1. 2000 Annual Report

2. Cummins Inc.
Cummins Inc. is a leading worldwide designer and manufacturer
of diesel engines from 55 to 3,500 horsepower and the world’s largest
producer of commercial diesel engines above 50 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 2000, Cummins reported
sales of $6.6 billion and employed 28,000 people.

3. Highlights
Financial Highlights
$ Millions, except per share amounts 2000 1999
Net sales $6,597 $6,639
Gross profit 1,259 1,418
Selling and administrative expenses 776 781
Research and engineering expenses 244 245
Net (income) expense from joint ventures and alliances (9) 28
Other (income) expense, net (1) 8
Earnings before interest and taxes (EBIT):
Before special charges 249 356
As reported 89 296
Net earnings 8 160
Basic earnings per share .20 4.16
Diluted earnings per share .20 4.13
Dividends per share 1.20 1.125
Business Unit Products Customers & Markets 2000 Highlights
Power Generation
Global supplier of diesel and s s s
Public- and investor-owned For the second consecutive
Power Systems
natural gas-powered generator Diesel and natural gas- utilities; telecommunications year, EBIT increased by almost
sets and generator set powered generator providers; self-generating 100 percent.
components from five kilowatt sets – rental and installed; manufacturers; any business
to multi-megawatt installations. s
digital control systems; or public facility with a Power Rent, offering temporary
North American market leader paralleling switchgear. need for self-generated or rental generator sets, expanded
in auxiliary generator sets for standby power. coverage across all of North
recreational vehicles (RVs) and s America through our distributor
Mobile Systems
recreational marine applications. s
Onan gasoline, liquified RV, specialty vehicle and marine network.
propane, and diesel-fueled pleasurecraft original equipment
s
auxiliary generator sets manufacturers (OEMs). Launched www.funroads.com
from 3 kW to 12.5 kW and for our RV customers.
s
associated controls. Alternators and engines for
s
industrial, marine, commercial, Participated in advanced
s construction, telecommunica- research on ten kW fuel
Alternators and Engines
Newage synchronous AC tions, mining, generator drive cells in conjunction with the
alternators and associated markets and other standby or US Department of Energy.
control systems. Generator continuous power applications.
s
drive engines and digital Increased penetration into
control systems. fast growing Internet and
telecommunications markets
where our digital control
systems and ready standby
power are critical.

4. Business Unit Products Customers & Markets 2000 Highlights
Filtration and Other
s
Global leader of advanced Heavy-Duty Systems
s OEMs, distributors, dealers and s
integrated filtration systems for Air intake filtration, emission and Identified by an independent
end users of heavy-duty on- and
heavy-duty equipment, both noise reduction, engine filtration survey as number one in
off-highway diesel-powered
on- and off-highway. Leading and mobile hydraulic filtration brand preference for oil, air,
equipment.
North American supplier of systems. fuel and coolant filters in the
filtration and silencing systems United States.
s OEMs of small engine systems,
s
for gas turbine, industrial, small Small Engine Systems
both gasoline- and diesel- s
engine and passenger car Air intake filtration and exhaust Remained solidly profitable
powered, for recreational, lawn
applications. systems. as synergy among Cummins
and garden equipment. engines, filters, and exhaust
“Other” includes Holset s systems took hold with OEMs.
Other Systems
s OEMs of gas turbine generators,
turbochargers and company- Air intake and silencing
industrial machinery, passenger s
owned distributorships. systems for gas turbine First to market with variable
cars and industrial hydraulic
applications, in-tank filtration geometry turbocharger
equipment including
for passenger cars and from Holset.
distribution.
hydraulic filtration for
s
industrial applications. Led aftertreatment research
s Turbochargers for Cummins, in support of future exhaust
Cummins’ joint ventures and
s All integrated systems sold emissions requirements.
other diesel engine manu-
under the Fleetguard and
facturers. s
Nelson brand names. Released new air-intake
technology that provides for
s Cummins’ ownership of 16
s smaller and lighter, yet longer
Turbochargers
distributorships links us closely
Holset variable geometry, lasting, air filter elements thus
to our end-use customers in
variable wastegate, power reducing cost to the end user.
strategic locations worldwide.
turbine, high pressure ratio
s
and multi-stage solutions. Introduced multiple new filtration
and exhaust products that
have favorable environmental
impacts by reducing used
product disposal and providing
cleaner exhaust emissions.
Business Unit Products Customers & Markets 2000 Highlights
Engine Business
s s s
Leading global supplier of diesel Medium-duty engines Two broad classes of Signed a long-term exclusive
ISB and ISC for light
and alternate fuel engines for customers: OEMs who install supply agreement with Volvo
commercial automotive, truck,
heavy-duty trucks, medium-duty Cummins engines in their Trucks of North America for
transit bus, RVs and specialty
trucks, buses and RVs. Exclusive vehicles and equipment; and heavy-duty truck engines
vehicles. Automotive
supplier of diesel engines for the end-use customers who use
s
applications are available in
Dodge Ram pickup truck. Cummins-powered equipment Set another record for engine
diesel and alternate-fueled in their business endeavors. shipments to Chrysler for the
versions from 175 horsepower
A leading global supplier of Dodge Ram pickup truck.
to 350 horsepower. B3.3, B3.9,
engines for the agriculture,
s
B5.9, QSB, QSC for agriculture,
construction, government, mining, Established the ISX engine as
construction and marine
rail and marine markets. the fuel economy and per-
applications from 60 to 340 formance leader in its class.
horsepower.
s Introduced the 78 liter engine
s Heavy-duty engines which was jointly designed by
ISL, ISM, N14, ISX and Cummins and Komatsu. It is the
Signature Series for trucking world’s largest diesel engine
applications from 280 to 650 used for mobile off-highway
horsepower. QSM, M11, N14 equipment.
and QSX15 for construction,
s
mining, marine and agriculture An exclusivity agreement was
applications from 225 to 600 signed between Cummins and
horsepower. Komatsu Mining Systems.
s s
High horsepower engines Marine engine sales dollars
QSK19, V903, QST30, K38/50, grew by 18 percent over 1999.
QSK45, QSK60 and QSK78 for
s
marine, rail, mining and govern- Record sales in commercial
ment applications from 295 to workboats (oilfield / tugs /
3,500 horsepower. fishing) with KV38/50 engines.

