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Cummins'
Worldwide
Business
Sales, Markets
and Products
ders
 ysis
Statement of
Earnings
Statement of
Financial Position
Statement of
Cash Flows
Statement of
Shareholders Investment
Notes to
Consolidated Financial Statements
Responsibility
for Financial Statements
Report of
Independant Public Accountants
Five-Year
Suppliment Data
Board of
Directors
Officers and
Executives
Cummins
Worldwide Locations
Shareholder
Information
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Engine
Business
Automotive
The automotive business
comprises three primary markets: heavy-duty truck,
medium-duty truck, and bus and light commercial vehicles.
Products in these markets include a full range of diesel and
alternate-fueled engines from 135 to 600 horsepower. In
1998, Cummins launched major new engine platforms as part of
the "Interact System" of electronically controlled products
including the ISB, ISC, ISM, and Signature
engines.
For the past twenty-six
years, Cummins has been the North American market leader in
heavy-duty trucks, which represents the largest portion of
the Engine Business sales. Cummins also leads the market in
Mexico, Australia, South Africa and is a major presence in
the United Kingdom and in many other countries.
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The Signature 600,
introduced in 1998, continues to generate
unprecedented excitement and demand in the market,
providing 600 horsepower of high-torque performance
as well as 600 horsepower of braking power with the
new Cummins' Intebrake. The N14, recognized as the
industry leader in durability and performance,
remains the foundation of the heavy-duty product
line.
Introduced in late
1998, the ISM builds upon the industry-leading fuel
economy of the M11 Plus engine while providing the
latest electronics technology and features. The ISM
provides the best fuel economy and power-to-weight
performance in the industry.
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Signature
600
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The ISB and ISC
electronic four-valve-head engines provide the
primary power for the medium-duty truck segment,
ranging from 175 to 300 horsepower. Key territories
in the medium-duty truck segment include North
America, Latin America, Europe, China, India,
Turkey and Australia where Cummins powers a wide
variety of medium-duty trucks and other on-road
vehicles. In 1998, shipments of ISB and ISC engines
surpassed all previous company records
In the bus and
light commercial segment, the ISB powers the Dodge
Ram pickup. The bus market, including shuttle,
transit, coach, school bus, and the recreational
vehicle market, utilizes diesel engines throughout
the ISB to N14 product range. Cummins continues to
enjoy strong market share in this growing business
in North America, Europe, Mexico and Asia. Bus
customers worldwide remain interested in natural
gas engines from 150 to 300 horsepower. In 1998,
Cummins achieved record sales in the North American
transit bus market and has over 75 percent share in
the Class A motor home market. Cummins entered the
pickup truck market in Brazil with the ISB, further
expanding our presence in this market segment
internationally.
With the most
modern product range in the industry, Cummins
delivers engine hardware, electronic systems and
information, and business support as part of our
Interact System of products, which deliver
exceptional value to each of our
customers.
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ISC
ISB
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Industrial
Cummins engines
power virtually every type of equipment made for
construction, agricultural, mining, logging, rail,
military, commercial marine and pleasure boat
markets. Continuing alliances with our delivery
partners worldwide, as well as closer relationships
with our end customers, offer us significant market
share in most of these markets.
Through a joint
venture manufacturing agreement with Komatsu Ltd.,
Cummins offers its latest midrange engine, the
B3.3. Along with the addition of the B3.3 and the
release of the high horsepower QSK60 engine, the
Industrial Group offers the complete Cummins engine
power range to its markets from 60 to 2700
horsepower.
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B3.3
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Power Generation
Business
The Power
Generation Business provides a wide range of
equipment and services for the generation and
control of electrical power for both standby and
prime power customers throughout the world.
Customers include major utilities, independent
power providers, hospitals and commercial office
towers, manufacturing plants, telecommunications
companies, equipment rental houses, as well as
manufacturers of mobile recreation
vehicles.
The Power
Generation Business, together with Cummins
Wartsila, offers products that span a broad power
output from 2 kilowatts to 4 megawatts, and a
choice of diesel, natural gas or gasoline-fired
power generator sets. Cummins also offers a range
of services including turnkey power plant solutions
and long-term operation and maintenance
contracts.
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QSK60
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Filtration Business and
Other
The Filtration
Business serves a broad base of customers in more
than 100 countries with a wide range of filtration
and exhaust systems. Products include filters for
engine applications and hydraulic and air intake
systems for both engine and industrial
applications.
