UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 September 24, 2000 Commission File Number 1-4949
__________________ ______
Indiana 35-0257090
_______ __________
(State or Other Jurisdiction of (IRS 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 September 24, 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 Third 3
Quarter and Nine Months Ended September 24, 2000
and September 26, 1999
Consolidated Statement of Financial Position at 4
September 24, 2000 and December 31, 1999
Consolidated Statement of Cash Flows for the Nine 5
Months Ended September 24, 2000 and September 26, 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 6. Exhibits and Reports on Form 8-K 13
Index to Exhibits 14
<PAGE> 3
CUMMINS ENGINE COMPANY, INC.
CONSOLIDATED STATEMENT OF EARNINGS
FOR THE THIRD QUARTER AND NINE MONTHS
ENDED SEPTEMBER 24, 2000 AND SEPTEMBER 26, 1999
_______________________________________________
Unaudited
_________
Third Quarter Nine Months
Millions, except per share amounts 2000 1999 2000 1999
__________________________________ ______ ______ ______ ______
Net sales $1,572 $1,631 $4,989 $4,803
Cost of goods sold 1,262 1,270 3,993 3,770
______ ______ ______ ______
Gross profit 310 361 996 1,033
Selling and administrative expenses 195 192 579 570
Research and engineering expenses 62 67 180 181
Net (income) expense from joint
ventures and alliances (3) 8 (7) 20
Interest expense 22 18 62 56
Other (income) expense, net (5) 3 (5) 13
_____ ______ _____ ______
Earnings before income taxes 39 73 187 193
Provision for income taxes 9 19 48 54
Minority interest 5 1 11 4
______ ______ _______ _______
Net earnings $ 25 $ 53 $ 128 $ 135
______ ______ _______ _______
______ ______ _______ _______
Basic earnings per share $ .66 $ 1.37 $ 3.36 $ 3.50
Diluted earnings per share .66 1.35 3.36 3.48
Cash dividends declared per share $ .30 $ .275 $ .90 $ .825
<PAGE> 4
CUMMINS ENGINE COMPANY, INC.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
____________________________________________
Unaudited
_________
Millions, except per share amounts 9/24/2000 12/31/1999
__________________________________ _________ __________
Assets
Current assets:
Cash and cash equivalents $ 94 $ 74
Receivables, net of allowance of $10 and $9 1,097 1,026
Inventories 797 787
Other current assets 292 293
______ ______
2,280 2,180
Investments and other assets 375 274
Property, plant and equipment less accumulated
depreciation of $1,555 and $1,490 1,595 1,630
Goodwill, net of amortization of $36 and $28 360 364
Other intangibles, deferred taxes and deferred
charges 264 249
______ ______
Total assets $4,874 $4,697
______ ______
______ ______
Liabilities and shareholders' investment
Current liabilities:
Loans payable $ 125 $ 113
Current maturities of long-term debt 9 10
Accounts payable 417 411
Other current liabilities 681 780
______ ______
1,232 1,314
______ ______
Long-term debt 1,313 1,092
______ ______
Other liabilities 802 788
______ ______
Minority interest 68 74
______ ______
Shareholders' investment:
Common stock, $2.50 par value, 48.7 and 48.3
shares issued 122 121
Additional contributed capital 1,139 1,129
Retained earnings 851 760
Accumulated other comprehensive income (176) (109)
Common stock in treasury, at cost, 7.2 & 6.8 shares (290) (274)
Common stock held in trust for employee
benefit plans, 3.2 and 3.4 shares (154) (163)
Unearned compensation (ESOP) ( 33) (35)
______ ______
1,459 1,429
______ ______
Total liabilities & shareholders' investment $4,874 $4,697
______ ______
______ ______
<PAGE> 5
CUMMINS ENGINE COMPANY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
____________________________________
Unaudited