5. Contents
2 Letter to the Shareholders
6 Power Generation Business
8 Filtration Business and Other
10 Engine Business
12 Financial Overview
13 Management’s Discussion and Analysis
18 Responsibility for Financial Statements
18 Report of Independent Public Accountants
19 Statement of Earnings
20 Statement of Financial Position
21 Statement of Cash Flows
22 Statement of Shareholders’ Investment
23 Notes to Consolidated Financial Statements
37 Five-Year Supplemental Data
38 Directors and Committees
40 Executives and Officers
41 Shareholder Information
42 Cummins Worldwide Locations

6. Fellow Shareholders
2000 was a distinctly different year In past years, this kind of downturn
from the first to the second half. In the would have meant large losses for the
first half of the year, we posted profit Company. However, we broke even in
after taxes of $103 million and earned the fourth quarter on an EBIT* basis.
$2.70 per share; in the second half, We are a much different company
profit after taxes was $8 million and than we were even a year ago, and
earnings per share fell to 21 cents, are now seeing the benefits of the
excluding a pre-tax charge of $160 diversification and cost reduction
million in the fourth quarter. The erosion strategies we have pursued. The
in profit was due to a sudden and businesses and markets which
pronounced downturn in a number account for over 80 percent of our
of markets, reflecting the overall revenues are profitable and growing,
uncertainty of today’s economy. and we are working to ensure that
the remaining 20 percent will be
Heavy-duty engine shipments in profitable in the future. Let me review
North America fell 39 percent from our businesses with you.
the first to the second half of the year.
In the fourth quarter, shipments of our Business Overview
midrange engine to DaimlerChrysler s
Power Generation (21 percent of
were 25,000 units, down from an revenue, 41 percent of EBIT*) has
average of 31,000 units for the first moved from a break-even business
three quarters of the year, as just three years ago to one that was
DaimlerChrysler cut production of its able to nearly double its profits over
Dodge Ram pickup truck. In North
1999. We project 10 to 15 percent
America, shipments of medium-duty
growth in Power Generation over the
truck engines declined 24 percent
next few years, fueled by rising global
from the first to the second half of
demand for power from ready sources.
the year. During that same period,
The energy issues in California highlight
shipments of engines to the North
even more the need for reliable power
American construction market
and full service support.
declined 28 percent, and sales of
engines to the recreational vehicle
s
market were down 18 percent. Filtration and Other Business
The decline in the heavy-duty engine (18 percent of revenue, 49 percent
business also affected exhaust systems of EBIT*) remained solidly profitable,
sales in our Filtration Business, which despite being affected by a depressed
fell 13 percent from the first to the heavy-duty engine market. We are
second half. gaining market share as original
equipment manufacturers (OEMs)
respond favorably to the natural
synergy among our engine, filtration,
Sales
and exhaust products.
$8000 Million
7000
6000
* Earnings Before Interest and Taxes (EBIT),
5000
excluding special charges.
4000
2
1999
1998 2000

7. Sales by Segment
2000 Sales $6.6 Billion
Power
Generation
Business
21%
Filtration
Engine
Business
Business
and Other
61%
18%
- The “Other” in this category refers to - Although down in the second half,
our 16 company-owned distributors shipments to construction, agriculture
across the globe, which represent and marine markets were still four
strategic growth opportunities for percent higher than a year ago.
Cummins. This year, we added three
- Shipments of heavy-duty and medium-
new distributors, two in Latin America
and one in South Africa. As a group, duty truck engines in international
we expect them to continue to grow markets increased 18 percent.
by 10 percent each year over the next
several years. - This brings us to the heavy-duty truck
engine market in North America, which
- Also included in this category is our fell 39 percent in 2000. The Engine
turbocharger business, Holset. It grew Business worked diligently throughout
26 percent in sales and doubled in the year to mitigate the effects of the
profits over the year. Holset continues downturn in that market by consoli-
to play a critical role in our emissions dating facilities, reducing its workforce,
technology research and development. and continuing to reduce costs.
- Together, these two businesses 2001 and Beyond
As I write this letter, we’ve had only
provide the best return on assets
a few weeks to view our performance
of all of our businesses.
for 2001. We expect the first quarter
of 2001 to be worse than the fourth
s The Engine Business (61 percent
quarter of 2000. The truck market will
of revenue, 10 percent of EBIT*)
likely be down another 20 percent,
posted operating earnings of $24
and other consumer markets are also
million for the full year, reflecting
softening. To address this immediate
strong segments in the group:
issue, we will continue to reduce our
costs through streamlining and con-
- High-horsepower engine sales for
solidating production and reducing
mining, rail equipment and govern-
our workforce.
ment applications are 18 percent
higher than a year ago, and growing.
- Despite the recent slump in the light-
duty automotive business, our 13-year
relationship with DaimlerChrysler has
never been better. DaimlerChrysler
acknowledges that Cummins is one of
its best suppliers. We have also con-
Earnings Before
tinued to improve our performance in Interest & Tax*
quality and in reducing costs. $400 Million
300
200
100
0
3 1998 1999 2000
*Excludes special charges

