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 INC.
____________
For the Quarter Ended March 25, 2001 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)
Cummins Engine Company, Inc.
___________________________
(Former Name)
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 25, 2001, the number of shares outstanding of the
registrant's only class of common stock was 41.2 million.
2
TABLE OF CONTENTS
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Page No.
________
PART I. FINANCIAL INFORMATION
______________________________
Item 1. Financial Statements
Consolidated Statement of Earnings for the First 3
Quarter Ended March 25, 2001 and March 26, 2000
Consolidated Statement of Financial Position at 4
March 25, 2001 and December 31, 2000
Consolidated Statement of Cash Flows for the First 5
Quarter Ended March 25, 2001 and March 26, 2000
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 13
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Index to Exhibits 15
3
CUMMINS INC.
CONSOLIDATED STATEMENT OF EARNINGS
Unaudited
__________________________________
First Quarter Ended
Millions, except per share amounts 3/25/2001 3/26/2000
__________________________________ _________ _________
Net sales $1,349 $1,648
Cost of goods sold 1,117 1,313
______ ______
Gross profit 232 335
Selling & administrative expenses 183 194
Research & engineering expenses 53 59
Income from joint ventures and alliances (2) (1)
Interest expense 23 19
Other expense, net 4 2
______ ______
Earnings (loss) before income taxes (29) 62
(Benefit) provision for income taxes (7) 17
Minority interest 4 3
______ ______
Net earnings (loss) $ (26) $ 42
______ ______
______ ______
Basic earnings (loss) per share $ (.68) $ 1.09
Diluted earnings (loss) per share (.68) 1.09
Cash dividends declared per share .30 .30
4
CUMMINS INC.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Unaudited
____________________________________________
Millions, except per share amounts 3/25/2001 12/31/2000
__________________________________ _________ __________
Assets
Current assets:
Cash and cash equivalents $ 94 $ 62
Receivables, net of allowance of $8 773 724
Inventories 759 770
Other current assets 280 274
______ ______
1,906 1,830
Investments and other assets 357 338
Property, plant & equipment less accumulated
depreciation of $1,634 and $1,598 1,600 1,598
Goodwill, net of amortization of $43 and $42 351 354
Other intangibles, deferred taxes & deferred charges 381 380
______ ______
Total assets $4,595 $4,500
______ ______
______ ______
Liabilities and shareholders' investment
Current liabilities:
Loans payable $ 25 $ 156
Current maturities of long-term debt 9 8
Accounts payable 439 388
Other current liabilities 682 671
______ ______
1,155 1,223
______ ______
Long-term debt 1,255 1,032
______ ______
Other liabilities 835 837
______ ______
Minority interest 78 72
______ ______
Shareholders' investment:
Common stock, $2.50 par value, 48.5 and 48.6
shares issued 121 122
Additional contributed capital 1,132 1,137
Retained earnings 680 718
Accumulated other comprehensive income (192) (167)
Common stock in treasury, at cost, 7.3 & 7.2 shares (291) (290)
Common stock held in trust for employee benefit
plans, 3.1 shares (148) (151)
Unearned compensation (ESOP) (30) (33)
______ ______
1,272 1,336
______ ______
Total liabilities & shareholders' investment $4,595 $4,500
______ ______
______ ______
5
CUMMINS INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited
____________________________________
First Quarter Ended
Millions 3/25/2001 3/26/2000
________ _________ _________
Cash flows from operating activities:
Net earnings (loss) $ (26) $ 42
_____ _____
Adjustments to reconcile net earnings (loss)
to net cash from operating activities:
Depreciation and amortization 59 57
Restructuring actions (12) (2)
Accounts receivable (47) (141)
Decrease in sale of receivables program (26) -
Inventories (3) (42)
Accounts payable and accrued expenses 93 100
Income taxes payable (10) (5)
Equity in losses of joint ventures and alliances 2 2
Other 13 (2)
