UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
CUMMINS ENGINE COMPANY, INC.
____________________________
For the Quarter Ended March 26, 2000 Commission File Number 1-4949
______________ ______
Indiana 35-0257090
_______ __________
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
500 Jackson Street, Box 3005
____________________________
Columbus, Indiana 47202-3005
_________________ __________
(Address of Principal Executive Offices) (Zip Code)
812-377-5000
____________
(Registrant's Telephone Number)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the proceeding 12 months and (2) has been
subject to such filing requirements for the past 90 days:
Yes [x]
No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date:
As of March 26, 2000, the number of shares outstanding of the
registrant's only class of common stock was 41.5 million.
<PAGE> 2
TABLE OF CONTENTS
_________________
Page No.
________
PART I. FINANCIAL INFORMATION
______________________________
Item 1. Financial Statements
Consolidated Statement of Earnings for the First 3
Quarter Ended March 26, 2000 and March 28, 1999
Consolidated Statement of Financial Position at 4
March 26, 2000 and December 31, 1999
Consolidated Statement of Cash Flows for the First 5
Quarter Ended March 26, 2000 and March 28, 1999
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Results of 9
Operations, Cash Flow and Financial Condition
PART II. OTHER INFORMATION
___________________________
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
Index to Exhibits 14
<PAGE> 3
CUMMINS ENGINE COMPANY, INC.
CONSOLIDATED STATEMENT OF EARNINGS
Unaudited
__________________________________
First Quarter Ended
Millions, except per share amounts 3/26/2000 3/28/99
__________________________________ _________ _______
Net sales $1,648 $1,505
Cost of goods sold 1,313 1,204
______ ______
Gross profit 335 301
Selling & administrative expenses 194 178
Research & engineering expenses 59 54
Net (income) expense from joint ventures
and alliances (1) 7
Interest expense 19 19
Other expense, net 2 7
______ ______
Earnings before income taxes 62 36
Provision for income taxes 17 10
Minority interest 3 2
______ ______
Net earnings $ 42 $ 24
______ ______
______ ______
Basic earnings per share $ 1.09 $ .63
Diluted earnings per share 1.09 .63
Cash dividends declared per share .30 .275
<PAGE> 4
CUMMINS ENGINE COMPANY, INC.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Unaudited
____________________________________________
Millions, except per share amounts 3/26/2000 12/31/99
__________________________________ _________ ________
Assets
Current assets:
Cash and cash equivalents $ 68 $ 74
Receivables, net of allowance of $9 1,159 1,026
Inventories 840 787
Other current assets 283 293
______ ______
2,350 2,180
Investments and other assets 335 274
Property, plant & equipment less accumulated
depreciation of $1,533 and $1,490 1,617 1,630
Goodwill, net of amortization of $30 and $28 362 364
Other intangibles, deferred taxes & deferred charges 251 249
______ ______
Total assets $4,915 $4,697
______ ______
______ ______
Liabilities and shareholders' investment
Current liabilities:
Loans payable $ 66 $ 113
Current maturities of long-term debt 9 10
Accounts payable 523 411
Other current liabilities 774 780
______ ______
1,372 1,314
______ ______
Long-term debt 1,227 1,092
______ ______
Other liabilities 794 788
______ ______
Minority interest 78 74
______ ______
Shareholders' investment:
Common stock, $2.50 par value, 48.7 and 48.3
shares issued 122 121
Additional contributed capital 1,140 1,129
Retained earnings 790 760
Accumulated other comprehensive income (124) (109)
Common stock in treasury,at cost,7.2 & 6.8 shares (290) (274)
Common stock held in trust for employee benefit
plans, 3.4 shares (161) (163)
Unearned compensation (ESOP) (33) (35)
______ ______
1,444 1,429
______ ______
Total liabilities & shareholders' investment $4,915 $4,697
______ ______
______ ______
<PAGE> 5
CUMMINS ENGINE COMPANY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited
____________________________________
First Quarter Ended
Millions 3/26/2000 3/28/99
________ _________ _______
Cash flows from operating activities:
Net earnings $ 42 $ 24
_____ _____
Adjustments to reconcile net earnings
to net cash from operating activities:
Depreciation and amortization 57 56
Restructuring actions (2) (5)
Accounts receivable (141) (130)
Inventories (42) (2)
Accounts payable and accrued expenses 100 95
Income taxes payable (5) (5)
Equity in losses of joint ventures and alliances 2 11
Other (2) (12)
_____ _____
Total adjustments (33) 8
_____ _____
Net cash provided by operating activities 9 32
_____ _____
Cash flows from investing activities:
Property, plant and equipment:
