TABLE OF CONTENTS
~~~~~~~~~~~~~~~~~
Part Item Description Page
~~~~ ~~~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ~~~~
I 1 Business 2
2 Properties 12
3 Legal Proceedings 12
4 Submission of Matters to Vote of Security Holders 13
II 5 Market for the Registrant's Common Equity and
Related Stockholder Matters 13
6 Selected Financial Data 14
7 Management's Discussion & Analysis of Results
of Operations and Financial Condition 15
8 Financial Statements & Supplemental Data 21
9 Disagreements on Accounting & Financial
Disclosure 22
III 10 Directors & Executive Officers of the Registrant 22
11 Executive Compensation 23
12 Security Ownership of Certain Beneficial Owners
and Management 24
13 Certain Relationships & Related Transactions 24
IV 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K 24
Index to Financial Statements & Schedules 25
Signatures 57
Exhibit Index 59
(page)
PART I
~~~~~~
ITEM 1. BUSINESS
~~~~~~~ ~~~~~~~~
OVERVIEW
~~~~~~~~
Cummins Engine Company, Inc. ("Cummins" or "the Company") is a leading
worldwide designer and manufacturer of fuel-efficient diesel engines
and related products. Engines ranging from 76 to 2,000 horsepower
serve a wide variety of equipment in Cummins' key markets: heavy-duty
truck, midrange truck, power generation, bus and light commercial
vehicles, industrial products, government and marine. In addition,
Cummins produces strategic components and subsystems critical to the
engine, including filters, turbochargers and electronic control
systems.
Cummins sells its products to original equipment manufacturers
("OEMs"), distributors and other customers worldwide and conducts
manufacturing, sales, distribution and service activities in most
areas of the world. In 1993, approximately 56 percent of net sales
were made in the United States. Major international markets include
the United Kingdom and Europe (14 percent of net sales); Asia, the Far
East and Australia (13 percent of net sales); and Mexico and South
America (8 percent of net sales).
Cummins' growing presence in international markets and its significant
investment in emissions technology have created opportunities for
cooperative arrangements with vertically integrated manufacturers
worldwide. In addition to agreements with major US equipment
manufacturers, Cummins recently developed alliances with Scania of
Sweden to develop a fuel system for heavy-duty diesel engines; with
Tata Engineering and Locomotive Company ("TELCO") of India to
manufacture Cummins B Series engines for TELCO trucks; and with
Komatsu of Japan to produce Cummins B Series engines in Japan and to
adapt for production high-horsepower Komatsu-designed engines in the
United States.
BUSINESS MARKETS
~~~~~~~~~~~~~~~~
Heavy-duty Truck
~~~~~~~~~~~~~~~~
The Company has a complete product line of 8-, 10-, 11- and 14-litre
diesel engines that range from 260 to 500 horsepower serving the
heavy-duty truck market. Cummins' heavy-duty diesel engines are
offered as standard or optional power by most major heavy-duty truck
manufacturers in North America. The seven largest US heavy-duty truck
OEMs produced approximately 98 percent of the heavy-duty trucks sold
in North America in 1993. The loss of certain of these customers
could have an adverse effect on the Company's business. The Company's
largest customer for heavy-duty truck engines in 1993 was Navistar
International Corporation, which represented 7.5 percent of the
Company's 1993 net sales. In 1993, the Company accounted for 62.7
percent of Navistar's heavy-duty engine purchases.
In the heavy-duty truck market, the Company competes with independent
engine manufacturers as well as truck producers who manufacture diesel
engines for their own products. Certain of these integrated
manufacturers also are customers of the Company. In North America,
the Company's primary competitors in the heavy-duty truck engine
market are Caterpillar, Inc., Detroit Diesel Corporation and Mack
Trucks, Inc. The Company's principal competitors in international
markets vary from country to country, with local manufacturers
generally predominant in each geographic market. Other diesel engine
manufacturers in international markets include Mercedes Benz, AB
Volvo, Renault Vehicles Industriels, Iveco Diesel Engines, Hino
Motors, Ltd., Mitsubishi Heavy Industries, Ltd., Isuzu Motors, Ltd.,
DAF Group N.V. and SAAB-Scania A.B.
The North American heavy-duty truck market is affected significantly
by the overall level of economic activity. In 1993, North American
heavy-duty truck production grew by 34 percent from the previous
year's level. Production was 174,000 trucks in 1993 compared to
130,000 in 1992 and 96,000 in 1991. The Company's share of the North
American heavy-duty truck engine market was 35 percent in 1993, which
was significantly higher than its nearest competitor. The Company's
share of the North American heavy-duty truck engine market was 37
percent in 1992 and 38 percent in 1991.
