SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 1998 CUMMINS ENGINE COMPANY, INC. Commission File Number 1-4949 Incorporated in the State of Indiana I.R.S. Employer Identification No. 35-0257090 500 Jackson Street, Box 3005, Columbus, Indiana 47202-3005 (Principal Executive Office) Telephone Number: (812) 377-5000 TABLE OF CONTENTS _________________ Part Item Description Page ____ ____ _________________________________________________ ____ IV 14 Cummins Wartsila SAS Financial Statements 4 Signatures 32 PART IV _______ ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K ________ _______________________________________________________________ Documents filed as a part of this report: 1. Cummins Wartsila SAS Financial Statements for the years ended December 31, 1998 and 1997 together with the Auditor's Report. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ________________________________________ To the Shareholders of Cummins Wartsila SAS: In compliance with the assignment entrusted to us by your shareholders' annual general meeting, we hereby report to you, for the year ended December 31, 1998, on: - - the audit of the financial statements of Cummins Wartsila reported in French Francs and prepared in accordance with French GAAP. These include: . a balance sheet . a profit and loss statement . Notes 1 to 12 . Schedules I to XIII - - the audit of Schedule XIV a reconciliation to US Generally Accepted Accounting Principles in accordance with SEC Item 17 of Form 20-F. - - the specific verifications and information required by law. These financial statements have been approved by the Board of Directors. Our role is to express an opinion on these financial statements based on our audit. 1. OPINION ON THE FINANCIAL STATEMENTS We conducted our audit in accordance with the professional standards applied in France which essentially are similar to Generally Accepted Accounting Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements give a fair presentation of the company's financial position and its assets and liabilities as of December 31, 1998, and of the results of its operations for the year then ended in accordance with accounting principles generally accepted in France. In our opinion, the reconciliation schedule gives a fair presentation of all significant adjustments necessary to be consistent with US Generally Accepted Accounting Principles. 2. SPECIFIC VERIFICATIONS AND INFORMATION We also performed the specific verifications required by law, in accordance with the professional standards applied in France. We have no comment as to the fair presentation and the conformity with the financial statements of the information given in the management report of the Board of Directors, and in the documents addressed to the shareholders with respect to the financial position and the financial statements. We communicate to you that, due to the incurred losses, total equity of the Company has become lower than half of share capital as of December 31, 1998. In accordance with article 241 of the law from July 24, 1966, you have to be convened in an extraordinary shareholders' meeting to be held before 4 months after the general meeting approving the present financial statements to decide whether to dissolve the Company. If the dissolution is not decided, we remind you that the Company will have to restore its equity to a level at least equal to half of share capital by December 31, 2001. Neuilly-sur-Seine , June 29, 1999 _________________________________ BARBIER FRINAULT & ASSOCIES Nicolas Job CUMMINS WARTSILA SAS BALANCE SHEET AS OF December 31, 1998 ____________________ (FRF thousands) 12/31/98 12/31/97 _________________________________ _________ Amort. & ASSETS Gross Provisions Net Net _________ __________ ________ _________ Intangible Fixed Assets Research & development costs 6,150 2,050 4,100 0 Goodwill 12,760 7,018 5,742 6,380 Franchises Patents Licenses 418,957 28,867 390,090 347,133 Software 32,643 24,461 8,182 13,252 Intangible fixed assets in-progress 916 - 916 500 ________ ________ _______ _______ 471,426 62,396 409,030 367,265 Tangible Fixed Assets Land 925 - 925 925 Buildings, Fixtures, Fittings 149,870 62,834 87,036 83,166 Technical plant and machinery 426,221 224,773 201,448 179,358 Other tangible fixed assets 39,123 24,756 14,367 15,949 Tangible fixed assets in-progress 34,018 - 34,018 60,992 Advances and down payments 124 - 124 1,014 _______ _______ _______ _______ 650,281 312,363 337,918 341,404 Long-Term Investments Equity investments 6,699 