_____ _____
Total adjustments 69 (33)
_____ _____
Net cash provided by operating activities 43 9
_____ _____
Cash flows from investing activities:
Property, plant and equipment:
Additions (62) (31)
Disposals 1 7
Investments in joint ventures and alliances (23) (18)
Acquisition and disposition of businesses - (35)
Other 1 -
_____ _____
Net cash used in investing activities (83) (77)
_____ _____
Net cash flows used in operating and
investing activities (40) (68)
_____ _____
Cash flows from financing activities:
Proceeds from borrowings - 138
Payments on borrowings (4) (4)
Net borrowings (payments) under short-term
credit agreements 96 (46)
Repurchases of common stock - (16)
Dividend payments (12) (12)
Other (8) 2
_____ _____
Net cash provided from financing activities 72 62
_____ _____
Net change in cash and cash equivalents 32 (6)
Cash & cash equivalents at the beginning of the year 62 74
_____ _____
Cash & cash equivalents at the end of the quarter $ 94 $ 68
_____ _____
_____ _____
6
CUMMINS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
______________________________________________
Note 1. Accounting Policies: The Consolidated Financial Statements
for the interim periods ended March 25, 2001 and March 26, 2000 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 when their
effect is dilutive. Shares of stock held by the employee benefits
trust are not included in outstanding shares for EPS until distributed
from the trust.
Net Weighted Per-
Earnings Average Share
Millions, except per share amounts (Loss) Shares Amount
__________________________________ ________ ________ ______
2001
____
Basic $(26) 38.2 $ .(68)
Options - -
____ ____
Diluted $(26) 38.2 $ .(68)
____ ____
____ ____
2000
____
Basic $ 42 38.2 $1.09
Options - .1
____ ____
Diluted $ 42 38.3 $1.09
____ ____
____ ____
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 25, 2001 March 26, 2000
________ ______________ ______________
Net income (loss) $(26) $ 42
Unrealized loss on securities - (1)
Translation loss (25) (14)
____ ____
Comprehensive income $(51) $ 27
____ ____
____ ____
7
Note 5. Segment Information: Operating segment information is as
follows:
Power Filtration
Millions Engine Generation And Other Total
________ ______ __________ __________ ______
Quarter Ended March 25, 2001
____________________________
Net sales $ 768 $309 $272 $1,349
Earnings (loss) before interest
and income taxes (34) 8 20 (6)
Net assets 1,069 486 915 2,470
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
Reconciliation to Consolidated Financial Statements:
First Quarter Ended
Millions 3/25/2001 3/26/2000
________ _________ _________
Earnings (loss) before interest and income
taxes for reportable segments $ (6) $ 81
Interest expense 23 19
Income tax expense (7) 17
Minority interest 4 3
______ ______
Net earnings (loss) $ (26) $ 42
______ ______
______ ______
Net assets for reportable segments $2,470 $2,527
Sold accounts receivable included in segment
net assets (193) -
Liabilities deducted in arriving at net assets 1,876 2,049
Deferred tax assets not allocated to segments 423 320
Debt-related costs not allocated to segments 19 19
______ ______
Total assets $4,595 $4,915
______ ______
______ ______
Note 6. Restructuring, Asset Impairment and Other Special Charges: In
the fourth quarter of 2000, the Company recorded charges of $160
million reflecting restructuring actions, asset impairments and other
activities largely focused in the Engine Business. The actions
included $42 million to reduce the worldwide workforce by 600 salaried
employees and 830 hourly employees, $72 million for impairment of
equipment and other assets, $30 million for impairment of software
developed for internal use where the software programs were cancelled
prior to implementation and $16 million associated with exit costs to
close or consolidate a number of smaller business operations.
The Company is continuing the restructuring plan implemented in the
fourth quarter of 2000. As of March 25, 2001, approximately $84
million has been charged against the restructuring provisions.
