In 2000, the Engine Business posted earnings before interest and tax* of $24 million. Even before market conditions declined mid-year, we initiated actions to redefine our participation in the North American heavy-duty truck market in order to improve profitability over the business cycle. By first quarter 2001, we had negotiated three long-term supply agreements with original equipment manufacturers (OEMs) as part of that strategy.

Mining

The QSK engine has increased our success in the mining market. The engine's outstanding 98 percent availability rating led to an agreement with Komatsu to be the exclusive supplier of engines to its mining equipment division. By the end of the year, the success of the 2700 horsepower QSK60 helped increase our penetration from 26 percent in 1999 to 47 percent for mining applications above 2000 horsepower.

Dodge Ram, Recreational Vehicles

Cummins shipped 119,000 engines for the Dodge Ram, setting another record despite DaimlerChrysler's production slowdown in all vehicle categories at the end of the year. A decline in consumer demand was reflected in lower shipments of engines for recreational vehicles, but Cummins continued to be the market share leader.

Medium-duty Truck & Bus

Overall, shipments of engines for medium-duty trucks declined five percent from 1999 levels, as stronger European and Latin American sales offset the weakened North American markets. Ford recognized our product quality with its Q1 supplier designation for the engines we shipped to its plant in Mexico.

Cummins maintained its #1 position in the transit bus market, and Blue Bird Corporation selected the ISB engine as standard power in its conventional school bus.

Construction, Agriculture, Marine

Sales for these industrial markets were up four percent over last year. The QSM11 marine engine continued to draw excellent reviews throughout 2000. Worldwide construction markets softened slightly through the year, as North American business declined but Asian markets improved.

Heavy-duty Truck

The North American market for heavy-duty engines declined dramatically from the record levels of 1999Ñdriven by an oversupply of new and used trucks and a general economic slowdown. The falling volumes forced 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 Kingdom, Australia and Mexico.

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.

We also benefited from the work of direct and indirect purchasing teams, which helped us reduce costs significantly by consolidating purchases and negotiating deeper discounts.

With more stringent environmental rules on the horizon, we invested in research for advanced solutions to emissions control. One such investment is a minority interest in a privately held manufacturer and developer of catalytic products for air pollution control and fuel cell systems.

We also invested in a common information technology platform across all our distributors in North America. That platform gives us greater inventory control, customer satisfaction and productivity measurement, as well as a database of best practices in customer care.

Looking ahead

We are leveraging our OEM partnerships, new product lines, technical strength, production scale, global network and exceptional people to attract new customers. With these assets, and a strategy to reshape our approach to the global truck engine market, we can effectively meet the challenges and capture the opportunities ahead.

Joe Loughrey

Executive Vice President

President, Engine Business

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