural equipment demand decreased 46 percent In total, international markets accounted for
from 1998 as a result of very weak markets. 39 percent of the Company’s revenues in 1999.
Sales to marine markets increased 24 percent Europe and the CIS, representing 12 percent
from 1998, with strength in both North of the Company’s sales in 1999, were 1 percent
American and international markets. Mining higher than in 1998 and 1997. Sales to Canada,
market sales declined 8 percent as compared representing 7 percent of sales in 1999, were
to last year. 3 percent higher than in 1998. Asian and
Australian markets, in total, represented 12 per-
Revenues of $1.3 billion in 1999 for the Power cent of the Company’s sales in 1999, with
Generation Business were 10 percent higher increases in sales to Asia more than offsetting
than in 1998 and 13 percent higher than in a decline in sales to Australia. In Asia, sales
1997. Approximately $40 million of the sales to Southeast Asia increased 28 percent, sales
increase in 1999 related to demand for stand-by to Korea were 25 percent higher and sales
power in case of Year 2000 problems; how- to Japan were 9 percent above 1998 levels,
ever, the Company expects that nearly half of while sales to China decreased 6 percent and
this increase is sustainable with revenues India was essentially flat compared to 1998.
from new markets, including the rental and Business in Mexico and Latin America,
home stand-by power businesses. Sales of the representing 6 percent of sales in 1999, was
Company’s generator sets in 1999 increased 20 percent lower than in 1998. This decrease
21 percent from 1998, continuing to reflect was due, in part, to the devaluation of the
growth in North America, which more than Brazilian Real.
offset declines in demand for generator sets
in Asia and Latin America. Engine sales to Gross Margin:
generator set assemblers were down 8 percent As disclosed in Note 3 to the Consolidated
from the prior year, due primarily to lower Financial Statements, the Company recorded
demand in Asia. Alternator sales decreased special charges of $92 million in 1998 for
2 percent as compared to 1998. Sales of small product coverage costs and inventory write-
generator sets for recreational vehicles and downs. The product coverage special charges
other consumer markets remained strong in of $78 million include $43 million primarily
North America, increasing 12 percent from 1998. attributable to base warranty costs and
$35 million for extended warranty programs.
Sales of $1.1 billion in 1999 for the Filtration The special charges recorded in 1998 also
Business and Other were essentially flat with included $14 million for inventory write-downs
1998 and 40 percent higher than in 1997, with associated with the Company’s restructuring
Nelson Industries, acquired in January 1998, and exit activities. These write-downs reflected
accounting for the majority of the increase amounts of inventory rendered excess or
from 1997. In 1999, new business at small unusable due to the closing or consolidation
equipment, truck and agricultural equipment of facilities.
manufacturers offset a decrease in sales
resulting from the end of a specific catalyst
business, which totaled $35 million.
19

24. according to the provisions of SFAS No. 121,
The Company’s gross margin percentage was
21.4 percent in 1999, and 21.4 percent in 1998, using expected discounted cash flows as
excluding the special charges recorded for the estimate of fair value. The majority of the
product coverage and inventory write-downs, impaired assets are to be held and used
and 22.8 percent in 1997. Gross margin per- in the Company’s Power Generation Business,
centage in 1998 including the special charges with depreciation continuing on such assets.
was 19.9 percent. Gross margins in 1999
benefited from higher volumes and product As disclosed in Note 4 to the Consolidated
cost improvements, offset by higher product Financial Statements, the Company recorded
coverage costs. Product coverage costs were charges in 1998 totaling $125 million, com-
3.7 percent of net sales in 1999, compared to prised of $100 million of costs associated with
3.3 percent in 1998, excluding the special the Company’s plan to restructure, consoli-
charges, and 2.6 percent in 1997. date and exit certain business activities and
$25 million for a civil penalty resulting
Operating Expenses: from an agreement reached with the U.S.
Selling and administrative expenses were Environmental Protection Agency and the
11.8 percent of net sales in 1999, compared to Department of Justice regarding diesel
12.5 percent in 1998 and 13.2 percent in 1997. engine emissions.