8. For more than a decade, we have
Over the next several years, our focus
will be on improving cash flow, imple- been caught between discounts in
menting our restructuring plan in the pursuit of market share and the need
heavy-duty truck market, and growing for significant investment in technology
our profitable businesses. over shorter and shorter product
cycles driven by increasingly stringent
This focus will position us for strong emissions standards. Late in 2000 and
financial performance as we emerge early in 2001 Cummins concluded
from the economic slump. three long term strategic agreements
as part of a strategy that will enable us
To improve our cash flow, we continue to remove redundant selling costs,
to reduce our direct and indirect material improve our installed quality and
costs, and have already delivered reduce the technical and manufacturing
approximately $275 million worth of cost of proliferation over time.
improvements in our gross purchase
costs since our work began in 1998. I am confident of our future as we
Reducing the amount we pay for move into 2001, despite the challenges
quality issues associated with some of 2000. Our strengths remain. We are a
of our new products is also a focus, diversified company. We continue to lead
and we have implemented a quality the industry in emissions technology
improvement program called Six Sigma. with expertise in: fuel systems, filtration,
Led by project leaders called Black exhaust systems, turbochargers,
Belts and Green Belts, Six Sigma uses electronics and combustion research.
statistical tools and a disciplined, We have manufacturing, engineering
logical approach to drive rapid and marketing alliances that not only
process improvement. We now have cross our organizational structure, but
more than 100 Black Belts and 170 which cross the globe, including ten
Green Belts working on improvement businesses in India and eight in China.
projects. The completed projects have We have the strongest distribution
already resulted in an additional $27 system among any of our competitors,
million to the bottom line, exceeding which enables us to be first to market
our first-year goal by $2 million. with the best products. We intend
to capitalize and build upon these
Throughout 2000, I have highlighted strengths.
the need to change the way we
participate in the North American
heavy-duty truck engine market.
The problems in the business are
inherent in the structure and are not
only the result of the current downturn.
4

9. Members of the Policy
Committee: (from left to right)
John Wall, Christine Vujovich,
Rick Mills, Jack Edwards,
Tim Solso, Jean Blackwell,
Joe Loughrey, Tom Linebarger,
Mark Gerstle, Frank McDonald
The year 2000 was an important year
for Cummins. We took action to
address the short-term financial issues
facing us, worked to strengthen our
Tim Solso
growth businesses and established a
Chairman and Chief Executive Officer
new vision and mission which resulted
Cummins Inc.
in changing our name to Cummins
February 28, 2001
Inc. to reflect the true nature of the
company. These actions, combined
with a focus on our strengths over the
long term, mean that we are well
poised to deliver on our promise to
perform for all our stakeholders in
2001 and beyond.
5

10. Power Generation Business
Cummins Power Generation enjoyed In addition to providing traditional
Earnings Before
another great year with EBIT* almost prime power to developing countries,
Interest & Tax*
doubling for the second consecutive the demand has increased for
year on modest sales growth. Cummins to provide entire power
$100 Million
plants which includes all facets of the
80
60
Continued strong growth is expected process from building…to operating
40
as the “new economy” of high tech and maintenance.
20
companies, heavily reliant on uninter-
0
rupted sources of power, rapidly Sales from our Power Rent business,
1998 1999 2000
increases its demand for electrical providing temporary rental generator
*Excludes special charges
consumption. The fast growing Internet sets to a wide range of customers,
and telecommunication sectors more than tripled in 2000. Product is
continue to rely on our unmatched available across all of North America.
high technology in the form of digital
control systems and sophisticated www.funroads.com was launched
back-up power for immediate, to offer our recreational vehicle (RV)
seamless solutions. customers, with whom we enjoy an
80 percent market share, a variety
The growth in distributed power of information and services from
generation, which is a move to put campgrounds to cookbooks.
electrical generating capacity closer
to utility customers rather than solely Newage, our United Kingdom-based
in large, centralized utility plants, also alternator subsidiary, enjoyed another
creates new business opportunities, impressive performance with strong
especially in North America. profits and improved market share.
Newage’s successful joint venture in
Our growth is diversified across many China has expanded to serve as a
fronts with special emphasis on low cost, regional export base for Asia.
increasing our value-added services.
Major process changes were other
Cummins is participating in a important contributors to Power
U.S. Department of Energy project Generation's improved performance.
for advanced research on ten In 2000, we capped a three-year effort
kilowatt fuel cells, another emerging to change how we deal with suppliers
technology. This segment of the which resulted in lower costs and
fuel cell market complements improved quality. We also initiated a
Cummins’ small genset business. three-year Six Sigma quality effort and
the first year's results were even better
than we expected.
Sales
$1400 Million
1200
1000
800
600
400
200
0
6 1998 1999 2000

11. The explosion in Internet traffic
has created new opportunities
for Cummins Power Generation
to provide back-up power to
Internet infrastructure facilities,
such as this Cable & Wireless
Network Center in Birmingham,
England.
The Cummins Power Generation
Business has emerged from our major
restructuring as an agile and profitable
business, well positioned, and taking
advantage of the rapidly growing
global demand for cost effective,
reliable power.
2000 Sales $1.4 Billion
Jack K. Edwards Mobile
Executive Vice President Systems
16%
President, Power Generation
Alternators
9%
Power
Systems
75%
7

12. Filtration Business and Other
New technologies from
Fleetguard and Holset offer
unique market opportunities for
products that contribute to a
cleaner environment.
The Filtration Business and Other Growth in international markets had a
Sales
ended a challenging year with solid positive impact on overall sales,
growth and profitability. Sales rose supported by new plants in Brazil
$1400 Million
by nine percent while EBIT* remained and Mexico as well as the completion
1200
strong, approaching nearly 11 percent of a Nelson exhaust system joint
1000
for the year. venture in India. These results were
800
600
achieved despite the adverse effects
400
In North America, the Fleetguard of a strong U.S. currency.
200
filtration business continued to see
0
1998 1999 2000
growth even as the heavy-duty truck Our three subsidiaries—Kuss,
market turned down in the second half Universal Silencer and Separation
of 2000. The Nelson exhaust business, Technologies—operate in related
which is more sensitive to OEM market markets such as automotive fuel
cycles, was directly affected by the filtration, noise control and air filtration
truck market slowdown and softness for power generation equipment and
in some other key markets caused by industrial hydraulic filtration. Together,
a slowing economy. they grew sales and earnings in
excess of 25 percent.
8