_________
Nine Months Ended
Millions 9/24/2000 9/26/1999
________ _________ _________
Cash flows from operating activities:
Net earnings $ 128 $ 135
_____ _____
Adjustments to reconcile net earnings
to net cash from operating activities:
Depreciation and amortization 180 172
Restructuring & other non-recurring actions (16) (23)
Accounts receivable (115) (277)
Inventories (28) (70)
Accounts payable and accrued expenses (47) 216
Income taxes payable (24) 12
Equity in losses of joint ventures and
alliances 7 24
Other (11) (19)
_____ _____
Total adjustments (54) 35
_____ _____
Net cash provided by operating activities 74 170
_____ _____
Cash flows from investing activities:
Property, plant and equipment:
Additions (130) (121)
Disposals 10 27
Investments in joint ventures & alliances (76) (40)
Acquisition and disposition of businesses (42) 3
Other - 6
_____ _____
Net cash used in investing activities (238) (125)
_____ _____
Net cash flows (used in) provided by
operating and investing activities (164) 45
_____ _____
Cash flows from financing activities:
Proceeds from borrowings 226 53
Payments on borrowings (8) (26)
Net borrowings under short-term credit
agreements 22 26
Repurchase of common stock (16) (30)
Dividend payments (37) (35)
Other (1) (11)
_____ _____
Net cash provided by (used in) financing
activities 186 (23)
_____ _____
Effect of exchange rate changes on cash (2) -
_____ _____
Net change in cash and cash equivalents 20 22
Cash & cash equivalents at the beginning of year 74 38
_____ _____
Cash & cash equivalents at the end of quarter $ 94 $ 60
_____ _____
_____ _____
<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 September 24, 2000 and September 26, 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.
Third Quarter Nine Months
_____________________________ ___________________________
Weighted Per- Weighted Per-
Millions, except Net Average Share Net Average Share
per share amounts Earnings Shares Amount Earnings Shares Amount
_________________ ________ _______ ______ ________ _______ ______
2000
____
Basic $ 25 38.2 $ .66 $128 38.2 $ 3.36
Options - - - -
___ ____ ____ ____
Diluted $ 25 38.2 $ .66 $128 38.2 $ 3.36
____ ____ ____ ____
____ ____ ____ ____
1999
____
Basic $ 53 38.3 $ 1.37 $135 38.4 $ 3.50
Options - .6 - .4
___ ____ ____ ____
Diluted $ 53 38.9 $ 1.35 $135 38.8 $ 3.48
____ ____ ____ ____
____ ____ ____ ____
Note 4. Comprehensive Income: Comprehensive income, which includes net
income and all other nonowner changes in equity during a period, is as
follows:
Third Quarter Ended Nine Months Ended
Millions 9/24/2000 9/26/1999 9/24/2000 9/26/1999
________ _________ _________ _________ _________
Net income $ 25 $ 53 $128 $ 135
Unrealized (loss) gain on
securities, net of tax (1) 1 (1) 2
Translation loss, net of tax (17) (2) (66) (9)
____ ____ ____ _____
Comprehensive income $ 7 $ 52 $ 61 $ 128
____ ____ ____ _____
____ ____ ____ _____
<PAGE> 7
Note 5. Segment Information: Operating segment information is as follows:
Power Filtration
Millions Engine Generation And Other Total
________ ______ __________ __________ ______
Third Quarter Ended Sept. 24, 2000
__________________________________
Net sales $ 962 $ 334 $ 276 $1,572
Earnings before interest and
income taxes 6 25 30 61
Net assets 1,213 576 866 2,655
Third Quarter Ended Sept. 26, 1999
__________________________________
Net sales $1,032 $ 352 $ 247 $1,631
Earnings before interest and
income taxes 45 15 31 91
Net assets 996 557 830 2,383
Nine Months Ended Sept. 24, 2000
________________________________
Net sales $3,114 $1,031 $ 844 $4,989
Earnings before interest and
income taxes 76 78 95 249
Nine Months Ended Sept. 26, 1999
