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 June 25,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 June 25,September 24, 2000 the number of shares outstanding of the
registrant's only class of common stock was 41.5 million.
2
TABLE OF CONTENTS
_________________
Page No.
________
PART I. FINANCIAL INFORMATION
______________________________
Item 1. Financial Statements
Consolidated Statement of Earnings for the SecondThird 3
Quarter and First HalfNine Months Ended June 25,September 24, 2000
and June 27,September 26, 1999
Consolidated Statement of Financial Position at 4
June 25,September 24, 2000 and December 31, 1999
Consolidated Statement of Cash Flows for the FirstNine 5
HalfMonths Ended June 25,September 24, 2000 and June 27,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
3
CUMMINS ENGINE COMPANY, INC.
CONSOLIDATED STATEMENT OF EARNINGS
FOR THE SECONDTHIRD QUARTER AND FIRST HALFNINE MONTHS
ENDED JUNE 25,SEPTEMBER 24, 2000 AND JUNE 27,SEPTEMBER 26, 1999
_______________________________________________
Unaudited
_____________________________________
Second_________
Third Quarter First Half
________________ ________________Nine Months
Millions, except per share amounts 2000 1999 2000 1999
__________________________________ ______ ______ ______ ______
Net sales $1,769 $1,667 $3,417 $3,172$1,572 $1,631 $4,989 $4,803
Cost of goods sold 1,418 1,296 2,731 2,5001,262 1,270 3,993 3,770
______ ______ ______ ______
Gross profit 351 371 686 672310 361 996 1,033
Selling &and administrative expenses 190 200 384 378195 192 579 570
Research &and engineering expenses 59 60 118 11462 67 180 181
Net (income) expense from joint
ventures and alliances (3) 5 (4) 128 (7) 20
Interest expense 21 19 40 3822 18 62 56
Other (income) expense, net (2)(5) 3 - 10(5) 13
_____ ______ ______ ___________ ______
Earnings before income taxes 86 84 148 12039 73 187 193
Provision for income taxes 22 25 39 359 19 48 54
Minority interest 35 1 6 311 4
______ ______ ______ _____________ _______
Net earnings $ 6125 $ 5853 $ 103128 $ 82135
______ ______ _______ _______
______ ______ ______ ______ ______ _____________ _______
Basic earnings per share $ 1.62.66 $ 1.511.37 $ 2.713.36 $ 2.143.50
Diluted earnings per share 1.62 1.50 2.70 2.13.66 1.35 3.36 3.48
Cash dividends declared per share $ .30 $ .275 .60 .55$ .90 $ .825
4
CUMMINS ENGINE COMPANY, INC.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
____________________________________________
Unaudited
_____________________________________________________
Millions, except per share amounts 6/25/9/24/2000 12/31/1999
__________________________________ _________ __________
Assets
Current assets:
Cash and cash equivalents $ 7494 $ 74
Receivables, net of allowance of $10 and $9 1,1381,097 1,026
Inventories 822797 787
Other current assets 294292 293
______ ______
2,3282,280 2,180
Investments and other assets 346375 274
Property, plant &and equipment less accumulated
depreciation of $1,542$1,555 and $1,490 1,6021,595 1,630
Goodwill, net of amortization of $33$36 and $28 359360 364
Other intangibles, deferred taxes and deferred
charges 258264 249
______ ______
Total assets $4,893$4,874 $4,697
______ ______
______ ______
Liabilities and shareholders' investment
Current liabilities:
Loans payable $ 68125 $ 113
Current maturities of long-term debt 9 10
Accounts payable 463417 411
Other current liabilities 770681 780
______ ______
1,3101,232 1,314
______ ______
Long-term debt 1,2551,313 1,092
______ ______
Other liabilities 788802 788
______ ______
Minority interest 7968 74
______ ______
Shareholders' investment:
Common stock, $2.50 par value, 48.7 and 48.3
shares issued 121122 121
Additional contributed capital 1,1401,139 1,129
Retained earnings 839851 760