Activity in the major components of these charges is as follows:
Charges
_____________
Original Balance
$ Millions Provision 2000 2001 March 25, 2001
__________ _________ _____ _____ ______________
Workforce reductions $ 42 $ (5) $ (6) $31
Impairment of software 30 (30) - -
Impairment of equipment and
other assets 72 (38) - 34
Exit costs 16 - (5) 11
____ ____ ____ ___
$160 $(73) $(11) $76
____ ____ ____ ___
____ ____ ____ ___
8
The Company is concluding the restructuring plan implemented in the
third quarter of 1998. As of March 25, 2001, the remaining balance
associated with the 1998 restructuring plan is $12 million. The
remaining actions to be completed consist primarily of the payment of
severance commitments to terminated employees in 2001 and the remaining
payment to the Environmental Protection Agency of $8 million in July
2001.
Note 7. Derivative Instruments: Effective with first quarter of 2001,
the Company adopted SFAS No. 133 on accounting for derivative
instruments and hedging activities. No transition adjustment was
recorded as a result of the adoption, and the statement did not have a
material effect on the Company's results of operations.
During the first quarter of 2001, the Company terminated interest rate
swaps resulting in proceeds of $9 million. These proceeds are
amortized across the remaining maturities of the associated debt
instruments.
9
CUMMINS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS,
CASH FLOW AND FINANCIAL CONDITION
_____________________________________________________________
Overview
________
Net sales were $1.35 billion in the first quarter of 2001, a decrease
of 18 percent from the first quarter of 2000. The loss before interest
and taxes in the first quarter of 2001 was $6 million or (0.4) percent
of sales compared to earnings of $81 million or 4.9 percent of sales
in the first quarter of 2000. The net loss in the first quarter was
$26 million or $(0.68) per share compared to net earnings $42 million
or $1.09 per share in the first quarter of 2000.
Results of Operations
_____________________
Net Sales:
__________
Revenues from sales of engines, which were 47 percent of the Company's
net sales in the first quarter of 2001, were 30 percent lower than the
first quarter of 2000. Revenues from non-engine products, which were
53 percent of net sales in the first quarter of 2001, were 4 percent
lower than the first quarter of 2000. The economic downturn in North
America had a significant impact on the major markets served by the
midrange and heavy-duty engines.
First Quarter
Unit Shipments 2001 2000
________________ _______ _______
Midrange Engines 58,300 78,900
Heavy-duty Engines 14,600 27,400
High-horsepower Engines 2,800 2,500
_______ _______
75,700 108,800
_______ _______
_______ _______
All three of the Company's business segments had lower sales in the
first quarter of 2001 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 2001 2000
__________ ______ ______
Engine Business $ 768 $1,045
Power Generation Business 309 329
Filtration Business and Other 272 274
______ ______
$1,349 $1,648
______ ______
______ ______
In the first quarter of 2001, engine business revenues of $768 million
decreased 27 percent as compared to the first quarter of 2000,
primarily due to declines in the North American automotive markets.
Sales of $501 million in the first quarter of 2001 for automotive
markets were 35 percent lower than the first quarter of 2000. Heavy-
duty truck revenues as a whole were down 43 percent compared to the
first quarter of 2000, with engine unit shipments in North America down
60 percent while unit shipments to the rest of the world were down 21
percent.
10
Medium-duty truck and bus revenues decreased 4 percent from the first
quarter of 2000. Medium-duty truck engine shipments were down 30
percent in North America, partially offset by a 6 percent increase in
international markets. Bus engine shipments were up 3 percent in North
America and up 87 percent in international markets, with significant
growth in India and China.
Revenues of the light-duty automotive and recreational vehicle business
were 43 percent lower than the first quarter of 2000. In the first
quarter of 2001, Cummins shipped 15,400 engines to DaimlerChrysler, 49
percent lower than in the first quarter of 2000. Shipments for the
recreational vehicle markets were down 29 percent, reflecting weakness
in the U.S. economy.