Additions (31) (37)
Disposals 7 4
Investments in joint ventures and alliances (18) (19)
Acquisition and disposition of businesses (35) 7
Other - (1)
_____ _____
Net cash used in investing activities (77) (46)
_____ _____
Net cash flows used in operating and
investing activities (68) (14)
_____ _____
Cash flows from financing activities:
Proceeds from borrowings 138 88
Payments on borrowings (4) (11)
Net payments under short-term credit agreements (46) (43)
Repurchases of common stock (16) -
Dividend payments (12) (12)
Other 2 (1)
_____ _____
Net cash provided by financing activities 62 21
_____ _____
Net change in cash and cash equivalents (6) 7
Cash & cash equivalents at the beginning of the year 74 38
_____ _____
Cash & cash equivalents at the end of the quarter $ 68 $ 45
_____ _____
_____ _____
<PAGE> 6
CUMMINS ENGINE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
______________________________________________
Note 1. Accounting Policies: The Consolidated Financial Statements
for the interim periods ended March 26, 2000 and March 28, 1999 have
been prepared in accordance with the accounting policies described in
the Company's Annual Report to Shareholders and Form 10-K. Management
believes the statements include all adjustments of a normal recurring
nature necessary to present fairly the results of operations for the
interim periods. Inventory values at interim reporting dates are based
upon estimates of the annual adjustments for taking physical inventory
and for the change in cost of LIFO inventories.
Note 2. Income Taxes: Income tax expense is reported during the
interim reporting periods on the basis of the estimated annual
effective tax rate for the taxable jurisdictions in which the Company
operates.
Note 3. Earnings per Share: Basic earnings per share of common stock
are computed by dividing net earnings by the weighted-average number of
common shares outstanding during the period. Diluted earnings per
share are computed by dividing net earnings by the weighted-average
number of shares, assuming the exercise of stock options. Shares of
stock held by the employee benefits trust are not included in
outstanding shares for EPS until distributed from the trust.
Weighted Per-
Net Average Share
Millions, except per share amounts Earnings Shares Amount
__________________________________ ________ ________ ______
2000
____
Basic $42 38.2 $1.09
Options - .1
___ ____
Diluted $42 38.3 $1.09
___ ____
___ ____
1999
____
Basic $24 38.5 $ .63
Options - -
___ ____
Diluted $24 38.5 $ .63
___ ____
___ ____
Note 4. Comprehensive Income: Comprehensive income, which includes net
income and all other nonowner changes in equity during a period, is as
follows:
First Quarter Ended
Millions March 26, 2000 March 28, 1999
________ ______________ ______________
Net income $ 42 $ 24
Unrealized (loss) gain on securities (1) 1
Translation loss (14) -
____ ____
Comprehensive income $ 27 $ 25
____ ____
____ ____
<PAGE> 7
Note 5. Segment Information: Operating segment information is as
follows:
Power Filtration
Millions Engine Generation And Other Total
________ ______ __________ __________ ______
Quarter Ended March 26, 2000
____________________________
Net sales $1,045 $329 $274 $1,648
Earnings before interest and
income taxes 28 23 30 81
Net assets 1,108 565 854 2,527
Quarter Ended March 28, 1999
____________________________
Net sales $1,000 $251 $254 $1,505
Earnings before interest and
income taxes 27 2 26 55
Net assets 976 523 799 2,298
Reconciliation to Consolidated Financial Statements:
First Quarter Ended
Millions 3/26/2000 3/28/99
________ _________ _______
Earnings before interest and income taxes
for reportable segments $ 81 $ 55
Interest expense 19 19
Income tax expense 17 10
Minority interest 3 2
______ ______
Net earnings $ 42 $ 24
______ ______
______ ______
Net assets for reportable segments $2,527 $2,298
Liabilities deducted in arriving at net assets 2,049 2,037
Deferred tax assets not allocated to segments 320 334
Debt-related costs not allocated to segments 19 22
______ ______
Total assets $4,915 $4,691
______ ______
______ ______
Note 6. Restructuring and Other Non-Recurring Charges: In the third
quarter of 1998, the Company recorded charges of $125 million,
comprised of $100 million for costs to reduce the worldwide workforce
by approximately 1,100 people, as well as costs associated with
streamlining certain majority-owned and international joint venture
operations and $25 million for a civil penalty to be paid by the
Company as a result of an agreement reached with the U.S. Environmental
Protection Agency (EPA) regarding diesel engine emissions. In
addition, the Company recorded special charges of $14 million for
inventory write-downs associated with restructuring actions.