Accumulated other comprehensive income (158)(176) (109)
Common stock in treasury, at cost, 7.2 and& 6.8 shares (290) (274)
Common stock held in trust for employee
benefit plans, 3.2 and 3.4 shares (158)(154) (163)
Unearned compensation (ESOP) ( 33) ( 35)
_____ _____
1,461(35)
______ ______
1,459 1,429
______ ______
Total liabilities and& shareholders' investment $4,893$4,874 $4,697
______ ______
______ ______
5
CUMMINS ENGINE COMPANY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
____________________________________
Unaudited
____________________________________
First Half_________
Nine Months Ended
_______________________
Millions 6/25/9/24/2000 6/27/9/26/1999
________ _________ _________
Cash flows from operating activities:
Net earnings $103 $ 82
____ ____128 $ 135
_____ _____
Adjustments to reconcile net earnings
to net cash from operating activities:
Depreciation and amortization 117 114180 172
Restructuring & other non-recurring actions (5) (11)(16) (23)
Accounts receivable (144) (188)(115) (277)
Inventories (38) (28) (70)
Accounts payable and accrued expenses 55 200(47) 216
Income taxes payable (5) 8(24) 12
Equity in losses of joint ventures and
alliances 4 167 24
Other (28) (10)
____ ____(11) (19)
_____ _____
Total adjustments (44) 101
____ ____(54) 35
_____ _____
Net cash provided by operating activities 59 183
____ ____74 170
_____ _____
Cash flows from investing activities:
Property, plant and equipment:
Additions (84) (80)(130) (121)
Disposals 16 2110 27
Investments in joint ventures and& alliances (36) (37)(76) (40)
Acquisition and disposition of businesses (35)(42) 3
Other - 2
____ ____6
_____ _____
Net cash used in investing activities (139) (91)
____ ____(238) (125)
_____ _____
Net cash flows (used in) provided by
operating and investing activities (80) 92
____ ____(164) 45
_____ _____
Cash flows from financing activities:
Proceeds from borrowings 168 -226 53
Payments on borrowings (7) (17)(8) (26)
Net paymentsborrowings under short-term credit
agreements (40) (10)
Repurchases22 26
Repurchase of common stock (16) (10)(30)
Dividend payments (25) (23)(37) (35)
Other 1 (3)
____ ____(1) (11)
_____ _____
Net cash provided by (used in) financing
activities 81 (63)
____ ____186 (23)
_____ _____
Effect of exchange rate changes on cash (1)(2) -
____ _________ _____
Net change in cash and cash equivalents - 2920 22
Cash & cash equivalents at the beginning of the year 74 38
____ _________ _____
Cash & cash equivalents at the end of the first halfquarter $ 7494 $ 67
____ ____
____ ____60
_____ _____
_____ _____
6
CUMMINS ENGINE COMPANY, INC.
____________________________
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
__________________________________________
Unaudited
___________________________________________________
Note 1. Accounting Policies: The Consolidated Financial Statements
for the interim periods ended June 25,September 24, 2000 and June 27,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.
SecondThird Quarter ________________________________Nine Months
_____________________________ ___________________________
Weighted Per- Weighted Per-
Millions, except Net Average Share Millions, exceptNet Average Share
per share amounts Earnings Shares Amount __________________________________Earnings Shares Amount
_________________ ________ _______ ______ ________ _______ ______
2000
____
Basic $61 38.1 $1.62$ 25 38.2 $ .66 $128 38.2 $ 3.36
Options - - - -
___ ____ Diluted $61 38.1 $1.62
___ ____
___ ____
1999
____
Basic $58 38.5 $1.51
Options - .2
___ ____
Diluted $58 38.7 $1.50
___ ____
___ ____
First Half
________________________________
Weighted Per-
Net Average Share
Millions, except per share amounts Earnings Shares Amount