________________________________
Net sales $3,127 $ 908 $ 768 $4,803
Earnings before interest and
income taxes 131 28 90 249
Reconciliation to Consolidated Financial Statements:
Third Quarter Ended Nine Months Ended
Millions 9/24/2000 9/26/1999 9/24/2000 9/26/1999
________ _________ _________ _________ _________
Earnings before interest & income
taxes for reportable segments $ 61 $ 91 $249 $249
Interest expense 22 18 62 56
Income tax expense 9 19 48 54
Minority interest 5 1 11 4
______ ______ ____ ____
Net earnings $ 25 $ 53 $128 $135
______ ______ ____ ____
______ ______ ____ ____
Net assets for reportable segments $2,655 $2,383
Liabilities deducted in arriving at
net assets 1,880 2,139
Deferred tax assets not allocated
to segments 320 334
Debt-related costs not allocated
to segments 19 22
______ ______
Total assets $4,874 $4,878
______ ______
______ ______
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. In the third quarter of 2000, the Company
reversed excess accruals of $7 million and recorded $7 million of
charges related to new actions committed to during the quarter. As of
September 24, 2000, approximately $100 million has been charged against
the liabilities associated with restructuring actions. The Company has
funded the 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 complete in early
2001.
<PAGE> 8
Activity in the major components of these charges is as follows:
Charges Reversal Q3
Original ________________ Of 2000 Balance
$ Millions Provision 1998 1999 2000 Excess Provision 9/24/00
__________ _________ ____ ____ ____ ______ _________ _______
Restructuring of
majority-owned
operations:
Workforce reductions $ 38 $(12) $(14) $ (5) $(4) $ 2 $ 5
Asset impairment loss 22 - (7) (8) (3) 3 7
Facility consolida-
tions and other 17 (8) (4) (6) - 2 1
____ ___ ___ ____ ___ ___ ___
77 (20) (25) (19) (7) 7 13
____ ___ ___ ____ ___ ___ ___
Restructuring of joint
venture operations:
Workforce reductions 11 - (10) - - - 1
Tax asset impairment
loss 7 - (7) - - - -
Facility and equip-
ment-related costs 5 - (5) - - - -
____ ___ ___ ___ ___ ___ ___
23 - (22) - - - 1
____ ___ ___ ___ ___ ___ ___
Inventory write-downs
associated with
restructuring actions 14 (5) ( 9) - - - -
____ ___ ___ ___ ___ ___ ___
Total restructuring
charges 114 (25) (56) (19) (7) 7 14
EPA penalty 25 - (8) (9) - - 8
____ ____ ____ ____ ___ ___ ___
Total $139 $(25) $(64) $(28) $(7) $ 7 $22
____ ____ ____ ____ ___ ___ ___
____ ____ ____ ____ ___ ___ ___
<PAGE> 9
CUMMINS ENGINE COMPANY, INC.
____________________________
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS,
CASH FLOW AND FINANCIAL CONDITION
_____________________________________________________________
Overview
________
Net sales were $1.57 billion in the third quarter of 2000, 4 percent
lower than the third quarter of 1999. Earnings before interest and
taxes in the third quarter of 2000 were $61 million, or 3.9 percent of
sales, compared to $91 million, or 5.6 percent of sales, in the third
quarter of 1999. Net earnings were $25 million, or $.66 per share,
compared to $53 million, or $1.35 per share, in the third quarter of
1999. Net earnings for the first nine months of 2000 were $128
million, or $3.36 per share, compared to $135 million, or $3.48 per
share, in the first nine months of 1999.
Results of Operations
_____________________
Net Sales:
__________
Revenues from sales of engines were 51 percent of the Company's net
sales in the third quarter of 2000, with engine revenues 9 percent
lower than third-quarter 1999 and unit shipments flat compared to the
year-ago quarter. Revenue decreased due to lower heavy-duty engine
sales, primarily in the North American heavy-duty truck market.