On the 6-percent sales increase in 1999, these
expenses, which include volume-variable The Company is continuing the restructuring
components, decreased 1 percent in absolute plan implemented in the third quarter of
dollars. This improvement reflects benefits 1998. As of December 31, 1999, approximately
of the Company’s cost reduction programs and $81 million had been charged against the
restructuring actions. liabilities associated with these actions. The
Company funded the restructuring actions
Research and engineering expenses were using cash generated from operations. Of the
3.7 percent of net sales in 1999, compared to planned workforce reduction of 1,100 employees,
4.1 percent in 1998 and 4.6 percent in 1997. approximately 900 people left the Company
This decrease is primarily due to new products prior to December 31, 1999. The remaining
moving into production and the Company’s actions to be completed consist primarily of
cost reduction and productivity initiatives. the outsourcing of certain manufacturing
operations and payment of severance commit-
The Company’s losses from joint ventures and ments to terminated employees. The program
alliances were $28 million in 1999, compared is expected to be essentially complete in early
to losses of $30 million in 1998 and income of 2000 and yield approximately $50 million in
$10 million in 1997. In 1999, higher losses at annual savings at completion. The Company
the Company’s joint venture with Wärtsilä were does not currently anticipate any material
more than offset by improved performance changes in the original charges recorded for
at the Company’s other joint ventures. The dif- these actions.
ference from 1997 was due primarily to the
consolidation of Cummins India Limited in the Other:
fourth quarter of 1997 and increased losses Interest expense of $75 million was $4 million
at the Company’s joint venture with Wärtsilä. higher than in 1998 and $49 million higher
than in 1997. Lower capitalization of interest
In December 1999, the Company recorded a in 1999 accounted for the increase as com-
charge of $60 million in connection with pared to 1998. The increase from 1997 was due
the dissolution of the Cummins Wärtsilä joint to the increased level of borrowings to support
venture. The charge included $17 million to working capital on the higher sales level
write off the Company’s remaining investment and to complete the acquisition of Nelson.
in the joint venture, $29 million for impairment Other expense went from $13 million of
of assets transferred from the joint venture income in 1998 to $8 million of expense in 1999,
and $14 million for additional warranty and primarily due to increased non-operating
other liabilities assumed by the Company. partnership costs and lower interest income
The joint venture termination was effective in 1999, and certain tax refunds and other
December 31, 1999, with the Company taking non-recurring transactions recorded in 1998.
over the operations and assets of the product
line manufactured in Daventry, England.
The asset impairment loss was calculated
20

25. Provision for Income Taxes: preventive approach to Year 2000 issues.
The Company’s income tax provision in Sites continue to conduct process verifications
1999 was $55 million, an effective tax rate of that critical systems are operating properly.
25 percent, reflecting reduced taxes on export
sales and research tax credits. In 1998, the Costs and Risks of Company’s
Company’s tax provision was $4 million, with Year 2000 Issues:
the tax benefits from export sales and the The Company will incur total expenditures of
research credit more than offset by the approximately $45 million in connection
unfavorable tax effects of nondeductible losses with its Year 2000 program and remediation
in foreign joint ventures and nondeductible efforts. The Company is funding its Year
EPA penalty and goodwill amortization. 2000 costs with its normal operating cashflow.
The Company’s effective tax rate in 1997
was 26 percent. There can be no assurances that the systems
or products of third parties relied upon by
Minority Interest: the Company, such as suppliers, vendors or
Minority interest in net earnings of consoli- significant customers, were timely converted
dated entities was $6 million in 1999, a decrease or that a failure by such third parties, or a
of $5 million from 1998 and an increase of conversion that is incompatible with the
$6 million from 1997. The decrease from 1998 Company’s systems, would not have a mater-
was primarily due to lower net earnings of ial adverse effect on the Company. Other
Cummins India Limited in 1999 and the part- undiscovered factors related to the Year 2000
ner’s share of losses from the joint venture issue may also have potential for an adverse
with Scania. The change in minority interest effect on the Company. Such adverse effects
from 1997 was due to the consolidation of may include an adverse effect on the
Cummins India Limited beginning in the fourth Company’s revenues. The time of completion
quarter of 1997, when the Company increased and success of the Company’s Year 2000
its ownership interest to 51 percent. program and compliance efforts, and the
related expenses, are based upon manage-
Year 2000: ment’s best estimates, which in turn are
The Company experienced no negative effects based on assumptions about future events,
on customers, employees or suppliers from including the availability of certain resources,
the Year 2000 date change. No problems with third party modification plans and other
the Company’s products were reported. The factors. There can be no assurances that these
Company monitored the status of its worldwide results and estimates will be achieved,
sites during the “millennium rollover” through and the actual results could materially differ
the operation of three communication centers from those anticipated. Specific factors that
located in Australia, England and Columbus, might cause such material differences
Indiana. Teams of experts were on-hand and include, but are not limited to, the availability
additional resources were available on a of trained personnel, the ability to locate
stand-by basis to assist sites, if needed. Service and correct all relevant computer code, and
and engineering groups were available on- the failure by third parties to address their
call in case customer requests arose. The Year 2000 problems.