13. Earnings Before
Interest & Tax*
$125 Million
100
75
50
25
0
1998 1999 2000
*Excludes special charges
In 2000, our Kuss subsidiary achieved In 2000, a leading independent market
high level recognition in the Ohio research company surveyed 2,000
Quality Excellence Award. fleets in North America for brand
preference. Fleetguard ranked
The launch of Six Sigma was a key highest among industry competitors
focus area for the Filtration Business for air, coolant, fuel and lube filtration.
in 2000, with annualized savings from
current projects likely to reach $4.5 The Filtration Business is well positioned
million. In response to a slowing for increased growth and profitability
economy, we have implemented as well as consistent year-over-year
several cost reduction initiatives performance. Its balanced approach
focused on direct and indirect material in filtration, exhaust and related sub-
cost reductions, manufacturing and sidiaries provides customers with an
distribution facility consolidations and unmatched range of product and
workforce reductions. service solutions. Our diversification –
across technologies, products,
The synergies from the combination of markets and geographies – is a
Nelson, Fleetguard and Cummins have source of strength that points to a
provided us with unique market oppor- bright future.
tunities for products that contribute to
a cleaner environment. For example,
we are applying filtration to exhaust 2000 Sales $1.2 Billion
systems in aftertreatment solutions that
remove soot from diesel exhaust to Company-
Owned
meet increasingly stringent emissions Rick Mills Distributors
22%
standards. In addition, our new high Vice President
efficiency closed crankcase ventilation President, Filtration & Fleetguard, Inc.
Holset
systems significantly reduce oil aerosol 9%
emissions to the atmosphere. Filtration
Distributors and Holset 69%
We also lead the industry in innovative Cummins’ 16 international distributors
technologies that meet end user needs allow us to interface with our end user
for extended service life and reduced customers worldwide. Total retail sales
waste. Our new centrifugal filtration exceeded plan for the year. Asian and
system with the patented ConeStaC™ South American outlets in particular
inner element offers longer service achieved superior results. The Holset
intervals and an incinerable plastic turbocharger business continued
filter element. Our next generation air profitable growth. Holset was first
intake system – Openflow™ – provides to market with heavy-duty variable
longer air filter life while using less geometry turbochargers, power turbines
component material. and titanium compressors for ultra-high
pressure ratio applications. The
development of new products was
focused on improving engine perform-
ance to meet higher environmental
emission standards.
9

14. Engine Business
Komatsu and Cummins jointly
developed the world’s largest
diesel engine for mining trucks,
which is being launched in 2001.
In 2000, Komatsu Mining Systems
chose Cummins as its exclusive
diesel engine supplier.
In 2000, the Engine Business posted supplier of engines to its mining
2000 Sales $4.0 Billion earnings before interest and tax* of equipment division. By the end of the
$24 million. Even before market con- year, the success of the 2700 horse-
Construction,
Heavy-duty
ditions declined mid-year, we initiated power QSK60 helped increase our
Ag, Marine
Truck
22%
35%
actions to redefine our participation in penetration from 26 percent in 1999
the North American heavy-duty truck to 47 percent for mining applications
market in order to improve profitability above 2000 horsepower.
Dodge Ram,
RV
over the business cycle. By first
20%
HHP/Mining
quarter 2001, we had negotiated Dodge Ram, Recreational Vehicles
6%
Medium-duty
three long-term supply agreements Cummins shipped 119,000 engines
Truck, Bus
17%
with original equipment manufacturers for the Dodge Ram, setting another
(OEMs) as part of that strategy. record despite DaimlerChrysler’s
production slowdown in all vehicle
categories at the end of the year.
Mining
The QSK engine has increased our A decline in consumer demand was
success in the mining market. The reflected in lower shipments of engines
engine’s outstanding 98 percent for recreational vehicles, but Cummins
availability rating led to an agreement continued to be the market share leader.
with Komatsu to be the exclusive
10

15. Earnings Before
Interest & Tax*
$ 300 Million
250
200
150
100
50
0
1998 1999 2000
*Excludes special charges
We also benefited from the work of
Medium-duty Truck & Bus
Overall, shipments of engines for direct and indirect purchasing teams,
medium-duty trucks declined five which helped us reduce costs signifi-
percent from 1999 levels, as stronger cantly by consolidating purchases and
European and Latin American sales negotiating deeper discounts.
offset the weakened North American With more stringent environmental
markets. Ford recognized our product rules on the horizon, we invested in
quality with its Q1 supplier designation research for advanced solutions to
for the engines we shipped to its plant emissions control. One such investment
in Mexico. is a minority interest in a privately held
Cummins maintained its #1 position in manufacturer and developer of catalytic Sales
the transit bus market, and Blue Bird products for air pollution control and $4250 Million
Corporation selected the ISB engine fuel cell systems.
as standard power in its conventional 4000
We also invested in a common infor-
school bus. mation technology platform across 3750
all our distributors in North America.
Construction, Agriculture, Marine 3500
That platform gives us greater inventory
Sales for these industrial markets control, customer satisfaction and 3250
were up four percent over last year. productivity measurement, as well 1999
1998 2000
The QSM11 marine engine continued as a database of best practices in
to draw excellent reviews throughout customer care.
2000. Worldwide construction markets
softened slightly through the year, as Looking ahead
North American business declined but We are leveraging our OEM partner-
Asian markets improved. ships, new product lines, technical
strength, production scale, global
Heavy-duty Truck network and exceptional people to
The North American market for heavy- attract new customers. With these
duty engines declined dramatically assets, and a strategy to reshape
from the record levels of 1999—driven our approach to the global truck
by an oversupply of new and used engine market, we can effectively
trucks and a general economic slow- meet the challenges and capture
down. The falling volumes forced the opportunities ahead.
significant reductions in our work force.
Outside of the U.S. and Canadian
markets, sales of truck engines grew
steadily, most notably in Mexico,
Europe and Latin America. Cummins
is the market leader in the United
Joe Loughrey
Kingdom, Australia and Mexico.
Executive Vice President
President, Engine Business
Improvements and Investments
The corporate-wide Six Sigma
process improvement program was
central to efforts to address quality
issues. In 2000, our participants
completed projects with an annualized
value of almost $16 million.
11

16. Financial Overview
Net sales were $6.6 billion in 2000, essentially flat with $6.6
billion reported in 1999 and 5 percent higher than in 1998.
Earnings before interest and taxes in 2000 were $249 million,
or 3.8 percent of sales, excluding a $160 million pretax charge
in connection with certain restructuring actions and asset
impairment write-downs. This compares to $356 million in 1999,
excluding charges of $60 million pretax in connection with the
dissolution of the Cummins Wartsila joint venture. As reported,
earnings before interest and taxes were $89 million in 2000,
$296 million in 1999 and $65 million in 1998. Net earnings in
2000 were $8 million or $.20 per share compared to $160 million
or $4.13 per share in 1999 and a net loss of $21 million or $(.55)
per share in 1998.