While the European truck market continued at depressed levels during
1993, the UK market began to recover, producing at total of 13,300
units, compared to 10,000 in 1992. Cummins' share of the UK market
was approximately 14 percent in 1993.
The Mexican heavy-duty truck market declined approximately 18 percent
in 1993, from 7,900 units in 1992 to 6,500 units in 1993, due
primarily to high interest rates and restrictive economic policies
imposed by the Mexican government to reduce inflation. The Company's
share of this market was nearly 80 percent in 1993.
Midrange Truck
~~~~~~~~~~~~~~
The Company has a product line of diesel engines ranging from 160 to
300 horsepower serving midrange and intercity delivery truck
customers. The Company entered the North American midrange diesel
engine truck market in 1990. Production of medium-duty trucks in
North America grew 5 percent in 1993 from 105,000 units in 1992 to
110,000 units in 1993. The Company's share of the market in 1993 was
30 percent, a major factor of which was sales to Ford Motor Company.
In 1993, Ford completed its introduction of the Company's B and C
Series engines as exclusive diesel power in its medium-duty truck
line. Ford was the Company's largest customer for midrange engines
for this market in 1993, representing approximately 5 percent of the
Company's net sales.
The Company also sells its B and C Series engines and engine
components outside North America to midrange truck markets in Asia,
Europe and South America. Cummins and TELCO, India's largest truck
manufacturer, formed a joint venture in 1993 to manufacture B Series
engines in India for TELCO vehicles. Cummins engines will be phased
into these vehicles beginning in 1994, with production to begin at the
joint venture's plant in 1995.
In the midrange truck market, the Company competes with independent
engine manufacturers as well as truck producers who manufacture diesel
engines for their own products. Certain of these integrated
manufacturers also are customers of the Company. Primary engine
competitors in the midrange truck market in North America are Navistar
International Corporation and Caterpillar, Inc. The Company's
principal competitors in international markets vary from country to
country, with local manufacturers generally predominant in each
geographic market. Other diesel engine manufacturers in international
markets include Mercedes Benz, AB Volvo, Renault Vehicles Industriels,
Iveco Diesel Engines, Hino-Motors Ltd., Mitsubishi Heavy Industries,
Ltd., Isuzu Motors, Ltd., DAF Group N.V., SAAB-Scania A.B., Perkins
Engines Ltd., and Nissan.
Power Generation
~~~~~~~~~~~~~~~~
In 1993, power generation continued to represent over 20 percent of
the Company's net sales. Products include the complete line of
Cummins' engines, Onan's gasoline engines, generator sets and switches
and Newage alternators. These products serve the stationary power,
mobile and alternator markets.
In stationary power, Onan's industrial business and Cummins' G-drive
groups provide electrical and engine power generation products and
services to essentially all major markets worldwide. The product line
is the broadest in the industry, ranging from 5 to 1500 kW.
In the mobile business, Onan is a leading supplier of power generation
sets for the recreational vehicle market in the United States. As
part of a Department of Energy contract, Onan recently was selected to
develop a 35 kW auxiliary power unit for passenger hybrid electric
vehicles.
Bus and Light Commercial Vehicles
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
This market includes Cummins-powered pickup trucks, school buses,
urban transit buses, delivery trucks and recreational vehicles. In
1993, sales increased almost 20 percent over the 1992 level.
Chrysler, which offers the Cummins B Series engines in its Dodge Ram
pickup truck, was the Company's largest customer for midrange engines
in this market, representing 5.4 percent of the Company's net sales in
1993.
Cummins' share of the US transit bus market was 40 percent in 1993,
due in part to the introduction of the C Series engines and Cummins'
natural gas L10 engine. Cummins' natural gas engine was the first
natural gas fueled heavy-duty engine certified by the California Air
Resources Board. In 1993, sales of engines for school buses,
recreational vehicles and light commercial vehicles, including
delivery trucks and panel vans, also were strong.
In these markets, the Company also competes with both independent
manufacturers of diesel engines and vehicle producers who manufacture
diesel engines for their own products. Primary manufacturers of
diesel engines for the bus and light commercial truck markets are
Detroit Diesel Corporation, General Motors Corporation, Navistar
International Corporation, Perkins Engines Ltd., MAN, AB Volvo,
Mercedes Benz and SAAB-Scania A.B.