__________________________________ ________ ________ ______
2000
____
Basic $103 38.2 $2.71
Options - -
____ ____
Diluted $103$ 25 38.2 $2.70$ .66 $128 38.2 $ 3.36
____ ____ ____ ____
____ ____ ____ ____
1999
____
Basic $82 38.5 $2.14$ 53 38.3 $ 1.37 $135 38.4 $ 3.50
Options - .2.6 - .4
___ ____ ____ ____
Diluted $82 38.7 $2.13
___$ 53 38.9 $ 1.35 $135 38.8 $ 3.48
____ _______ ____ ____
____ ____ ____ ____
Note 4. Comprehensive Income: Comprehensive income, which includes net
income and all other non-ownernonowner changes in equity during a period, is as
follows:
SecondThird Quarter Ended Nine Months Ended
Millions June 25, 9/24/2000 June 27, 9/26/1999 9/24/2000 9/26/1999
________ _____________ ______________________ _________ _________ _________
Net income $ 6125 $ 5853 $128 $ 135
Unrealized (loss) gain on
securities, net of tax (1) 1 -(1) 2
Translation loss, net of tax (35) (7)(17) (2) (66) (9)
____ ____ ____ _____
Comprehensive income $ 277 $ 5152 $ 61 $ 128
____ ____ ____ ____
First Half Ended
Millions June 25, 2000 June 27, 1999
________ _____________ _____________
Net income $103 $ 82
Unrealized gain on securities - 1
Translation loss, net of tax (49) (7)
____ ____
Comprehensive income $ 54 $ 76_____
____ ____ ____ _________
7
Note 5. Segment Information: Operating segment information is as follows:
Power Filtration
Millions Engine Generation And Other Total
________ ______ __________ __________ ______
SecondThird Quarter Ended June 25,Sept. 24, 2000
__________________________________
Net sales $1,107 $368 $294 $1,769$ 962 $ 334 $ 276 $1,572
Earnings before interest and
income taxes 426 25 30 35 10761
Net assets 1,160 578 845 2,583
Second1,213 576 866 2,655
Third Quarter Ended June 27,Sept. 26, 1999
__________________________________
Net sales $1,095 $305 $267 $1,667$1,032 $ 352 $ 247 $1,631
Earnings before interest and
income taxes 59 11 33 10345 15 31 91
Net assets 974 509 815 2,298
First Half996 557 830 2,383
Nine Months Ended June 25,Sept. 24, 2000
______________________________________________________________
Net sales $2,152 $697 $568 $3,417$3,114 $1,031 $ 844 $4,989
Earnings before interest and
income taxes 70 53 65 188
First Half76 78 95 249
Nine Months Ended June 27,Sept. 26, 1999
______________________________________________________________
Net sales $2,095 $556 $521 $3,172$3,127 $ 908 $ 768 $4,803
Earnings before interest and
income taxes 86 13 59 158131 28 90 249
Reconciliation to Consolidated Financial Statements:
SecondThird Quarter Ended Nine Months Ended
Millions 6/25/9/24/2000 6/27/9/26/1999 9/24/2000 9/26/1999
________ _________ _________ _________ _________
Earnings before interest and& income
taxes for reportable segments $ 10761 $ 10391 $249 $249
Interest expense 21 1922 18 62 56
Income tax expense 22 259 19 48 54
Minority interest 35 1 11 4
______ ______ ____ ____
Net earnings $ 6125 $ 5853 $128 $135
______ ______ ____ ____
______ ______ ____ ____
Net assets for reportable segments $2,583 $2,298$2,655 $2,383
Liabilities deducted in arriving at
net assets 1,971 2,1161,880 2,139
Deferred tax assets not allocated
to segments 320 334
Debt-related costs not allocated
to segments 19 22
______ ______
Total assets $4,893 $4,770
______ ______
______ ______
First Half Ended
Millions 6/25/2000 6/27/1999
________ _________ _________
Earnings before interest and income taxes
for reportable segments $ 188 $ 158
Interest expense 40 38
Income tax expense 39 35
Minority interest 6 3
______ ______
Net earnings $ 103 $ 82$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
June 25,September 24, 2000, approximately $91$100 million has been charged against
the liabilities associated with theserestructuring 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.early
2001.