The Company is continuing the restructuring plan implemented in the
third quarter of 1998. As of March 26, 2000, approximately $88 million
has been charged against the liabilities associated with these actions.
The Company has funded the restructuring actions using cash generated
from operations. The remaining actions to be completed consist
primarily of the outsourcing of certain manufacturing operations and
payment of severance commitments to terminated employees. The program
is expected to be essentially complete in 2000 and the Company does not
currently anticipate any material changes in the original charges
recorded for these actions.
<PAGE> 8
Activity in the major components of these charges is as follows:
Charges
_____________________
Original Q1 Balance
$ Millions Provision 1998 1999 2000 3/26/2000
__________ _________ _____ _____ _____ _________
Restructuring of majority-
owned operations:
Workforce reductions $ 38 $(12) $(14) $ (3) $ 9
Asset impairment loss 22 - (7) (2) 13
Facility consolidations
and other 17 (8) (4) (2) 3
____ ____ ____ ____ ____
77 (20) (25) (7) 25
____ ____ ____ ____ ____
Restructuring of joint
venture operations:
Workforce reductions 11 - (10) - 1
Tax asset impairment loss 7 - (7) - -
Facility and equipment-
related costs 5 - (5) - -
____ ____ ____ ____ ___
23 - (22) - 1
____ ____ ____ ____ ___
Inventory write-downs
associated with restructuring
actions 14 (5) (9) - -
____ ____ ____ ____ ___
Total restructuring charges 114 (25) (56) (7) 26
____ ____ ____ ____ ___
EPA penalty 25 - (8) - 17
____ ____ ____ ____ ___
Total $139 $(25) $(64) $ (7) $43
____ ____ ____ ____ ___
____ ____ ____ ____ ___
<PAGE> 9
CUMMINS ENGINE COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS,
CASH FLOW AND FINANCIAL CONDITION
_____________________________________________________________
Overview
________
Net sales were $1.65 billion in the first quarter of 2000, an increase
of 10 percent from the first quarter of 1999. Earnings before interest
and taxes in the first quarter of 2000 were $81 million or 4.9 percent
of sales compared to $55 million or 3.7 percent of sales in the first
quarter of 1999. Net earnings were $42 million or $1.09 per share
compared to $24 million or 63 cents per share in the first quarter of
1999.
Results of Operations
_____________________
Net Sales:
__________
Revenues from sales of engines, which were 55 percent of the Company's
net sales in the first quarter of 2000, were 4 percent higher than
first-quarter 1999. Revenues from non-engine products, which were 45
percent of net sales in the first quarter of 2000, were 16 percent
higher than the first quarter of 1999. This increase was primarily due
to growth in the power generation and filtration businesses and higher
parts sales.
First Quarter
Unit Shipments 2000 1999
________________ _______ _______
Midrange Engines 78,900 73,700
Heavy-duty Engines 27,400 26,800
High-horsepower Engines 2,500 2,000
_______ _______
108,800 102,500
_______ _______
_______ _______
All three of the Company's business segments had higher sales in the
first quarter of 2000 than in the year-ago quarter. The Company's
sales for each of its key businesses during the comparative first
quarters were:
First Quarter
$ Millions 2000 1999
__________ ______ ______
Automotive markets $ 776 $ 760
Industrial markets 269 240
_____ _____
Engine Business 1,045 1,000
Power Generation Business 329 251
Filtration Business and Other 274 254
______ ______
$1,648 $1,505
______ ______
______ ______
In the first quarter of 2000, engine business revenues of $1.05 billion
increased 5 percent as compared to the first quarter of 1999, primarily
due to the strength of the bus and light commercial vehicle market.
Sales of $776 million in the first quarter of 2000 for automotive
markets were 2 percent higher than the first quarter of 1999. Heavy-
duty truck revenues were essentially flat compared to the first quarter
of 1999, with the decline in sales of engines in North America offset
by an increase in international heavy-duty truck revenues and parts
sales.
Medium-duty truck revenues decreased 13 percent from the first quarter
of 1999 with sales declines in both North American and international
markets. Revenues from the sales of engines for medium-duty trucks in
<PAGE> 10
the first quarter of 2000 were 8 percent lower than the prior year's
quarter on a 15-percent de-crease in units. This variance reflected a
decline in sales of engines with a lower selling price and margin.