Company’s sites, including its manufacturing
facilities and distribution channels, are Cash Flow and Financial Condition
working without any disruptive impact from Key elements of cash flows were:
the Year 2000 date change.
$ Millions 1999 1998 1997
The Company also participated in an infor- Net cash provided by
mation gathering process designed by the operating activities $307 $ 271 $ 200
Net cash used in
Automotive Industry Action Group (AIAG)
investing activities (166) (752) (354)
and reported a “green” status throughout the
Net cash (used in)
requested Year 2000 AIAG reporting phase
provided by
in early January.
financing activities (105) 471 96
Effect of exchange
While Year 2000 results to-date are positive, rate changes on cash — (1) (1)
there are key dates yet to monitor. The
Net change in cash $ 36 $ (11) $ (59)
communication centers will watch Leap Year
Day, February 29, and financial closes during
the first quarter. The Company continues its
21

26. During 1999, net cash provided from operating Market Risk:
activities was $307 million, reflecting the The Company is exposed to financial risk
Company’s strong net earnings and the non- resulting from volatility in foreign exchange
cash effect of depreciation and amortization, rates, interest rates and commodity prices.
reduced by increases in working capital. This risk is closely monitored and managed
Net working capital as a percent of sales was through the use of derivative contracts. As
13.0 percent in 1999, compared to 12.8 percent clearly stated in the Company’s policies and
in 1998 and 11.6 percent in 1997. Net cash used procedures, financial derivatives are used
in investing activities in 1999 of $166 million expressly for hedging purposes, and under no
included planned capital expenditures of circumstances are they used for speculating or
$215 million, partially offset by $54 million of for trading. Transactions are entered into only
proceeds from the sale of the Company’s with banking institutions with strong credit
Atlas Crankshaft business. Capital expenditures ratings, and thus the credit risk associated with
were $271 million in 1998 and $405 million these contracts is considered immaterial.
in 1997, during the Company’s peak product Hedging program results and status are reported
development period. The higher level of net to senior management on a monthly and
cash requirements in 1998 was due primarily quarterly basis.
to the acquisition of Nelson. Investments
in joint ventures and alliances in 1999 of The following section describes the
$36 million reflected the net effect of capital Company’s risk exposures and provides
contributions and cash generated by certain results of sensitivity analyses performed on
joint ventures. December 31, 1999. The sensitivity tests
assumed instantaneous, parallel shifts in for-
Net cash used in financing activities was eign currency exchange rates, commodity
$105 million in 1999. This cash was used for prices and interest rate yield curves.
dividend payments, repurchases of the
Company’s stock and payments on borrowings. A. Foreign Exchange Rates
As disclosed in Note 7 to the Consolidated Due to its international business presence,
Financial Statements, the Company issued the Company transacts extensively in foreign
$765 million face amount of notes and deben- currencies. As a result, corporate earnings
tures in 1998 under a $1 billion registration experience some volatility related to move-
statement filed with the Securities and Exchange ments in exchange rates. In order to exploit
Commission in December 1997. Net proceeds the benefits of global diversification and
were used to finance the acquisition of Nelson naturally offsetting currency positions, foreign
and to pay down other indebtedness out- exchange balance sheet exposures are
standing at December 31, 1997. Based on the aggregated and hedged at the corporate level
Company’s projected cash flow from operations through the use of foreign exchange for-
and existing credit facilities, management ward contracts. The objective of the foreign
believes that sufficient liquidity is available to exchange hedging program is to reduce
meet anticipated capital and dividend require- earnings volatility resulting from the trans-
ments in the foreseeable future. lation of net foreign exchange balance
sheet positions. A hypothetical, instantaneous,
Legal/Environmental Matters: 10 percent adverse movement in the foreign
The Company and its subsidiaries are defen- currency exchange rates would decrease
dants in a number of pending legal actions earnings by approximately $4 million in the
that arise in the normal course of business, current reporting period. The sensitivity
including environmental claims and actions analysis ignores the impact of foreign exchange
related to use and performance of the movements on Cummins’ competitive
Company’s products. Such matters are more position as well as the remoteness of the
fully described in Note 17 to the Consolidated likelihood that all foreign currencies will
Financial Statements. In the event the Company move in tandem against the U.S. dollar. The
is determined to be liable for damages in analysis also ignores the offsetting impact
connection with such actions or proceedings, on income of the revaluation of the underlying
the unreserved portion of such liability is balance sheet exposures.