4,424 2,275 2,150 Receivables from controlled entities 1,374 - 1,374 1,374 Loans and other long-term investments 20,312 147 20,165 19,655 _________ _______ _______ _______ 28,385 4,571 23,814 23,179 _________ _______ _______ _______ Fixed Assets 1,150,092 379,330 770,762 731,848 _________ _______ _______ _______ Inventories and Work-In-Progress Raw materials and other supplies 85,459 16,629 68,830 81,788 Supplies 3,751 83 3,668 3,121 Production work-in-progress 173,762 1,867 171,895 157,291 Semi-finished goods 221,877 41,639 180,238 202,841 Finished goods 30,375 0 30,375 0 _______ _______ _______ _______ 515,224 60,218 455,006 445,041 Advances & down payments on Orders 28,200 28,200 18,101 Receivables: Receivables from sales 505,434 82,433 423,001 432,529 Other operating receivables 136,762 10,183 126,579 55,710 Liaison account 0 _______ ______ _______ _______ 642,196 92,616 549,580 488,239 Marketable Securities 451 451 22,525 Cash-On-Hand 15,229 15,229 43,141 _________ _______ _________ _________ Current Assets 1,201,300 152,834 1,048,466 1,017,047 _________ _______ _________ _________ Prepaid Expenses 11,577 11,577 7,785 Charges to be spread over several periods 4,613 4,613 0 Unrealized Foreign Exchange Losses 8,091 8,091 2,657 _________ _______ _________ _________ Total Assets 2,375,673 532,164 1,843,509 1,759,337 _________ _______ _________ _________ 12/31/98 12/31/97 ______________________ _________ Partial LIABILITIES Amounts Amounts Amounts _________ _________ _________ Shareholders' Equity Share capital 500,000 753,557 Legal reserve 7,674 Restricted reserve as of 3/31/98 129,521 L/T capital gain reserve 2,967 2,967 FNI reserve - Cote d'lvoire 5 Additional paid-in capital 58,670 Retained earnings (155,716) CWEC merger clearing account 85,000 Income for the period (581,488) (119,669) Investment subsidies 8,047 2,052 Cumulative translation adjustment 14,497 30,362 _________ _________ Total Shareholders' Equity 73,544 664,902 Conditional Advances 5,598 Provisions for legal disputes and commitment 77,192 66,295 Provisions for restructuring and retirement 276,722 132,578 _________ _________ Total Provisions 353,914 198,873 Liabilities: Financial liabilities: . Medium-term loans 844,000 74,667 . Short-term credits 311,050 . Miscellaneous loans and financial liabilities 21,898 22,129 . Other loans 34,337 9,855 _________ _________ 900,235 417,701 Down payments on orders in-progress 100,327 114,829 Operating liabilities: . Trade payables & assimilated accounts 325,443 279,517 . Tax and social liabilities 45,835 47,917 . Other liabilities 30,408 23,199 _________ _________ 401,686 350,633 Payables to fixed asset suppliers 4,110 4,726 _________ _________ Total Liabilities 1,406,358 887,889 Prepaid Revenue 1,499 1,047 Unrealized Gains on Foreign Exchange 2,596 6,626 _________ _________ Total Liabilities 1,843,509 1,759,337 _________ _________ CUMMINS WARTSILA SAS INCOME STATEMENT ____________________ (FRF thousands) 1/1/98 to 1/1/97 to 12/31/98 12/31/97 __________ _________ Operating Revenues Net revenues 955,348 1,205,713 Change in stored production 32,355 (23,994) In-house production 75,972 13,256 Subsidies 2,114 2,886 Reversal of provisions and expense transfers 179,941 165,231 Other revenues 2,484 11,820 _________ _________ Total 1,248,214 1,374,912 Operating Expenses Purchases 626,352 656,777 Change in inventories 22,375 (24,777) Other purchases & external charges 441,074 392,208 Taxes and assimilated payments 19,598 23,844 Payroll and associated costs 198,983 221,238 Social charges 83,419 90,707 Allocations: Depreciation & amortization of tangible and intangible fixed assets 99,156 66,958 Depreciation of charges allocated over several periods 1,153 Provisions for depreciation of assets 41,236 57,636 Provisions for losses & contingencies 89,414 118,797 Other charges 6,156 8,185 _________ _________ Total 1,628,916 1,611,573 _________ _________ 1. Operating Income/Loss (380,702) (236,661) _________ _________ Share of Income From Joint Ventures 4,378 Financial Income Other interest & assimilated income 3,357 7,273 Reversal of provisions and expense transfers 5,406 2,275 Positive exchange rate differences 14,961 41,878 _________ _________ Total 23,724 51,426 Financial Charges Depreciation and provisions 9,094 5,406 Interest and assimilated charges 34,983 19,033 Negative exchange rate differences 18,335 23,486 _________ _________ Total 62,412 47,925 _________ _________ 2. Financial Income/Loss (38,688) 3,501 _________ _________ 3. Current Income Before Tax (419,390) (228,782) _________ _________ "Exceptional" Revenues On management transactions 882 206,642 On capital transactions 1,161 127,169 Share of investment subs. allocated to income statement 97 Reversal of other provisions 15,292 61,881 _________ _________ Total 17,432 395,692 "Exceptional" Charges On management transactions 7,478 58,844 On capital transactions 1,251 232,905 Restructuring expense 176,800 3,500 _________ _________ Total 185,529 295,249 _________ _________ 4. Extraordinary Income/Loss (168,097) 100,443 _________ _________ 5. Corporate Income Tax ( 5,999) ( 8,670) _________ _________ 6. Income/Loss (581,488) (119,669) _________ _________ NOTES _____ 1. Activity The twelve month financial period ended December 31, 1998 shows accounting revenues of FRF 955.3 million (Euro 145.6 million), compared to FRF 1,205.7 million (Euro 183.8 million) for the previous financial period. Movement In Net Sales _____________________ (FRF millions) 12 Month Period Year Net Sales ____ _________ 1993 1,058 1994 1,012 1995 1,085 1996 1,191 1997 1,206 1998 955 Direct exports were FRF 580 million (Euro 88 million), i.e. 61% of total revenues excluding taxes. Taking indirect exports into account, the share of revenues relating to foreign markets was FRF 603 million (Euro 92 million), i.e. 63% of revenues excluding taxes. Direct exports 1998: FRF 580 million _____________________________________ Percent of Foreign Markets Export Sales _______________ ____________ Europe 50% Asia 24% Americas 18% Africa 7% Other 1% Orders in 1998 amounted to FRF 857 million (Euro 131 million). At the end of the period, new orders were FRF 555 million (Euro 85 million). 278 megawatts were delivered in 1998. Cummins Wartsila SAS's marketing network relies mainly on the parent companies' distribution structures. 2. Accounting principles Cummins Wartsila prepares its financial statements in accordance with French accounting principles. The same accounting principles were used as those used for the 1997 financial period, with the exception of the recording of Research and Development costs (see paragraph 2.2 below). 2.1. Foreign currency translation Transactions in foreign currency are recorded at the following exchange rates: . Daily transactions are converted into French francs as follows: - Purchase and sales invoices by using the monthly rates published by the French Customs Authorities. - Payments and receipts using daily bank rates. . Valuation of receivables and liabilities in foreign currency as of December 31, 1998: - Euro zone currencies: unrealized foreign exchange gains and losses are recorded in line with the Euro currency exchange rates as set at December 31, 1998. - Non-Euro zone currencies: valuation takes place in line with the last known rate before the period end. These rates were published in the Journal Official (Gazette) of January 1, 1999. The assets and liabilities of the two sites in England are converted using the exchange rate in effect on December 31, 1998. The income statement is converted at the average monthly exchange rate. 2.2. Intangible fixed assets The company has decided to book the costs of studies and trials relating to specific markets and benefiting from advances whose repayment is conditional, in Research and Development costs. These costs are amortized over a period of three years. Former WARTSILA France's own goodwill, increased by the contribution related to the takeover of Societe Surgerienne de Constructions Mecaniques of Budi and by the repair activity of Wartsila Diesel France, is amortized over a period of twenty years. Intangible fixed assets capitalized in 1997 for an amount of FRF 350 million, relating to know-how and technology in respect of the CW 200 and the CW 170 motors, are amortized on a straight-line basis over a period of 15 years. The 1998 costs relating to know-how and technology in respect of these motors was capitalized for a sum of FRF 68.9 million, bringing the amount in intangible fixed assets to FRF 418.9 million at the end of the period. These costs are amortized over the remaining useful life of the intangible fixed assets mentioned at the beginning of this paragraph. Software is amortized on a straight-line basis over four years; low value software is amortized over 12 months. 