Cummins owns 14
distributorships, most of them outside the United
States, with the largest being in Australia, India
and the United Kingdom.Holset is a Cummins
subsidiary that designs and produces turbochargers
for worldwide engine markets.
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Filtration
Products
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Delivering
Value
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Over two million
customers a day depend on FedEx for timely,
dependable delivery of their packages and freight
to locations worldwide. Cummins delivers that same
level of world-class service and value to FedEx
with a broad line of automotive and industrial
engines.
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Engine
Business
With $4.0
billion in annual sales, our engine business is Cummins'
largest. Our customers &emdash; both original equipment
manufacturers (OEMs) and end users &emdash; buy engines and
parts produced in Cummins plants around the world, and our
worldwide distributor network plays a prominent role in both
sales and customer support.
Our overall
strategy in the engine business is to give end-user
customers comparative advantage through a 'value package' of
technically advanced products, customer-focused information
and support. We rely heavily on end-user customer councils
to identify emerging product and support needs.
A
partnership between Cummins and its distributor network,
Cummins PowerCare is designed to earn customer loyalty and
repeat business through superior support. One innovative
PowerCare program is QuickServe, promising one-hour
diagnosis and rapid repair. QuickServe is now available in
over 150 distributor locations, and mobile QuickServe,
designed to bring support to the customer's construction or
mine site, is being piloted in China and the U.S., with
widespread deployment to begin in late 1999.
Our engine
business serves a broad variety of Automotive and Industrial
markets. Automotive markets include buses and trucks of all
sizes &emdash; from the Dodge Ram pickup to the heavy-duty
trucks that are the backbone of the freight delivery system.
Industrial customers use our engines for construction,
mining, and agriculture and also in marine, rail and
military applications.
Automotive
With the
1998 introduction of three new engines and two new fuel
systems, our automotive product line-up has positioned us
firmly as the leader in performance, fuel economy, emissions
control, electronics and information technology. In 1999,
the ISX and the ISL engines will be released, rounding out
our completely redesigned product line. Product leadership
attracted new and repeat business in 1998 from many U.S.
fleet customers such as FedEx, Wal-Mart, UPS and J. B. Hunt.
In October, two large original equipment manufacturers, Mack
and Volvo, announced that Cummins would be their key outside
engine supplier for North America and Australia.
Business was
strong in North American automotive markets in 1998,
particularly in the highly competitive heavy-duty market,
where Cummins remained the market share leader for the 26th
consecutive year. Heavy-duty shipments grew by 20 percent.
We increased our share of light- and medium-duty engine
sales in bus markets by 24 percent, and we shipped a record
98,700 ISB engines to our largest customer, DaimlerChrysler,
for the Dodge Ram pickup truck. Outside the U.S., automotive
sales slowed during 1998 in Mexico and Brazil, and towards
the end of the year there were signs of a slowdown in the
United Kingdom and Turkey.
Industrial
We build
value for our industrial customers by providing cleanly
designed engines that require less maintenance. These
engines, featuring high pressure injection systems and
electronic controls, deliver increased power and performance
with reduced emissions. In late 1998, we began a series of
new product introductions with the limited introduction of
the new fully electronic 2700-horsepower QSK60 engine for
mining applications and the new 635-horsepower M11 engine
for pleasure boat applications. These will be followed in
1999 by the QSK45 and the industrial versions of the new
Signature, ISB and ISC engines (called the QSX15, QSB5.9 and
QSC8.3 respectively). The B3.3 engine, developed with our
joint-venture partner Komatsu, is scheduled for release in
the second half of 1999.
Industrial
markets were mixed in 1998. Construction sales remained
strong in the U.S. and Europe, but economic problems
affected sales of construction and commercial marine
equipment in Asia. Outside Asia, marine sales grew.
Agricultural sales were down worldwide because of lower
commodity prices, which also affected some mining markets
during the second half of the year. We are confident,
however, that new products and programs like mobile
QuickServe position us for a strong rebound when these
markets recover.
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Generating
Value
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The largest
multi-set installation in Africa is in Tema, where
Cummins provides 24 hour energy peace of mind for
the government and people of Ghana.
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Power Generation
Business
Cummins
Power Generation offers value to customers by providing
integrated power solutions to users of prime and standby
electrical power. This integration is made possible because
Cummins is the only company to make all elements of a
generator set &emdash; engines, alternators and advanced
electronic controls.