not expected to have a material adverse effect
on the Company’s results of operations, cash
flows or financial condition.
22

27. Therefore, actual outcomes and results may
B. Interest Rates
differ materially from what is expressed or
The Company currently has in place three inter-
forecasted in such forward-looking statements.
est rate swaps that effectively convert fixed-rate
Cummins undertakes no obligation to update
debt into floating-rate debt. The objective of the
publicly any forward-looking statements,
swaps is to more efficiently balance borrowing
whether as a result of new information, future
costs and interest rate risk. A sensitivity analy-
events or otherwise.
sis assumed a hypothetical, instantaneous,
100 basis-point parallel increase in the floating
Future Factors include increasing price and
interest rate yield curve, after which rates
product competition by foreign and domestic
remained fixed at the new, higher level for a
competitors, including new entrants; rapid
one-year period. This change in yield curve
technological developments and changes; the
would correspond to a $4 million increase in
ability to continue to introduce competitive
interest expense for the one-year period. This
new products on a timely, cost-effective basis;
sensitivity analysis does not account for the
the mix of products; the achievement of
change in the Company’s competitive environ-
lower costs and expenses; domestic and
ment indirectly related to changes in interest
foreign governmental and public policy
rates and the potential managerial action taken
changes, including environmental regulations;
in response to these changes.
protection and validity of patent and other
intellectual property rights; reliance on large
C. Commodity Prices
customers; technological, implementation and
The Company is exposed to fluctuation in
cost/financial risks in increasing use of large,
commodity prices through the purchase of
multi-year contracts; the cyclical nature of
raw materials as well as contractual agree-
Cummins’ business; the outcome of pending
ments with component suppliers. Given the
and future litigation and governmental
historically volatile nature of commodity
proceedings; and continued availability of
prices, this exposure can significantly impact
financing, financial instruments and financial
product costs. The Company uses commodity
resources in the amounts, at the times and
swap agreements to partially hedge exposures
on the terms required to support Cummins’
to changes in copper and aluminum prices.
future business.
Given a hypothetical, instantaneous 10-percent
depreciation of the underlying commodity
These are representative of the Future
price, with prices then remaining fixed for
Factors that could affect the outcome of the
a 12-month period, the Company would
forward-looking statements. In addition,
experience a loss of approximately $3 million
such statements could be affected by general
for the annual reporting period. This amount
industry and market conditions and growth
excludes the offsetting impact of decreases
rates, general domestic and international
in commodity costs.
economic conditions, including interest rate
and currency exchange rate fluctuations,
Forward-looking Statements:
and other Future Factors.
This Management’s Discussion and Analysis
of Results of Operations and Financial
Condition, other sections of this Annual
Report and the Company’s press releases,
teleconferences and other external communi-
cations contain forward-looking statements
that are based on current expectations,
estimates and projections about the industries
in which Cummins operates and manage-
ment’s beliefs and assumptions. Words, such
as “expects, “anticipates, “intends, “plans,”
” ” ”
“believes, “seeks, “estimates, variations of
” ” ”
such words and similar expressions are
intended to identify such forward-looking
statements. These statements are not guaran-
tees of future performance and involve certain
risks, uncertainties and assumptions (“Future
Factors”) which are difficult to predict.