8
Activity in the major components of these charges is as follows:
Charges ________________________Reversal Q3
Original Q1 Q2________________ Of 2000 Balance
$ Millions Provision 1998 1999 2000 2000 6/25/Excess Provision 9/24/00
__________ _________ _____ _____ ____ ____ ____ ______ _________ _______
Restructuring of
majority-
ownedmajority-owned
operations:
Workforce reductions $ 38 $(12) $(14) $(3) $(1) $ 8(5) $(4) $ 2 $ 5
Asset impairment loss 22 - ( 7) (2) (1) 12(7) (8) (3) 3 7
Facility consolidationsconsolida-
tions and other 17 ( 8) ( 4) (2) (1)(8) (4) (6) - 2 1
____ _______ ___ ____ ___ ___ ___
77 (20) (25) (19) (7) (3) 227 13
____ ___ ___ ____ ___ ___ ___
Restructuring of joint
venture operations:
Workforce reductions 11 - (10) - - - 1
Tax asset impairment
loss 7 - (7) - - - -
Facility & equipment-relatedand equip-
ment-related costs 5 - (5) - - - ____ ____-
____ ___ _____ ___ ___ ___ ___
23 - (22) - - - 1
____ ____ ____ ___ _____ ___ ___ ___ ___
Inventory write-downs
associated with
restructuring actions 14 (5) (9)( 9) - - - -
____ ____ ____ ___ _____ ___ ___ ___ ___
Total restructuring
charges 114 (25) (56) (19) (7) (3) 237 14
EPA penalty 25 - (8) (9) - - 178
____ ____ ____ ____ ___ ___ ___
Total $139 $(25) $(64) $(28) $(7) $(3) $40$ 7 $22
____ ____ ____ ____ ___ ___ ___
____ ____ ____ ____ ___ ___ ___
9
CUMMINS ENGINE COMPANY, INC.
____________________________
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS,
CASH FLOW AND FINANCIAL CONDITION
_____________________________________________________________________________________________________________________
Overview
________
Net sales were $1.77$1.57 billion in the secondthird quarter of 2000, the second
highest sales quarter ever, and 64 percent
higherlower than the secondthird quarter of 1999. Earnings before interest and
taxes in the secondthird quarter of 2000 matched an all-time record for the Company of $107were $61 million, or 6.03.9 percent of
sales. This comparessales, compared to $103$91 million, or 6.2%5.6 percent of sales, in the secondthird
quarter of 1999. Net earnings were $61$25 million, or $1.62$.66 per share,
compared to $58$53 million, or $1.50$1.35 per share, in the secondthird quarter of
1999. Net earnings for the first halfnine months of 2000 were $103$128
million, or $2.70$3.36 per share, compared to $82$135 million, or $2.13$3.48 per
share, in the first halfnine months of 1999.
Results of Operations
_____________________
Net Sales:
__________
Revenues from sales of engines were 5451 percent of the Company's net
sales in the secondthird quarter of 2000, with engine revenues 29 percent
higherlower than second-quarterthird-quarter 1999 and unit shipments 8 percent higher.
Unit shipments increased more than revenueflat compared to the
year-ago quarter. Revenue decreased due to lower heavy-duty engine
sales, primarily in the North American heavy-duty truck market.
SecondThird Quarter First Half
_______________ ________________Nine Months
Unit Shipments 2000 1999 2000 1999
______________ _____________ ______ _______ _______
Midrange Engines 89,100 76,600 168,000 150,30079,000 68,400 247,000 218,700
Heavy-duty Engines 25,800 30,600 53,200 57,40019,600 30,500 72,800 87,900
High-horsepower Engines 3,000 2,200 5,500 4,2002,800 2,500 8,300 6,700
_______ _______ _______ _______
117,900 109,400 226,700 211,900101,400 101,400 328,100 313,300
_______ _______ _______ _______
_______ _______ _______ _______
Revenues from non-engine products, which were 4649 percent of net sales
in the secondthird quarter of 2000, were 123 percent higher than the secondthird
quarter of 1999. The major increases included higher sales of gensets
and filtration products and revenues from
international distributors.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:
SecondThird Quarter First Half
_______________ _______________Nine Months
$ Millions 2000 1999 2000 1999
__________ ______ ______ ______ ______
Automotive markets $ 810693 $ 820 $1,586 $1,580792 $2,279 $2,372
Industrial markets 297 275 566 515269 240 835 755
______ ______ ______ ______
Engine Business 1,107 1,095 2,152 2,095962 1,032 3,114 3,127
Power Generation Business 368 305 697 556334 352 1,031 908
Filtration Business &and Other 294 267 568 521276 247 844 768
______ ______ ______ ______
$1,769 $1,667 $3,417 $3,172$1,572 $1,631 $4,989 $4,803
______ ______ ______ ______
______ ______ ______ ______
In the secondthird quarter of 2000, engine business revenues of $1.1 billion
increased 1$962 million
decreased 7 percent as compared to the secondthird quarter of 1999, despitedue
primarily to a 28 percent49-percent decrease in shipments to the North American
heavy-duty truck market.