17. Management’s Discussion and Analysis
of Results of Operations and Financial Condition
Results of Operations Sales of $2.1 billion in the bus and truck markets were 13
percent lower than in 1999 and 5 percent lower than in 1998.
Net Sales:
In 2000, heavy-duty truck engine revenues of $1.4 billion were
In 2000, the Company’s sales totaled $6.6 billion. Revenues
19 percent lower than 1999 and 7 percent lower than 1998,
from sales of engines were 52 percent of the Company’s net
reflecting the downturn in the North American heavy-duty truck
sales in 2000, with engine revenues 5 percent lower than in
market, where shipments were down 35 percent from 1999.
1999 and flat compared to 1998. The Company shipped
This was partially offset by increases in international heavy-duty
421,800 engines in 2000, compared to 426,100 engines in
markets, where shipments increased 34 percent from 1999.
1999 and 403,300 in 1998 as follows:
Medium-duty truck and bus engine revenues of $662 million
Unit shipments 2000 1999 1998
were 4 percent higher than in 1999 and flat compared to
Midrange engine 318,200 298,400 287,400
1998. In 2000, medium-duty truck engine volumes were 5
Heavy-duty engines 91,900 117,900 106,100
percent lower than in 1999 and reflect a 29 percent decline in
High-horsepower engines 11,700 9,800 9,800
North American volumes. This decline was partially offset by a
421,800 426,100 403,300
14 percent shipment increase in international medium-duty
truck markets. Bus engine shipments were 41 percent higher
Revenues from non-engine products, which were 48 percent
than in 1999.
of net sales in 2000, were 5 percent higher than in 1999 and
11 percent higher than in 1998. The major increases within non-
Sales of $830 million in the light commercial vehicle market
engine revenues were achieved in parts sales, company-owned
were 7 percent higher than in 1999 and 16 percent higher than
distributors and the Holset turbocharger operations. Sales of
in 1998, reflecting an increase in engine shipments from 1999.
the remaining non-engine products, in the aggregate, were
Record unit shipments in 2000 to Daimler-Chrysler for the
essentially level with 1999.
Dodge Ram pickup, while including a sharp downturn
in the fourth quarter, were 16 percent higher than in 1999 for
The Company’s net sales for each of its key segments during
the full year.
the last three years were:
Sales of $873 million to the construction, agriculture and marine
$ Millions 2000 1999 1998
markets were 4 percent higher than in 1999 and 3 percent
Automotive markets $2,936 $3,203 $2,928
higher than in 1998. In 2000, shipments were 4 percent higher
Industrial markets 1,114 1,022 1,054
than in 1999, driven by increases in the construction and marine
Engine Business 4,050 4,225 3,982
markets. Shipment declines in North America were more than
Power Generation Business 1,395 1,356 1,230
offset by increases in international markets.
Filtration Business and Other 1,152 1,058 1,054
$6,597 $6,639 $6,266
Sales of $241 million to the high horsepower/mining market
were 32 percent higher than in 1999 and 16 percent higher than
Cummins’ Engine Business, the Company’s largest business in 1998. Engine shipments were 36 percent higher than in 1999,
segment, produces engines and parts for sale to customers in with higher demand in international markets accounting for
both automotive and industrial markets. Engine Business much of the increase.
customers are serviced through the Company’s worldwide
distributor network. The engines are used in trucks of all sizes,
buses and recreational vehicles, as well as a variety of industrial
applications including construction, mining, agriculture, marine,
rail and military. Engine Business revenues were $4.0 billion
in 2000, a 4 percent decrease from 1999 and a 2 percent
increase over 1998. The 2000 discussion and analysis of results
has been aligned to reflect the organization structure of the
Engine Business in addressing its markets.
13

18. Revenues of $1.4 billion in 2000 for the Power Generation Gross Margin:
Business were 3 percent higher than in 1999 and 13 percent The Company’s gross margin percentage was 19.1 percent
higher than in 1998. Sales of the Company’s generator sets in in 2000, 21.4 percent in 1999 and 21.4 percent in 1998,
2000 were flat compared to 1999. Engine sales to generator set excluding the special charges recorded for product coverage
assemblers were up 17 percent from the prior year. Alternator and inventory write-downs in 1998. The gross margin percent in
sales decreased 7 percent as compared to 1999. Sales of small 1998 including the special charges was 19.9 percent. Gross
generator sets for recreational vehicles and other consumer margins in 2000 were impacted by lower cost absorption in
applications were flat compared to last year. the Company’s heavy-duty plants, changes in product mix,
foreign exchange and higher product coverage costs. Product
Sales of $1.2 billion in 2000 for the Filtration Business and coverage costs were 4.2 percent of net sales in 2000,
Other were 9 percent higher than in 1999 and 1998. In 2000, compared to 3.7 percent in 1999, and 3.3 percent in 1998,
Fleetguard/Nelson revenues increased 2 percent, but reflected excluding the special charges. Including special charges,
a drop in demand for OEM truck and construction equipment product coverage costs were 4.5 percent of net sales in 1998.
products as well as reduced sales to consumer-oriented small
engine and equipment manufacturers. International distributor Operating Expenses:
sales included in this segment increased 13 percent from 1999, Selling and administrative expenses were 11.8 percent of net
while sales of Holset turbochargers increased 26 percent as sales in 2000, compared to 11.8 percent in 1999 and 12.5
compared to a year ago. percent in 1998.
Net sales by marketing territory for each of the last three Research and engineering expenses were 3.7 percent of net
years were: sales in 2000, compared to 3.7 percent in 1999 and 4.1 percent
in 1998.
$ Millions 2000 1999 1998
United States $3,775 $4,064 $3,595 The Company’s income from joint ventures and alliances was
Asia/Australia 905 818 806 $9 million in 2000, compared to losses of $28 million in 1999
Europe/CIS 860 800 791 and losses of $30 million in 1998. This improvement resulted
Mexico/Latin America 451 375 468 from the dissolution of the Wärtsilä joint venture at the end
Canada 418 473 459 of 1999.
Africa/Middle East 188 109 147
$6,597 $6,639 $6,266 In the past three years, Cummins has recorded restructuring
and other charges to reflect business improvement initiatives
committed to by the Company’s management.
In total, international markets accounted for 43 percent of the
Company’s revenues in 2000. Europe and the CIS, representing
As disclosed in Note 4 to the Consolidated Financial
13 percent of the Company’s sales in 2000, were 8 percent
Statements, the Company recorded charges of $160 million
higher than in 1999 and 9 percent higher than in 1998. Sales
($103 million after tax, or $2.71 per share) reflecting restructur-
to Canada, representing 6 percent of sales in 2000, were 12
ing actions, asset impairments and other activities largely
percent lower than in 1999. Asian and Australian markets, in
focused in the Engine Business. These actions are taken in
total, represented 14 percent of the Company’s sales in 2000,
response to the downturn in the North American heavy-duty
with increases in sales to Asia from 1999. In Asia, sales to
truck market and related conditions. The charges include
Southeast Asia increased 14 percent, sales to Korea increased
$42 million attributable to employee severance actions,
23 percent, sales to China increased 25 percent and sales to
$72 million for impairment of equipment and other assets,
Japan and India were slightly higher than 1999 levels. Business
$30 million for impairment of software developed for internal
in Mexico and Latin America, representing 7 percent of
use where the programs were cancelled prior to implemen-
sales in 2000, was 20 percent higher than in 1999. Sales to
tation and $16 million associated with exit costs to close or
Africa/Middle East, representing 3 percent of sales in 2000,
consolidate a number of smaller business operations. Of the
increased 72 percent from 1999.
$160 million charge, $131 million was assigned to the Engine
Business, $19 million to the Power Generation Business and
$10 million to the Filtration Business and Other.
14