Industrial Products
~~~~~~~~~~~~~~~~~~~
Cummins' engines power more than 3,000 models of equipment for the
construction, logging, mining, agricultural, petroleum and rail
markets. Worldwide sales of Cummins products to this market increased
approximately 3 percent in 1993, compared to 1992. The increase in
sales was primarily in international markets.
Industrial markets are recovering modestly in the United States.
Cummins introduced the B Series engine at 200 horsepower in 1993. It
was the first engine to be introduced to the marketplace which meets
the stringent 1996 California off-highway emissions regulations.
In 1993, Cummins and Komatsu formed joint ventures to produce Cummins'
B Series engines in Japan and Komatsu's 30-litre engine in the United
States. Production at both joint venture sites is expected to
commence in 1996.
Government
~~~~~~~~~~
Cummins sells engines for a variety of military and civilian
applications. Government sales continued to decline in 1993 from a
peak of $236 million in 1991. The Company believes that this market
may decline further due to reductions in US military expenditures.
Cummins Military Systems Co. ("CMSC"), which specialized in rebuilt
military vehicles, was one of two bidders competing for a production
contract to remanufacture up to 10,000 US Army 2-1/2 ton trucks.
CMSC was unsuccessful in its bid and, as a result, the Company has
closed CMSC and will dispose of its assets.
Marine
~~~~~~
Product applications span 76 to 1,400 horsepower for recreational,
commercial and military markets. In 1993, marine sales were
approximately 6 percent higher than in 1992, with Asia representing
the most rapidly growing market for these products.
Fleetguard, Holset and Cummins Electronics
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Sales of filters, turbochargers and electronic systems represented
approximately 11 percent of the Company's sales in 1993, compared to
approximately 12 percent in 1992 and 1991. Effective at the beginning
of the third quarter of 1993, the Company transferred its 80-percent
interest in McCord Heat Transfer Corp., to Behr America Holding, Inc.,
for a 35-percent interest in Behr America Holding, Inc., a company
that also holds all of the North American operations of Julius F. Behr
of Germany. The Company's minority interest in Behr America Holding,
Inc., has been reported as an unconsolidated company since the third
quarter of 1993.
Fleetguard is a leading manufacturer of products for the North
American heavy-duty filter industry. Its products also are produced
and sold in international markets, including Europe, Mexico, India,
Australia and the Far East.
Holset's products also are sold worldwide. In 1993, Holset introduced
a new viscous damper and coupling design, as well as an air compressor
for the heavy-duty market. In 1993, Holset also completed the
acquisition of Kompressorenbau Bannewitz GmbH near Dresden, Germany,
which produces turbochargers for high-horsepower diesel engines.
Cummins Electronics provides controls for Cummins' engines and on-
board business information and specialized electronics systems for
Cummins' customers.
BUSINESS OPERATIONS
~~~~~~~~~~~~~~~~~~~
Research and Development
~~~~~~~~~~~~~~~~~~~~~~~~
Cummins conducts an extensive research and engineering program to
achieve product improvements, innovations and cost reductions, as well
as to satisfy legislated emissions requirements. As disclosed in Note
1 to the Consolidated Financial Statements, research and development
expenditures approximated $158 million in 1993, $129 million in 1992
and $99 million in 1991.
Sales and Distribution
~~~~~~~~~~~~~~~~~~~~~~
While the Company has several supply contracts for its products in on-
and off-highway markets, much of its business is done on open purchase
orders. These purchase orders usually may be canceled on reasonable
notice without cancellation charges. Therefore, while incoming orders
generally are indicative of anticipated future demand, the actual
demand for the Company's products may change at any time.
The Company's products compete on a number of factors, including
price, delivery, quality, warranty and service. Cummins believes that
its continued focus on cost, quality and delivery, its extensive
technical investment, its full product line and customer-led service
and support programs are key elements of its competitive position.
The Company's major markets typically experience modest seasonal
declines in production during the third quarter of the year, which has
an effect on the demand for Cummins' products during that quarter of
each year.
Cummins warrants its engines, subject to proper use and maintenance,
against defects in factory workmanship or materials for either a
specified time period or mileage or hours of use. Warranty periods
vary by engine family and market segment and are subject to
competitive pressures.