Third Quarter Nine Months
Unit Shipments 2000 1999 2000 1999
______________ _______ ______ _______ _______
Midrange Engines 79,000 68,400 247,000 218,700
Heavy-duty Engines 19,600 30,500 72,800 87,900
High-horsepower Engines 2,800 2,500 8,300 6,700
_______ _______ _______ _______
101,400 101,400 328,100 313,300
_______ _______ _______ _______
_______ _______ _______ _______
Revenues from non-engine products, which were 49 percent of net sales
in the third quarter of 2000, were 3 percent higher than the third
quarter of 1999. The major increases included higher revenues from
international distributors and parts sales, partially offset by a
decrease in genset sales.
The Company's sales for each of its key businesses during the
comparative periods were:
Third Quarter Nine Months
$ Millions 2000 1999 2000 1999
__________ ______ ______ ______ ______
Automotive markets $ 693 $ 792 $2,279 $2,372
Industrial markets 269 240 835 755
______ ______ ______ ______
Engine Business 962 1,032 3,114 3,127
Power Generation Business 334 352 1,031 908
Filtration Business and Other 276 247 844 768
______ ______ ______ ______
$1,572 $1,631 $4,989 $4,803
______ ______ ______ ______
______ ______ ______ ______
In the third quarter of 2000, engine business revenues of $962 million
decreased 7 percent as compared to the third quarter of 1999, due
primarily to a 49-percent decrease in shipments to the North American
heavy-duty truck market.
<PAGE> 10
Sales of $693 million in the third quarter of 2000 for automotive
markets were 13 percent lower than the third quarter of 1999. Heavy-
duty truck revenues decreased 33 percent from the third quarter of
1999, due to the market decline in North America.
Medium-duty truck revenues were 4 percent higher than the third quarter
of 1999 on a 2-percent increase in unit shipments. Unit shipments to
North America declined 23 percent, while international shipments
increased 23 percent, primarily in Brazil.
Revenues of the bus and light commercial vehicle market were 23 percent
higher than the third quarter of 1999. In the third quarter of 2000,
Cummins shipped 31,000 engines to DaimlerChrysler, 35 percent higher
than the third-quarter 1999 level. Shipments to the bus and
recreational vehicle market were 9 percent higher than the year-ago
quarter, with a 31-percent increase in shipments to the North American
bus market and a 77-percent increase in shipments for international bus
markets, primarily in China, partially offset by a 31-percent decrease
in units for the recreational vehicle market.
Sales to industrial markets were 12 percent higher than the third
quarter of 1999, due to increased volume and a shift in product mix.
Engine revenues for this market were up 16 percent on an 11-percent
increase in units. Construction equipment business was 4 percent
higher compared to third quarter 1999, and agricultural equipment
demand increased 25 percent from the prior year's quarter. Sales to
marine markets increased 12 percent from third quarter 1999, with the
recovery of business in Southeast Asia. Mining market sales increased
35 percent as compared to the third quarter of 1999, reflecting higher
high-horsepower engine volumes.
In the third quarter of 2000, sales for the Company's power generation
business decreased 5 percent compared to third quarter 1999. Sales of
the Company's generator sets were 6 percent below third quarter last
year, and engine and alternator sales to generator set assemblers were
down 5 percent from the third quarter of 1999. Generator set sales for
the recreational vehicle and mobile markets in North America were down
6 percent compared to the year-ago quarter.
Filtration business and other sales were $276 million in the third
quarter of 2000, an increase of 12 percent from the third quarter of
1999. Sales of filtration products were up slightly compared to the
year-ago level due to higher sales in North America. Sales of
international company-owned distributors were at record levels in the
third quarter and the Holset turbocharger business included in this
segment also increased compared to the third quarter of 1999.