The Company expects a further decline in the North
American heavy-duty truck market during the second half of 2000 as
compared to the first half of the year.
10
Sales of $810$693 million in the secondthird quarter of 2000 for automotive
markets were 113 percent lower than the secondthird quarter of 1999. Heavy-
duty truck revenues decreased 1433 percent from the secondthird quarter of
1999, withdue to the market decline in North America partially offset by
increased demand in Mexican automotive markets.America.
Medium-duty truck revenues were essentially flat with4 percent higher than the secondthird quarter
of 1999 despite an 11 percenton a 2-percent increase in unit shipments.
This variance reflected a mix shift towards engines with a lower
selling price and margin. Unit shipments to
North America declined 1923 percent, while international shipments
increased 3823 percent, primarily in Brazil.
Revenues of the bus and light commercial vehicle market were 2623 percent
higher than the secondthird quarter of 1999. In the secondthird quarter of 2000,
Cummins shipped a record 32,10031,000 engines to DaimlerChrysler, 3635 percent higher
than the second-quarterthird-quarter 1999 level. Shipments to the North
American bus and
recreational vehicle market were 119 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, increased 92 percent fromprimarily in China, partially offset by a 31-percent decrease
in units for the second quarter of 1999, due to higher
sales into China and Mexico.recreational vehicle market.
Sales to industrial markets were 812 percent higher than the secondthird
quarter of 1999, due to increased volume and a shift in product mix.
Engine revenues for this market were up 916 percent on a 3-percentan 11-percent
increase in units. Construction equipment business was flat4 percent
higher compared to secondthird quarter 1999, whileand agricultural equipment
demand declined 11increased 25 percent from the prior year's quarter. Sales to
marine markets increased 1112 percent from secondthird quarter 1999, with growththe
recovery of business in Europe
and North America.Southeast Asia. Mining market sales increased
3835 percent as compared to the secondthird quarter of 1999, reflecting higher
high-
horsepowerhigh-horsepower engine volumes.
In the secondthird quarter of 2000, sales for the Company's power generation
business increased 21decreased 5 percent compared to secondthird quarter 1999. Sales of
the Company's generator sets were 376 percent above secondbelow third quarter last
year, with continued strength in North American markets. Engineand engine and alternator sales to generator set assemblers were
up 24down 5 percent from the secondthird quarter of 1999, primarily in Europe and Turkey.1999. Generator set sales for
the recreational vehicle marketand mobile markets in North America were essentially
flat withdown
6 percent compared to the year-ago quarter.
Filtration business and other sales were $294$276 million in the secondthird
quarter of 2000, an increase of 1012 percent from the secondthird quarter of
1999. Sales of filtration products reflected gainswere up slightly compared to the
year-ago level due to higher sales in North America
and Europe and strong increases in Latin America, Mexico and Asia.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 secondthird quarter of 1999.
In total, international markets represented 4144 percent of the Company's
revenues in the secondthird 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 secondthird quarter of 2000, were 128 percent higher than the prior year's
quarter. Business in Mexico, Brazil and Latin America represented 7
percent of sales in the secondthird quarter of 2000, with revenues 3213 percent
above the year-ago levels. Asia and Australian markets, in total,
representing 1315 percent of sales in the secondthird quarter of 2000, were 2012
percent higher than the prior year's quarter. Sales to Canada,
representing 6 percent of sales in the secondthird quarter of 2000, were 2513
percent lower than the secondthird quarter of 1999 due to the decline in the
heavy-duty truck market.
Gross Margin:
_____________
The Company's gross margin percentage was 19.819.7 percent in the secondthird
quarter of 2000, compared to 22.322.1 percent in the prior year's quarter.