Sales to mining and rail markets were 29 percent higher than in the
first quarter of 2000. Revenues in the mining segment were up 33
percent from the first quarter of 2000 and reflect a continued growth in
demand for the new 60-liter engine launched in 2000. First quarter
sales to the rail sector doubled from the first quarter of 2000,
primarily as a result of strong sales in Europe.
Sales to the construction, marine and agriculture markets were 8 percent
lower than in the first quarter of 2000. Worldwide sales in the
construction equipment market were down 12 percent from the first
quarter of 2000 with unit shipments of engines in North America down 33
percent. This decline was partially offset by a 4 percent increase in
construction engine shipments to international markets. Revenues in the
marine markets were essentially unchanged, reflecting continued strength
globally in commercial and recreational applications. Sales in the
agricultural equipment market were virtually flat and remain at
depressed levels.
In the first quarter of 2001, sales for the Company's power generation
business of $309 million decreased 6 percent compared to the first
quarter of 2000. Alternator revenues were down 14 percent from a year
ago and mobile/recreational vehicle revenues were down 14 percent.
Sales of engines to other genset original equipment manufacturers were
down 16 percent. Genset revenues were up modestly from a year ago as
the change in genset mix to higher kW units offset volume declines.
Filtration business and other sales of $272 million in the first
quarter of 2001 were essentially unchanged compared to the first
quarter of 2000. Within the filtration business, sales decreased 5
percent compared to the first quarter of 2000 due to reductions in
demand from North American on-highway and off-highway original
equipment manufacturers. First quarter sales at company-owned
distributors were up 11 percent, resulting from sales at international
distributors acquired since first quarter 2000 plus higher sales in
Germany and Australia. Sales at the Holset turbocharger business also
increased from a year ago.
In total, international markets represented 46 percent of the Company's
revenues in the first quarter of 2001. International sales in total
were down 8 percent from the first quarter of 2000. Virtually the
entire decline in international sales from a year ago was from heavy-
duty truck demand in Canada. All other international markets remain
relatively stable compared to a year ago. Sales to Europe and the CIS,
representing 16 percent of the Company's sales in the first quarter of
2001, were 3 percent lower than the prior year's quarter. Business in
Mexico, Brazil and Latin America represented 7 percent of sales in the
first quarter of 2001, with revenues 4 percent above the year-ago
levels. Asia and Australian markets, in total, represented 15 percent
of sales in the first quarter of 2001, increasing 3 percent from the
prior year's quarter. Sales to Canada, representing 6 percent of sales
in the first quarter of 2001, were 45 percent lower than the first
quarter of 2000.
Gross Margin:
_____________
The Company's gross margin percentage was 17.2 percent in the first
quarter of 2001, compared to 20.3 percent in the prior year's quarter.
The decreased margin in 2001 was due to unabsorbed manufacturing costs
due to the lower volumes, unfavorable product mix, and the impact of
exchange rates from currencies in which the Company had significant
sales (the Pound Sterling, the Australian dollar and the Euro) while
costs were largely associated with the U.S. dollar.
11
Operating Expenses:
___________________
Selling and administrative expenses as a percent of sales were 13.6
percent in the first quarter of 2001 compared to 11.8 percent in the
first quarter of 2000, while expenses in absolute dollars decreased $11
million. Research and engineering expenses were 3.9 percent of sales
in the first quarter of 2001 compared to 3.6 percent in the first
quarter of 2000.
The Company is continuing the restructuring plans implemented in the
third quarter of 1998 and the fourth quarter of 2000. During the first
quarter of 2001, $11 million was charged against the 2000 restructuring
liabilities. The Company expects to complete the 2000 actions in 2001
and 2002 with the majority of the activity in 2001. The Company does
not currently anticipate any material changes in the original charges
recorded for these actions.
The Company had income from joint ventures and alliances of $2 million
in the first quarter of 2001, compared to income of $1 million in the
first quarter of 2000.
Other:
______
Interest expense was $23 million in the first quarter of 2001, compared
to $19 million in the first quarter of 2000. Other expense increased
$2 million from the first quarter of 2000, as a one-time gain from the
first quarter of 2000 was not repeated in the first quarter of 2001.