19. Workforce reduction actions included overall cutbacks in Approximately $73 million, primarily related to the write-down of
staffing levels plus the impacts of closing and consolidating impaired equipment and software and employee severance
operations. Restructuring charges for workforce reductions payments, has been charged to the restructuring liabilities as
included the severance costs and related benefits of of December 31, 2000. Of the total charges associated with
terminating 600 salaried employees and 830 hourly employees. the restructuring activities, cash outlays will approximate $54
Costs for workforce reductions were based on amounts million. The actions will be completed in 2001 and 2002 with
pursuant to benefit programs or statutory requirements of the the majority of the cash outlays in 2001. The associated
affected operations. annual savings are estimated at $55 million upon completion
of the actions.
The asset impairment loss of $72 million was calculated in
accordance with the provisions of SFAS 121. Asset impairment In December 1999, the Company recorded a charge of $60
of equipment from discontinuing operations was primarily for million in connection with the dissolution of the Cummins
engine assembly and fuel system manufacturing equipment to Wärtsilä joint venture. The joint venture termination was
be disposed of upon the closure or consolidation of production effective December 31, 1999, with the Company taking over
operations.The asset impairment charge included a write-down the operations and assets of the product line manufactured
of $38 million for manufacturing equipment that will continue in Daventry, England.
to be used for approximately two years. Depreciation will
continue on these assets over that period of time. The expected The Company recorded charges in 1998 totaling $125 million,
recovery value of equipment to be disposed of was based comprised of $100 million of costs associated with the
on estimated salvage value and was excluded from the write- Company’s plan to restructure, consolidate and exit certain
down. The charge also included $11 million for equipment business activities and $25 million for a civil penalty resulting
available for disposal, $6 million for properties available for from an agreement reached with the U.S. Environmental
disposal, $10 million for investments and $7 million for intangi- Protection Agency (EPA) and the Department of Justice
bles and minority interest positions related to divesting smaller regarding diesel engine emissions. In addition, the Company
operations and investments. The carrying value of assets held recorded special charges of $14 million for inventory write-
for disposal and the effect from suspending depreciation on downs associated with restructuring actions.
such assets is immaterial.
The Company is concluding the restructuring plan implemented
The asset impairment charge of $30 million consisted of in the third quarter of 1998. In the third quarter of 2000, the
capitalized software-in-process being developed for internal Company reversed excess accruals from 1998 of $7 million
use. The charge was related to manufacturing, financial and and recorded $7 million of charges related to new actions
administrative information technology programs cancelled committed to during the quarter. Inclusive of the third quarter
during program development and prior to implementation. action, as of December 31, 2000, approximately $127 million
has been charged against the liabilities associated with these
Exit costs of $16 million to close or consolidate a number of actions. The Company funded the restructuring actions using
small businesses and operations included $6 million for cash generated from operations. The remaining actions to be
equipment removal costs, $5 million to satisfy contractual completed consist primarily of the payment of severance com-
obligations and $5 million for other exit costs. As the restruc- mitments to terminated employees in early 2001 and the final
turing actions consist primarily of the closing or consolidation EPA payment to be made in July 2001.
of smaller operations, the Company does not expect these
actions to have a material effect on future revenues. Other:
Interest expense of $86 million was $11 million higher than in
1999 and $15 million higher than in 1998. Higher borrowing
levels in 2000 accounted for the increase from 1999. Increased
borrowings and lower capitalization of interest accounted for
the increase as compared to 1998. As disclosed in Note 5 to
the Consolidated Financial Statements, other income and
expense went from $8 million of expense in 1999 to $1 million
of income in 2000, primarily due to non-recurring transactions
recorded in both years.
15