Revenues of the bus and light commercial vehicle market were 14 percent
higher than the first quarter of 1999. In the first quarter of 2000,
Cummins shipped 30,000 engines to DaimlerChrysler, 18 percent higher
than the first-quarter 1999 level. Shipments for the bus market in the
first quarter of 2000 were up 38 percent in North America and 13
percent in international markets, primarily in Mexico. Sales of
engines for recreational vehicles were 13 percent higher than the year-
ago quarter.
Sales to industrial markets were 12 percent higher than the first
quarter of 1999, due to increased volume and a shift in product mix.
Engine revenues for this market were up 15 percent on a 10-percent
increase in units. Construction equipment business increased 6 percent
compared to first quarter 1999, while agricultural equipment demand
remained flat with the prior year's quarter. Sales to marine markets
increased 19 percent from the first quarter of 1999, with improvement
in both Asia and North America. Mining market sales increased 25
percent as compared to the first quarter of 1999, reflecting some
recovery in this market.
In the first quarter of 2000, sales for the Company's power generation
business increased 31 percent compared to the first quarter of 1999.
Sales of the Company's generator sets were 39 percent higher than first
quarter last year due to increased sales in North America. Engine
sales to generator set assemblers were up 40 percent and sales of
alternators increased 25 percent from the first quarter of 1999, with
growth in most international markets. Generator set sales for the
recreational vehicle and mobile markets were 14 percent above the year-
ago quarter.
Filtration business and other sales of $274 million in the first
quarter of 2000 were 8 percent higher than the first quarter of 1999.
Within the filtration business, the sales increase was broadly
distributed across markets worldwide, reflecting both new business
penetration and market growth. Sales at company-owned distributors and
Holset, the Company's turbocharger business, also increased as compared
to the first quarter of 1999.
In total, international markets represented 41 percent of the Company's
revenues in the first quarter of 2000. The Company experienced gains
in all of the international markets in which it participates. Sales to
Europe and the CIS, representing 13 percent of the Company's sales in
the first quarter of 2000, were 15 percent higher than the prior year's
quarter. Business in Mexico, Brazil and Latin America represented 6
percent of sales in the first quarter of 2000, with revenues 41 percent
above the year-ago levels. Asia and Australian markets, in total,
represented 12 percent of sales in the first quarter of 2000,
increasing 23 percent from the prior year's quarter. Sales to Canada,
representing 8 percent of sales in the first quarter of 2000, were 33
percent higher than the first quarter of 1999.
Gross Margin:
_____________
The Company's gross margin percentage was 20.3 percent in the first
quarter of 2000, compared to 20.0 percent in the prior year's quarter.
The increased margin in 2000 was due to higher volume and reduced costs
related to new products, partially offset by higher product coverage
costs.
Operating Expenses:
___________________
Selling and administrative expenses as a percent of sales were 11.8
percent in the first quarters of 2000 and 1999. Research and
engineering expenses were 3.6 percent of sales in the first quarter of
2000 compared to 3.5 percent in the first quarter of 1999.
The Company is continuing the restructuring plan implemented in the
third quarter of 1998. During the first quarter of 2000, $7 million
was charged against the liabilities associated with these actions. The
Company expects to complete the restructuring in 2000 and does not
anticipate any material changes in the original charges recorded for
these actions.
<PAGE> 11
The Company had income from joint ventures and alliances of $1 million
in the first quarter of 2000, compared to losses of $7 million in the
first quarter of 1999. This improvement resulted from the termination
of the Company's joint venture with Wartsila at the end of 1999.
Other:
______
Interest expense was $19 million in the first quarter of 2000, flat
with the prior year's quarter. Other expense decreased $5 million from
the first quarter of 1999, due to Brazilian currency translation losses
and losses on various asset dispositions recorded in the first quarter
of 1999.
Provision for Income Taxes:
__________________________
The Company's income tax provision in the first quarter of 2000 was $17
million, reflecting an effective tax rate of 27 percent for the year.
Cash Flow and Financial Condition
_________________________________
Key elements of cash flows were:
First Quarter
$ Millions 2000 1999
__________ _____ _____
Net cash provided by operating activities $ 9 $ 32
Net cash used in investing activities (77) (46)
Net cash provided by financing activities 62 21
____ ____
Net change in cash and cash equivalents $ (6) $ 7
____ ____
____ ____
In the first quarter of 2000, net cash provided by operating activities
was $9 million, with the Company's earnings and the non-cash effect of
depreciation and amortization reduced by increases in working capital.