2.3. Tangible fixed assets Tangible fixed assets are recorded at their acquisition cost. Depreciation is calculated on a straight-line basis over the following useful life periods: . Buildings 20 years . Fixtures and fittings 10 years . Industrial equipment 10 years . Development motors 2 years . Plant 3 years . Transport equipment 4 years . Furniture 10 years . Office equipment 4 years . IT equipment 4 years 2.4. Inventories and work-in-progress Purchased inventory is valued at average weighted cost. Work-in-progress is valued at total cost of production, which includes both cost of material purchased and manufacturing costs. Manufacturing costs include normal production costs as well as depreciation charges. Articles with a low turnover are subject to sliding provisions of up to 90% of their value. Provisions are booked in work-in-progress accounts if circumstances place the completion of the project in jeopardy. A provision is set aside for inventories of raw materials and work-in- progress relating to engines in the start-up phase of production when inventory costs exceed the estimated sales price. The provision recorded represents the excess of costs over the sales price. 2.5. Sales The principle of product recognition is the following: . upon dispatch of the engines and the spare parts . upon completion of work in relation to repairs and upgrading . for important, large-scale engines whose manufacture involves long- term contracts, product recognition is applied according to the following methods: Engineering contracts: . for the study and document submission phases, billing takes place as work progresses; the triggering event is the submission of plans. . equipment is billed on the basis of deliveries on a pro rata basis with a check being made to ensure that the margin generated at this stage is in line with the average margin of the contract as a whole. Military contracts: . Billing for development and industrialization contract takes place as work progresses at a pace agreed on by the parties. 2.6. Loss and contingency provisions Provisions are set aside for the estimated value of the work to be carried out relating to the installation and commissioning of engines delivered and invoiced. The company sets aside provisions on the basis of statistical data in order to cover possible expenses relating to the guarantee given to customers. Lastly, contingency provisions are set aside for legal disputes with customers likely to involve either additional work or to pose a risk to the payment of receivables. 2.7. Retirement indemnities Estimated retirement indemnities due upon the retirement of an employee, to which must be added social charges at the average company rate, are calculated according to the following criteria: . employees' length of service with the company . person's age . mortality table . turnover rate of the company's own personnel . discount rate, excluding inflation . inflation rate 3. Shareholders' equity 3.1. Share capital As of March 31, 1998, the Extraordinary General Meeting of Shareholders decided: . to reduce the share capital from FRF 753,556,800 to FRF 500,000,000 . transform the company into a simplified joint-stock company As of December 31, 1998, the share capital was FRF 500,000,000. It is composed of 5,000,000 shares, each of a par value of FRF 100. The capital is held in equal amounts by CUMMINS ENGINE COMPANY Limited and WARTSILA NSD Corporation. 3.2. Reserve account Following the decision of the Extraordinary General Meeting of Cummins Wartsila of March 31, 1998, a reserve account was set up for an amount of FRF 129,520,500 corresponding to the amount of estimated losses for the first quarter of 1998. This account can only be used either for offsetting future losses or for being included in share capital. 3.3. Loss of half of capital Due to the losses recorded in the financial accounts, shareholders' equity has fallen below half the nominal value of share capital. Decisions concerning the continuation of the business activity will be examined within the legal deadlines. 4. Comments relating to exceptional items The most significant extraordinary items consist of: (FRF millions) Charges Rev. _______ ______ . Release of provision for retirement indemnity corresponding to employees made redundant 11.3 . Reversal of the excess provision for restructuring charges following the shutdown of the melting activity 2.8 . Penalties on contracts 4.5 . Additional pensions 1.4 . Restructuring provision 176.8 . Research tax credit 5.8 The restructuring provision of FRF 176.8 million is composed of: . costs related to the planned redundancy scheme 105.3 . write-off of tangible fixed assets 52.5 . costs relating to the transfer of activities 19.0 Costs related to the planned redundancy scheme have been computed based on amounts pursuant to detailed benefit programs, contractual provisions or statutory requirements for each category of employees. Planned workforce reduction is approximately 320 people. None of these employees left the company prior to December 31, 1998. 