20. Provision for Income Taxes: Net cash used in financing activities was $86 million in 2000.
The Company’s income tax provision in 2000 was a benefit of This cash was used for dividend payments, repurchases of the
$19 million, combining an effective tax rate of 23 percent from Company’s stock and payments on borrowings. As disclosed in
operations and an effective tax rate of 35 percent from special Note 7 to the Consolidated Financial Statements, the Company
charges. The effective tax rate from operations in 2000 reflected issued $765 million face amount of notes and debentures in
reduced taxes on export sales and research tax credits. In 1998 under a $1 billion registration statement filed with the
1999, the Company’s tax provision was $55 million, reflecting Securities and Exchange Commission in December 1997. The
an effective tax rate of 25 percent. In 1998, the Company’s net proceeds were used to finance the acquisition of Nelson
tax provision was $4 million, with the tax benefits from export and to pay down other indebtedness outstanding at December
sales and the research credit more than offset by the unfavor- 31, 1997. Based on the Company’s projected cash flows from
able tax effects of nondeductible losses in foreign joint ventures operations and existing credit facilities, management believes
and nondeductible EPA penalty and goodwill amortization. that sufficient liquidity is available to meet anticipated capital
and dividend requirements in the foreseeable future.
Minority Interest:
Minority interest in net earnings of consolidated entities was Legal/Environmental Matters:
$14 million in 2000, an increase of $8 million from 1999 and an The Company and its subsidiaries are defendants in a number
increase of $3 million from 1998. The increase from 1999 was of pending legal actions that arise in the normal course of
primarily due to higher earnings attributable to minority partners business, including environmental claims and actions related
of Cummins India Limited and improved performance of the to use and performance of the Company’s products. Such
joint venture with Scania. matters are more fully described in Note 17 to the Consolidated
Financial Statements. In the event the Company is determined
Cash Flow and Financial Condition to be liable for damages in connection with such actions or
Key elements of cash flows were: proceedings, the unreserved portion of such liability is not
expected to have a material adverse effect on the Company’s
results of operations, cash flows or financial condition.
$ Millions 2000 1999 1998
Net cash provided by
operating activities $388 $307 $271 Market Risk:
Net cash used in The Company is exposed to financial risk resulting from volatility
investing activities (312) (166) (752) in foreign exchange rates, interest rates and commodity prices.
Net cash (used in) provided by This risk is closely monitored and managed through the use of
financing activities (86) (105) 471 derivative contracts. As clearly stated in the Company’s policies
Effect of exchange and procedures, financial derivatives are used expressly for
rate changes on cash (2) - (1) hedging purposes, and under no circumstances are they used
Net change in cash $ (12) $ 36 $ (11) for speculating or for trading. Transactions are entered into only
with banking institutions with strong credit ratings, and thus
the credit risk associated with these contracts is considered
During 2000, net cash provided from operating activities was
immaterial. Hedging program results and status are reported
$388 million, reflecting the Company’s decline in net earnings
to senior management on a monthly and quarterly basis.
and the non-cash effect of depreciation and amortization,
reduced by increases in working capital. As disclosed in Note 1
The following section describes the Company’s risk exposures
to the Consolidated Financial Statements, the Company sold
and provides results of sensitivity analyses performed on
receivables in 2000 in a securitization program, which yielded
December 31, 2000. The sensitivity tests assumed instanta-
proceeds of $219 million. The Company is funding the cash
neous, parallel shifts in foreign currency exchange rates,
requirements for restructuring actions using cash generated
commodity prices and interest rate yield curves.
from operations with the majority of the cash requirement
expected to occur in 2001. Net cash used in investing activities
in 2000 was $312 million and included planned capital expendi-
tures of $228 million. Capital expenditures were $215 million
in 1999 and $271 million in 1998. The higher level of net cash
requirements in 1998 was due primarily to the acquisition of
Nelson. Acquisitions in 2000 included the South Africa distribu-
torship and the purchase of assets from the dissolution of the
Wärtsilä joint venture. Investments in joint ventures and alliances
in 2000 of $53 million reflected the net effect of capital contribu-
tions and cash generated by certain joint ventures.
16

21. A. Foreign Exchange Rates Forward-looking Statements
Due to its international business presence, the Company This Management’s Discussion and Analysis of Results of
transacts extensively in foreign currencies. As a result, Operations and Financial Condition, other sections of this
corporate earnings experience some volatility related to Annual Report and the Company’s press releases, teleconfer-
movements in exchange rates. In order to exploit the benefits ences and other external communications contain
of global diversification and naturally offsetting currency forward-looking statements that are based on current expecta-
positions, foreign exchange balance sheet exposures are tions, estimates and projections about the industries in which
aggregated and hedged at the corporate level through the Cummins operates and management’s beliefs and assump-
use of foreign exchange forward contracts. The objective of tions. Words, such as “expects,” “anticipates,” “intends,”
the foreign exchange hedging program is to reduce earnings “plans,” “believes,” “seeks,” “estimates,” variations of such
volatility resulting from the translation of net foreign exchange words and similar expressions are intended to identify such
balance sheet positions. A hypothetical, instantaneous, forward-looking statements. These statements are not guaran-
10 percent adverse movement in the foreign currency tees of future performance and involve certain risks,
exchange rates would decrease earnings by approximately uncertainties and assumptions (“Future Factors”) which are
$4 million in the current reporting period. The sensitivity difficult to predict. Therefore, actual outcomes and results may
analysis ignores the impact of foreign exchange movements differ materially from what is expressed or forecasted in such
on Cummins’ competitive position as well as the remoteness of forward-looking statements. Cummins undertakes no obligation
the likelihood that all foreign currencies will move in tandem to update publicly any forward-looking statements, whether as
against the U.S. dollar. The analysis also ignores the offsetting a result of new information, future events or otherwise.
impact on income of the revaluation of the underlying balance
sheet exposures. Future Factors include increasing price and product competition
by foreign and domestic competitors, including new entrants;
B. Interest Rates rapid technological developments and changes; the ability to
The Company currently has in place three interest rate swaps continue to introduce competitive new products on a timely,
that effectively convert fixed-rate debt into floating-rate debt. cost-effective basis; the mix of products; the achievement of
The objective of the swaps is to more efficiently balance lower costs and expenses; domestic and foreign governmental
borrowing costs and interest rate risk. A sensitivity analysis and public policy changes, including environmental regulations;
assumed a hypothetical, instantaneous, 100 basis-point parallel protection and validity of patent and other intellectual property
increase in the floating interest rate yield curve, after which rights; reliance on large customers; technological, implementa-
rates remained fixed at the new, higher level for a one-year tion and cost/financial risks in increasing use of large, multi-year
period. This change in yield curve would correspond to a contracts; the cyclical nature of Cummins’ business; the
$4 million increase in interest expense for the one-year period. outcome of pending and future litigation and governmental
This sensitivity analysis does not account for the change in proceedings; and continued availability of financing, financial
the Company’s competitive environment indirectly related to instruments and financial resources in the amounts, at the times
changes in interest rates and the potential managerial action and on the terms required to support Cummins’ future business.
taken in response to these changes.
These are representative of the Future Factors that could affect
C. Commodity Prices the outcome of the forward-looking statements. In addition, such
The Company is exposed to fluctuation in commodity prices statements could be affected by general industry and market
through the purchase of raw materials as well as contractual conditions and growth rates, general domestic and international
agreements with component suppliers. Given the historically economic conditions, including interest rate and currency
volatile nature of commodity prices, this exposure can signifi- exchange rate fluctuations, and other Future Factors.
cantly impact product costs. The Company uses commodity
swap agreements to partially hedge exposures to changes in
copper and aluminum prices. Given a hypothetical, instanta-
neous, 10 percent depreciation of the underlying commodity
price, with prices then remaining fixed for a 12-month period,
the Company would experience a loss of approximately
$1 million for the annual reporting period. This amount excludes
the offsetting impact of decreases in commodity costs.
17