1998 Power
Generation sales were $1.2 billion, 2 percent above 1997.
Profitability improved because of our success in reducing
costs. Lower costs allowed us to hold prices level despite
increases by our competition, enhancing our competitive
position and the value of Cummins power solutions for our
customers.
In the
Americas, 1998 was a very successful year in sales and
improved profitablity. We completed our restructuring
program, closing our Huntsville, Alabama engine plant.
Huntsville's manufacturing operations were successfully
integrated into our Fridley, Minnesota facility, which now
produces generator sets ranging from 2 megawatts at the top
end down to the 2.8-kilowatt Onan generator sets used for
recreational vehicles. The RV market remained buoyant in
1998, and we continued to dominate, with a market share in
excess of 80 percent.
Economic
conditions affected sales throughout Asia and to some
European customers for G-drive engines. Recognizing the
trend early, we launched a second round of restructuring,
closing and downsizing plants in Asia and streamlining
production at Newage, our alternator company. Lower Asian
sales also meant a difficult and challenging year for our
Cummins Wartsila joint venture. In response, we announced
major restructuring to enable the joint venture to be
successful in spite of less favorable near-term sales
volumes.
In addition
to improving our share in the market for larger industrial
generator sets used for standby power, the Power Generation
Business took a major step forward in the emerging market
for prime power when we received our largest single order
ever, for $17 million from the Government of Ghana. Cummins
Power Generation supplied 39 diesel-powered generator sets
to operate in parallel at a single power station, connecting
seamlessly into the utility grid. This marks the first time
that Cummins Power Generation has taken on responsibility
for building, operating and maintaining an entire power
plant.
Our focus on
prime power has given us the ability to move to integrated
power solutions that go beyond hardware. In addition to
selling generator sets, we can offer value-adding services
such as extended warranty, maintenance and service
contracts, and 'Uptime' guarantees. At Cummins Power
Generation, we continue to increase our value to customers
by selling kilowatts &emdash; providing reliable energy at
reasonable cost around the world.
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Enhancing
Value
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The Filtration
Group enhances value by designing an integrated
system that includes air intake, engine filtration
and exhaust systems. Our customers receive improved
performance at lower cost from a single
supplier.
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Filtration Business and
Other
At $1.1 billion, Filtration
Business and Other sales set a record, exceeding the
$1-billion mark for the first time. The revenue comes from
sales of our filtration companies &emdash; Fleetguard,
Nelson, Kuss and Universal Silencer; our turbocharger
company, Holset; and company-owned distributors, most of
them outside the United States.
Our filtration companies
work together to provide customers with an integrated system
for air intake and filtration, fluid filtration and
conditioning, air handling and exhaust. We offer value by
enhancing equipment performance, reducing operating costs
and controlling emissions and noise.
Early in 1998, Cummins
completed the acquisition of Nelson Industries, North
America's leading producer of exhaust systems and its number
two supplier of air intake systems for diesel powered
equipment. The integration of Nelson with Fleetguard has
gone exceptionally well; organizations have been merged;
overlaps have been eliminated; and complementary product
lines are attracting new customers around the world. The
acquisition was accretive to earnings in its first
year.
Fleetguard and Nelson are
continuing on the path to global leadership by offering
customers the best technical solutions available in the
industry. We lead the world in providing filtration and
exhaust technology for heavy-duty diesel engines. Together,
we rank sixth in the world among filtration companies and
first in the heavy-duty market.
Fuel filters made by Kuss
Corporation were installed in over 60 percent of automobiles
made in North America and in almost 20 percent of those made
in Europe. Universal Silencer, which supplies air filtration
and exhaust silencing for gas turbines and other plant and
equipment operations, had a record year in sales and profits
in 1998.
Fleetguard's commitment to
quality was recognized in 1998 when it was the only
manufacturing company awarded the Tennessee Quality
Governor's Award. Fleetguard was the first company ever to
win the Global Excellence Award for demonstrating leadership
in the international marketplace.
Cummins' ownership of 14
distributorships links us closely to our end-user customers
in strategic locations worldwide.
Holset has restructured its
operations to focus on its core competence in turbocharging.
Breakthrough variable geometry technology enables Holset
turbochargers to improve performance for the driver while
lowering operating costs for the truck owner. Closely
integrated with Cummins' advanced fuel systems, Holset's air
handling technology is at the heart of Cummins' strategy to
meet emissions requirements for the year 2002 and
beyond.
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