Provision for Income Taxes:
__________________________
The Company's income tax provision in the first quarter of 2001 was a
benefit of $7 million, reflecting an estimated effective tax rate of 25
percent for the year.
Cash Flow and Financial Condition
_________________________________
Key elements of cash flows were:
First Quarter
$ Millions 2001 2000
__________ _____ _____
Net cash provided by operating activities $ 43 $ 9
Net cash used in investing activities (83) (77)
Net cash provided by financing activities 72 62
____ ____
Net change in cash and cash equivalents $ 32 $ (6)
____ ____
____ ____
In the first quarter of 2001, net cash provided by operating activities
was $43 million. The Company's losses were offset by the non-cash
effect of depreciation and amortization. Increases in accounts payable
and accrued expenses offset increases in accounts receivable, inventory
and other increases in working capital. Net cash used in investing
activities included $62 million of planned capital expenditures and $23
million related to investments and advances in joint ventures and
alliances. Net cash provided by financing activities in the first
quarter of 2001 included net borrowings of $96 million primarily to
fund the capital spending, partially offset by cash used to pay
dividends.
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 4. Submission of Matters to a Vote of Security Holders:
_____________________________________________________________
The Company held its annual meeting of security holders on April 3,
2001 at which security holders elected 10 directors of the Company for
the ensuing year; amended the Company's Restated Articles of
Incorporation to change the corporate name to "Cummins Inc."; approved
the addition of a financial performance measure under the Company's
senior executive bonus and performance plans; and ratified the
appointment of Arthur Andersen LLP as auditors for the year 2001.
Results of the voting in connection with each of the items were as
follows:
Voting on Directors
___________________
For Withheld
__________ ________
R. Darnall 34,767,308 1,512,864
J. M. Deutch 33,991,209 2,288,963
W. Y. Elisha 34,706,524 1,573,648
H. H. Gray 34,594,032 1,686,140
J. A. Johnson 34,648,135 1,632,037
W. I. Miller 34,188,363 2,091,809
W. D. Ruckelshaus 34,599,663 1,680,509
T. M. Solso 34,330,672 1,949,500
F. A. Thomas 34,473,178 1,806,994
J. L. Wilson 34,783,004 1,497,168
Changing the Company's corporate name to "Cummins Inc."
______________________________________________________
For Against Abstain
__________ _________ _______
34,636,356 1,449,189 194,627
Approving the additional financial performance measure under the senior
executive bonus and performance plans
_______________________________________________________________________
For Against Abstain
__________ _________ _______
31,897,067 3,662,667 720,438
Ratifying Appointment of Auditors
_________________________________
For Against Abstain
__________ _________ _______
34,554,752 1,440,616 284,804
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 other
votes 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.
14
Item 5. Other Information:
___________________________
On April 3, 2001, security holders of the Company voted in favor of a
proposal to change the name of the Company to "Cummins Inc." Accordingly,
Articles of Amendment of the Company's Restated Articles of Incorporation,
changing the Company's corporate name, were filed with the Indiana
Secretary of State effective April 5, 2001.
Item 6. Exhibits and Reports on Form 8-K:
__________________________________________
(a) See the Index to Exhibits on page 15 for a list of exhibits filed
herewith.
(b) The Company was not required to file a Form 8-K during the first
quarter of 2001.
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 INC.
By: /s/Robert C. Crane April 26, 2001
__________________
Robert C. Crane
Vice President - Corporate Controller
(Chief Accounting Officer)
15
CUMMINS INC.
____________
INDEX TO EXHIBITS
_________________
3(i) Restated Articles of Incorporation of Cummins Engine Company,
Inc., as amended (filed herewith and incorporated by reference
to Quarterly Report on Form 10-Q for the quarter ended April 3,
1994, by reference to Quarterly Report on Form 10-Q for the
quarter ended October 1, 1989 and by reference to Form 8-K
dated July 26, 1990).