22. Responsibility for Financial Statements Report of Independent Public Accountants
Management is responsible for the preparation of the To the Shareholders and Board of Directors of Cummins Engine
Company’s consolidated financial statements and all related Company, Inc.:
information appearing in this Report. The statements and notes
have been prepared in conformity with accounting principles We have audited the accompanying consolidated statement
generally accepted in the United States and include some of financial position of Cummins Engine Company, Inc., (an
amounts, which are estimates based upon currently available Indiana corporation) and subsidiaries as of December 31, 2000
information and management’s judgment of current conditions and 1999, and the related consolidated statements of earnings,
and circumstances. The Company engaged Arthur Andersen cash flows and shareholders’ investment for each of the three
LLP, independent public accountants, to examine the consoli- years in the period ended December 31, 2000. These financial
dated financial statements. Their report appears on this page. statements are the responsibility of the Company’s manage-
ment. Our responsibility is to express an opinion on these
To provide reasonable assurance that assets are safeguarded financial statements based on our audits.
against loss from unauthorized use or disposition and that
accounting records are reliable for preparing financial state- We conducted our audits in accordance with auditing
ments, management maintains a system of accounting and standards generally accepted in the United States. Those
controls, including an internal audit program. The system of standards require that we plan and perform the audit to obtain
accounting and controls is improved and modified in response reasonable assurance about whether the financial statements
to changes in business conditions and operations and recom- are free of material misstatement. An audit includes examining,
mendations made by the independent public accountants and on a test basis, evidence supporting the amounts and
the internal auditors. disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
The Board of Directors has an Audit Committee whose estimates made by management, as well as evaluating
members are not employees of the Company. The Committee the overall financial statement presentation. We believe that
meets periodically with management, internal auditors and rep- our audits provide a reasonable basis for our opinion.
resentatives of the Company’s independent public accountants
to review the Company’s program of internal controls, audit In our opinion, the financial statements referred to above
plans and results and the recommendations of the internal present fairly, in all material respects, the financial position of
and external auditors and management’s responses to those Cummins Engine Company, Inc., and subsidiaries as of
recommendations. December 31, 2000 and 1999, and the results of their opera-
tions and their cash flows for each of the three years in the
period ended December 31, 2000, in conformity with account-
ing principles generally accepted in the United States.
Arthur Andersen LLP
Chicago, Illinois
January 24, 2001
18

23. Cummins Engine Company, Inc.
Consolidated Statement of Earnings
Millions, except per share amounts 2000 1999 1998
$6,597 $6,639 $6,266
Net sales
Cost of goods sold 5,338 5,221 4,925
Special charges - - 92
Gross profit 1,259 1,418 1,249
Selling and administrative expenses 776 781 787
Research and engineering expenses 244 245 255
Net (income) expense from joint ventures and alliances (9) 28 30
Interest expense 86 75 71
Other (income) expense, net (1) 8 (13)
Restructuring, asset impairment and other special charges 160 60 125
3 221 (6)
Earnings (loss) before income taxes
(Benefit) provision for income taxes (19) 55 4
Minority interest 14 6 11
$ ,8 $ .160 $ (21)
Net earnings (loss)
Basic earnings (loss) per share $ .20 $ 4.16 $ (.55)
Diluted earnings (loss) per share .20 4.13 (.55)
The accompanying notes are an integral part of this statement.
19

24. Cummins Engine Company, Inc.
Consolidated Statement of Financial Position
Millions, except per share amounts Dec. 31, 2000 Dec. 31,1999
Assets
Current assets:
Cash and cash equivalents $ ,62 $ ,74
Receivables, net of allowance of $8 and $9 724 1,026
Inventories 770 787
Other current assets 274 293
1,830 2,180
Investments and other assets:
Investments in joint ventures and alliances 201 131
Other assets 137 143
338 274
Property, plant and equipment:
Land and buildings 590 577
Machinery, equipment and fixtures 2,417 2,375
Construction in process 189 168
3,196 3,120
Less accumulated depreciation 1,598 1,490
1,598 1,630
Goodwill, net of amortization of $42 and $28 354 364
380 249
Other intangibles, deferred taxes and deferred charges
$4,500 $4,697
Total assets
Liabilities and shareholders’ investment
Current liabilities:
Loans payable $ ,156 $ ,113
Current maturities of long-term debt 8 10
Accounts payable 388 411
Accrued salaries and wages 71 88
Accrued product coverage and marketing expenses 280 246
Income taxes payable 11 40
Other accrued expenses 309 406
1,223 1,314
1,032 1,092
Long-term debt
837 788
Other liabilities
72 74
Minority interest
Shareholders’ investment:
Common stock, $2.50 par value, 48.6 and 48.3 shares issued 122 121
Additional contributed capital 1,137 1,129
Retained earnings 718 760
Accumulated other comprehensive income (167) (109)
Common stock in treasury, at cost, 7.2 and 6.8 shares (290) (274)
Common stock held in trust for employee benefit plans, 3.1 and 3.4 shares (151) (163)
Unearned compensation (33) (35)
1,336 1,429
$4,500 $4,697
Total liabilities and shareholders’ investment
The accompanying notes are an integral part of this statement
20