5. Subsidies The company received an investment subsidy for the acquisition of new equipment. A portion of this subsidy is reversed to income at the same rate as depreciation relating to equipment. Furthermore, the company receives Credit National loans known as `article 90' loans for the financing of research programs. These loans are only repaid if research results are successful. In the case of a recognized failure or if commercial success has not been achieved within a certain time, these loans are converted into subsidies. 6. Operating receivables Provisions, calculated on a case by case basis, are set aside for doubtful debts. 7. Research tax credit Because of research and development undertaken in 1998, the company declared a tax research credit of approximately FRF 5.8 million which is recorded in the income statement as a tax revenue. This credit may be set against the charge for tax during the next three years. After this period, the portion exceeding the tax charge will be paid back to the company. 8. Prepaid expenses This account consists mainly of insurance charges of FRF 8.8 million to be allocated over the twelve months following payment of the premium. 9. Charges to be spread over several periods These consist of costs borne by the company relating to engines installed in field tests. They are spread over 5 years and 1/5 of the costs are amortized in the current period. 10. Off balance sheet commitments The company's commitments relating to the hedging of future currency to be cashed in or out during the next twelve months are as follows: Amount in millions Amount in millions (FRF) (foreign currency) __________________ ________________________ . USD 31 174 . DEM 16 55 . GBP 5 47 Other miscellaneous commitments appear in the table attached as an appendix. 11. Incorporation into the consolidated financial statements The financial statements of our company are consolidated on a like by like basis, using the equity method of consolidation, by our parent companies: CUMMINS ENGINE COMPANY, Inc., Columbus, Indiana, USA METRA CORPORATION, Helsinki, Finland In light of the insignificant nature of the subsidiaries held by CUMMINS WARTSILA, consolidated financial statements were not prepared. 12. Information concerning the remuneration of the directors This information was not provided, as it would have led to disclosure of the amount of an individual salary. I. MOVEMENT IN FIXED ASSETS - GROSS VALUE __________________________________________ (FRF thousands) Gross Situation Value As of As Of 1/1/98 Acquisitions Disposals 12/31/98 _________ ____________ _________ ________ Intangible Fixed Assets _______________________ Research & Development Costs 6,150 6,150 Goodwill 12,760 12,760 Licenses 50 50 Software 30,905 1,738 32,643 Know-How W170 & W200 350,000 68,907 418,907 Intangible Fixed Assets In-Progress 500 416 916 _______ _______ _______ _______ Total 394,215 77,211 471,426 _______ _______ _______ _______ Tangible Fixed Assets _____________________ Land 925 925 Buildings Fixtures Fittings 136,478 16,249 2,858 149,869 Technical Plant & Machinery 372,841 80,557 27,176 426,222 Other Tangible Fixed Assets 36,867 3,790 1,534 39,123 Tangible Fixed Assets In-Progress 60,992 (26,974) 34,018 Advances and Down Payments 1,014 ( 890) 124 _______ _______ _______ _______ Total 609,117 72,732 31,568 650,281 _______ _______ _______ _______ II. MOVEMENT OF DEPRECIATION AND AMORTIZATION CHARGES ______________________________________________________ (FRF thousands) Situation Allocation Depr. of Situation As of for the Disposed As Of 1/1/98 Period Assets 12/31/98 _________ __________ ________ ________ Intangible Fixed Assets _______________________ Research & Development Costs 2,050 2,050 Goodwill 6,380 638 7,018 Licenses 5 5 Software 17,653 6,808 24,461 Know-How W170 & W200 2,917 25,944 28,861 _______ _______ _______ _______ Total 26,950 35,445 62,395 _______ _______ _______ _______ Tangible Fixed Assets _____________________ Buildings Fixtures Fittings 53,312 10,393 872 62,833 Technical Plant & Machinery 193,482 47,057 15,765 224,774 Other Tangible Fixed Assets 20,919 4,977 1,140 24,756 _______ _______ _______ _______ Total 267,713 62,427 17,777 312,363 _______ _______ _______ _______