The decreased margin in 2000 was due primarily to lower volume, higher
product coverage costs and changes in product mix. Contributing to the increased product
coverage costs is the ISX engine family, which continues to have higher
coverage costs that the N14 product it replaces. The Company currently
anticipates this increased level of product coverage expense to
continue for the next three to four quarters. The impact on gross
11
margin from changes in product mix resulted from the mix shift from the
N14 to the ISX engines, as well as mix changes in the power generation
business and inlower cost absorption at the Company's international distributor revenue.heavy-
duty engine plants. For the first halfnine months of 2000, gross margin
percentage was 20.120.0 percent compared to 21.221.5 percent infor the first halfnine
months of 1999. 11
Operating Expenses:
___________________
Selling and administrative expenses as a percent of sales were 10.812.4
percent in the secondthird quarter of 2000, compared to 12.011.8 percent in the
secondthird quarter of 1999, with total spending decreasing $10 million on a
6-percent increase in sales.increasing $3 million.
Research and engineering expenses declined from 3.64.1 percent of sales in
the secondthird quarter of 1999 to 3.33.9 percent in the secondthird quarter of 2000. These improvements are
primarily a result of the Company's cost reduction initiatives.
The Company is continuing the restructuring plan implemented in the
third quarter of 1998. During the secondthird quarter of 2000, $3the Company
reversed $7 million was charged againstin excess accruals and recorded $7 million of
charges related to new actions committed to during the liabilities associated with these actions.quarter. The
Company expects to complete the restructuring in 2000 and does not
currently anticipate any material changes in the original charges
recorded for these actions.early 2001.
The Company's income from joint ventures and alliances was $3 million
in the secondthird quarter of 2000 as compared to losses of $5$8 million in the
secondthird quarter of 1999, due to the termination of the Company's joint
venture with Wartsila, which had losses of $7$11 million in the secondthird
quarter of 1999.
Other:
______
Interest expense was $21$22 million in the secondthird quarter of 2000, compared
to $19$18 million in the prior year's quarter, due to increased levels of
borrowings and lower interest capitalization.borrowings. Other income was $2$5 million in the secondthird quarter of 2000
compared to expense of $3 million in the secondthird quarter of 1999, with
the variance resulting primarily from increased earnings from distributorsinterest income on tax refunds
and from non-
recurringnon-recurring transactions recorded in the prior year.
Provision for Income Taxes:
___________________________
In the secondthird quarter, the estimated effective tax rate for 2000 was
reduced to 2625.5 percent for the year. The Company's tax rate for the
secondthird quarter was 2523.6 percent to reflect the year-to-date adjustment
to the lower 2000 effective tax rate. The effective tax rate was 26
percent for the secondthird quarter and first half of 1999 was 29 percent.and 28 percent for the first nine
months of 1999.
Cash Flow and Financial Condition
_________________________________
Key elements of cash flows were:
First Half
_________________Nine Months
$ Millions 2000 1999
__________ _____ ___________ ______
Net cash provided by operating activities $ 59 $18374 $ 170
Net cash used in investing activities (139) (91)(238) (125)
Net cash provided by (used in) financing
activities 81 (63)186 (23)
Effect of exchange rate changes on cash (1)(2) -
_____ _________
Net change in cash and cash equivalents $ -20 $ 2922
_____ ____
_____
_________ _____
In the first halfnine months of 2000, net cash provided by operating
activities was $59$74 million, reflectingwith the Company's strong net earnings and the non-cashnon-
cash effect of depreciation and amortization, reduced by increases in
working capital. Net cash requirements for investing activities of $139$238
million included capital expenditures of $84$130 million in the first halfnine
months of 2000, compared to capital expenditures of $80$121 million in the
first halfnine months of 1999. Net cash provided by financing activities was
$81
12$186 million in the first halfnine months of 2000. This included proceeds
from increased borrowings, reduced by cash used for dividend payments and
repurchases of the Company's stock. 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.
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 secondthird
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) July 31,November 2, 2000
14
CUMMINS ENGINE COMPANY, INC.
____________________________
INDEX TO EXHIBITS
_________________
27 Financial Data Schedule (filed herewith)