In total, international markets represented 44 percent of the Company's
revenues in the third quarter of 2000, with increases in most of the
international markets in which the Company participates. Sales to
Europe and the CIS, representing 13 percent of the Company's sales in
the third quarter of 2000, were 8 percent higher than the prior year's
quarter. Business in Mexico, Brazil and Latin America represented 7
percent of sales in the third quarter of 2000, with revenues 13 percent
above the year-ago levels. Asia and Australian markets, in total,
representing 15 percent of sales in the third quarter of 2000, were 12
percent higher than the prior year's quarter. Sales to Canada,
representing 6 percent of sales in the third quarter of 2000, were 13
percent lower than the third quarter of 1999 due to the decline in the
heavy-duty truck market.
Gross Margin:
_____________
The Company's gross margin percentage was 19.7 percent in the third
quarter of 2000, compared to 22.1 percent in the prior year's quarter.
The decreased margin in 2000 was due primarily to lower volume, higher
product coverage costs and lower cost absorption at the Company's heavy-
duty engine plants. For the first nine months of 2000, gross margin
percentage was 20.0 percent compared to 21.5 percent for the first nine
months of 1999.
<PAGE> 11
Operating Expenses:
___________________
Selling and administrative expenses as a percent of sales were 12.4
percent in the third quarter of 2000, compared to 11.8 percent in the
third quarter of 1999, with total spending increasing $3 million.
Research and engineering expenses declined from 4.1 percent of sales in
the third quarter of 1999 to 3.9 percent in the third quarter of 2000.
The Company is continuing the restructuring plan implemented in the
third quarter of 1998. During the third quarter of 2000, the Company
reversed $7 million in excess accruals and recorded $7 million of
charges related to new actions committed to during the quarter. The
Company expects to complete the restructuring in early 2001.
The Company's income from joint ventures and alliances was $3 million
in the third quarter of 2000 as compared to losses of $8 million in the
third quarter of 1999, due to the termination of the Company's joint
venture with Wartsila, which had losses of $11 million in the third
quarter of 1999.
Other:
______
Interest expense was $22 million in the third quarter of 2000, compared
to $18 million in the prior year's quarter, due to increased levels of
borrowings. Other income was $5 million in the third quarter of 2000
compared to expense of $3 million in the third quarter of 1999, with
the variance resulting primarily from interest income on tax refunds
and from non-recurring transactions recorded in the prior year.
Provision for Income Taxes:
___________________________
In the third quarter, the estimated effective tax rate for 2000 was
reduced to 25.5 percent for the year. The Company's tax rate for the
third quarter was 23.6 percent to reflect the year-to-date adjustment
to the lower 2000 effective tax rate. The effective tax rate was 26
percent for the third quarter of 1999 and 28 percent for the first nine
months of 1999.
Cash Flow and Financial Condition
_________________________________
Key elements of cash flows were:
Nine Months
$ Millions 2000 1999
__________ ______ ______
Net cash provided by operating activities $ 74 $ 170
Net cash used in investing activities (238) (125)
Net cash provided by (used in) financing
activities 186 (23)
Effect of exchange rate changes on cash (2) -
_____ _____
Net change in cash and cash equivalents $ 20 $ 22
_____ _____
_____ _____
In the first nine months of 2000, net cash provided by operating
activities was $74 million, with the Company's net earnings and the non-
cash effect of depreciation and amortization, reduced by increases in
working capital. Net cash requirements for investing activities of $238
million included capital expenditures of $130 million in the first nine
months of 2000, compared to capital expenditures of $121 million in the
first nine months of 1999. Net cash provided by financing activities was
$186 million in the first nine months of 2000. This included proceeds
from increased borrowings, reduced by cash used for dividend payments and
repurchases of the Company's stock.
<PAGE> 12
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> 13
PART II. OTHER INFORMATION
___________________________
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 third
quarter of 2000.
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
__________________
Robert C. Crane
Vice President - Corporate Controller
(Chief Accounting Officer) November 2, 2000
<PAGE> 14
CUMMINS ENGINE COMPANY, INC.
____________________________
INDEX TO EXHIBITS
_________________
27 Financial Data Schedule (filed herewith)