Net cash used in investing activities included $31 million of planned
capital expenditures and $35 million related to the business assumed by
the Company following the termination of the Cummins Wartsila joint
venture. Net cash provided by financing activities in the first quarter
of 2000 included net borrowings of $88 million primarily to fund increases
in working capital, partially offset by cash used to pay dividends and
repurchase shares of the Company's stock.
FORWARD-LOOKING STATEMENTS
__________________________
When used herein, the terms "expect, plan, anticipate, believe" or
similar expressions, as they relate to the Company or its management,
are intended to identify forward-looking statements.
The Company has included certain forward-looking statements in this
Management's Discussion and Analysis of Results of Operations, Cash
Flow and Financial Condition and in the Company's press releases,
teleconferences and other external communications. These statements
are based on current expectations, estimates and projections about the
industries in which the Company operates, management's beliefs and
various assumptions made by management which are difficult to predict.
Among the factors that could affect the outcome of the statements are
general industry and market conditions and growth rates. Therefore,
actual outcomes and their impact on the Company may differ materially
from what is expressed or forecasted. The Company undertakes no
obligation to update publicly any forward-looking statements, whether
as a result of new information, future events or otherwise.
<PAGE> 12
PART II. OTHER INFORMATION
___________________________
Item 4. Submission of Matters to a Vote of Security Holders
____________________________________________________________
The Company held its annual meeting of security holders on April 4,
2000 at which security holders elected 10 directors of the Company for
the ensuing year and ratified the appointment of Arthur Andersen LLP as
auditors for the year 2000.
Results of the voting in connection with each of the items were as
follows:
Voting on Directors:
____________________
For Withheld
__________ ________
R. Darnall 38,044,402 1,181,968
J. M. Deutch 37,803,520 1,422,850
W. Y. Elisha 37,956,865 1,269,505
H. H. Gray 37,915,804 1,310,566
J. A. Johnson 38,087,243 1,139,127
W. I. Miller 38,069,076 1,157,294
W. D. Ruckelshaus 37,912,621 1,313,749
T. M. Solso 37,704,868 1,521,502
F. A. Thomas 37,955,056 1,271,314
J. L. Wilson 38,142,414 1,083,956
Ratify Appointment of Auditors:
_______________________________
For Against Abstain
__________ _________ _______
37,490,483 1,370,007 365,880
With regard to the election of directors, votes were cast in favor of
or withheld from each nominee; votes that were withheld were excluded
entirely from the vote and had no effect. Abstentions on the
ratification of the appointment of Arthur Andersen LLP were counted as
present for purposes of determining the existence of a quorum. Under
the rules of the New York Stock Exchange, brokers who held shares in
street names had the authority to vote on certain items when they did
not receive instructions from beneficial owners. Brokers who did not
receive instructions were entitled to vote on the election of
directors. Under applicable Indiana law, a broker non-vote had no
effect on the outcome of the election of directors.
Item 6. Exhibits and Reports on Form 8-K:
__________________________________________
(a) See the Index to Exhibits on Page 14 for a list of exhibits filed
herewith.
(b) The Company was not required to file a Form 8-K during the first
quarter of 2000.
<PAGE> 13
Signatures
__________
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
CUMMINS ENGINE COMPANY, INC.
By: /s/Robert C. Crane April 25, 2000
__________________
Robert C. Crane
Vice President - Corporate Controller
(Chief Accounting Officer)
<PAGE> 14
CUMMINS ENGINE COMPANY, INC.
____________________________
INDEX TO EXHIBITS
_________________
27 Financial Data Schedule (filed herewith)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-26-2000
<CASH> 68
<SECURITIES> 0
<RECEIVABLES> 1,168
<ALLOWANCES> 9
<INVENTORY> 840
<CURRENT-ASSETS> 2,350
<PP&E> 3,150
<DEPRECIATION> 1,533
<TOTAL-ASSETS> 4,915
<CURRENT-LIABILITIES> 1,372
<BONDS> 1,227
0
0
<COMMON> 122
<OTHER-SE> 1,322
<TOTAL-LIABILITY-AND-EQUITY> 4,915
<SALES> 1,648
<TOTAL-REVENUES> 1,648
<CGS> 1,313
<TOTAL-COSTS> 1,313
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19
<INCOME-PRETAX> 62
<INCOME-TAX> 17
<INCOME-CONTINUING> 42
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42
<EPS-BASIC> 1.09
<EPS-DILUTED> 1.09
</TABLE>