23

28. Cummins Engine Company, Inc.
Consolidated Statement of Earnings
Millions, except per share amounts 1999 1998 1997
Net sales $ 6,639 $ 6,266 $ 5,625
Cost of goods sold 5,221 4,925 4,345
Special charges — 92 —
Gross profit 1,418 1,249 1,280
Selling and administrative expenses 781 787 744
Research and engineering expenses 245 255 260
Net expense (income) from joint ventures and alliances 28 30 (10)
Interest expense 75 71 26
Other expense (income), net 8 (13) (26)
Restructuring and other non-recurring charges 60 125 —
Earnings (loss) before income taxes 221 (6) 286
Provision for income taxes 55 4 74
Minority interest 6 11 —
Net earnings (loss) $ 160 $ (21) $ 212
Basic earnings (loss) per share $ 4.16 $ (.55) $ 5.55
Diluted earnings (loss) per share 4.13 (.55) 5.48
The accompanying notes are an integral part of this statement.
24

29. Cummins Engine Company, Inc.
Consolidated Statement of Financial Position
Millions, except per share amounts December 31, 1999 1998
Assets
Current assets:
Cash and cash equivalents $ 74 $ 38
Receivables, net of allowance of $9 and $13 1,026 833
Inventories 787 731
Other current assets 293 274
2,180 1,876
Investments and other assets:
Investments in joint ventures and alliances 131 136
Other assets 143 144
274 280
Property, plant and equipment:
Land and buildings 577 590
Machinery, equipment and fixtures 2,375 2,320
Construction in process 168 185
3,120 3,095
Less accumulated depreciation 1,490 1,424
1,630 1,671
Goodwill, net of amortization of $28 and $17 364 384
Other intangibles, deferred taxes and deferred charges 249 331
Total assets $4,697 $ 4,542
Liabilities and shareholders’ investment
Current liabilities:
Loans payable $ 113 $ 64
Current maturities of long-term debt 10 26
Accounts payable 411 340
Accrued salaries and wages 88 99
Accrued product coverage and marketing expenses 246 209
Income taxes payable 40 13
Other accrued expenses 406 320
1,314 1,071
Long-term debt 1,092 1,137
Other liabilities 788 1,000
Minority interest 74 62
Shareholders’ investment:
Common stock, $2.50 par value, 48.3 and 48.1 shares issued 121 120
Additional contributed capital 1,129 1,121
Retained earnings 760 648
Accumulated other comprehensive income (109) (167)
Common stock in treasury, at cost, 6.8 and 6.1 shares (274) (240)
Common stock held in trust for employee benefit plans,
3.4 and 3.6 shares (163) (172)
Unearned compensation (35) (38)
1,429 1,272
Total liabilities and shareholders’ investment $ 4,697 $ 4,542
The accompanying notes are an integral part of this statement.
25

30. Cummins Engine Company, Inc.
Consolidated Statement of Cash Flows
Millions 1999 1998 1997
Cash flows from operating activities:
Net earnings (loss) $ 160 $ (21) $ 212
Adjustments to reconcile net earnings (loss) to
net cash from operating activities:
Depreciation and amortization 233 199 158
Restructuring and other non-recurring actions 38 110 (24)
Equity in (earnings) losses of joint ventures
and alliances 35 38 (1)
Receivables (200) (10) (80)
Inventories (60) (26) (65)
Accounts payable and accrued expenses 162 56 (18)
Deferred income taxes (31) (65) 22
Other (30) (10) (4)
Total adjustments 147 292 (12)
307 271 200
Cash flows from investing activities:
Property, plant and equipment:
Additions (215) (271) (405)
Disposals 22 7 21
Investments in joint ventures and alliances (36) (22) (47)
Acquisitions and dispositions of business activities 57 (468) 76
Other 6 2 1
(166) (752) (354)
Net cash provided by (used in) operating and
investing activities 141 (481) (154)
Cash flows from financing activities:
Proceeds from borrowings 28 711 281
Payments on borrowings (90) (161) (50)
Net borrowings (payments) under short-term
credit agreements 49 (30) (12)
Repurchases of common stock (34) (14) (75)
Dividend payments (47) (46) (45)
Other (11) 11 (3)
(105) 471 96
Effect of exchange rate changes on cash — (1) (1)
Net change in cash and cash equivalents 36 (11) (59)
Cash and cash equivalents at beginning of year 38 49 108
Cash and cash equivalents at end of year $ 74 $ 38 $ 49
Cash payments during the year for:
Interest $ 82 $ 56 $ 21
Income taxes 56 73 42
The accompanying notes are an integral part of this statement.
26