Cummins sells engines, parts and related products through
distributorships worldwide. The Company believes its distribution
system is an important part of its marketing strategy and competitive
position. Most of its North American distributors are independently
owned and operated. The Company has agreements with each of these
distributors, which typically are for a term of three years, subject
to certain termination provisions. Upon termination or expiration of
the agreement, the Company is obligated to purchase various assets of
the distributorship. Through an arrangement with Citicorp Dealer
Finance, a unit of Citicorp North America, the Company also guarantees
certain financing obligations of some of these distributors.
There are approximately 5,700 locations in North America, primarily
owned and operated by OEMs or their dealers, at which Cummins-trained
service personnel and parts are available to maintain and repair
Cummins engines. The Company's parts distribution centers are located
strategically throughout the world.
Supply
~~~~~~
The Company machines many of the components used in its engines,
including blocks, heads, rods, turbochargers, crankshafts and fuel
systems. Cummins has adequate sources of supply of raw materials and
components required for its operations.
International
~~~~~~~~~~~~~
Cummins sells its products to major international firms outside North
America by exports directly from the United States and shipments from
foreign facilities (operated through subsidiaries, affiliates, joint
ventures or licensees) which manufacture and/or assemble Cummins'
products. The Company's international operations are subject to risks
such as currency controls and fluctuations, import restrictions and
changes in national governments and policies.
The Company has entered into license agreements that provide for the
manufacture and sale of licensed engines and engine components for use
in certain territories prescribed in the respective agreements. In
addition, licensees produce engines and engine components which are
available to help meet demand for Cummins' products in the rest of the
world.
The paragraph under Item 1, "Overview", on page 2 on international
markets and operations is incorporated herein by reference.
Employment
~~~~~~~~~~
At December 31, 1993, Cummins employed 23,600 persons worldwide,
approximately 10,200 of whom are represented by various unions. The
Company has labor agreements covering employees in North America,
South America and the United Kingdom. In 1993, members of the Diesel
Workers Union in Southern Indiana approved an 11-year contract.
Production workers at Atlas, Inc., in Fostoria, Ohio, and office and
technical workers in Southern Indiana also ratified 3-year contracts
during 1993.
ENVIRONMENTAL COMPLIANCE
~~~~~~~~~~~~~~~~~~~~~~~~~
Product Environmental Compliance
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Cummins' engines are subject to extensive statutory and regulatory
requirements that directly or indirectly impose standards with respect
to emissions and noise. Cummins' products comply with emissions
standards that the US Environmental Protection Agency ("EPA") and
California Air Resources Board ("CARB") have established for emissions
for on-highway diesel engines produced through 1994. Cummins' ability
to comply with these and future emissions standards is an essential
element in maintaining its leadership position in the North American
heavy-duty truck and other automotive markets, as well as in supplying
other markets. The Company will make significant capital and research
expenditures to comply with these standards. Failure to comply could
result in adverse effects on future financial results.
Cummins has completed successfully the certification of its 1994 on-
highway products, which include both midrange and heavy-duty engines.
All of these products underwent extensive laboratory and field testing
prior to their release.
Emissions Averaging, Banking and Trading regulations were promulgated
by the EPA in July 1990. By selling 1991, 1992 and 1993 model year
engines with emissions levels below applicable standards and by
introducing several of the Company's 1994 configurations early,
Cummins generated both nitric oxide and particulate matter credits.
Certain of the Company's 1994 products which do not meet 1994
emissions standards will be sold by using these emissions credits.
The next major change in emissions requirements for heavy-duty diesel
engines occurs in 1998, when the nitric oxide standard is lowered from
5.0 to 4.0 g/bhp-hr. Design and development activity toward meeting
this standard is well underway. In 1996, the particulate matter
standard for engines used in urban buses changes from 0.07 to 0.05
g/bhp-hr.
Contained in the environmental regulations are several means for the
EPA to ensure and verify compliance with emissions standards. Two of
the principal means are tests of new engines as they come off the
assembly line, referred to as selective enforcement audits ("SEA"),
and tests of field engines, commonly called in-use compliance tests.
The SEA provisions have been used by the EPA to verify the compliance
of heavy-duty engines for several years. In 1993, three such audit
tests were performed on Cummins engines, all of which passed. The
failure of an SEA could result in cessation of production of the
noncompliant engines and the recall of engines produced prior to the
audit. In the product development process, Cummins anticipates SEA
requirements when it sets emissions design targets.
No Cummins engines were chosen for in-use compliance testing in 1993.
It is anticipated that the EPA will increase the in-use test rate in
1994 and subsequent years, raising the probability that one or more of
the Company's engines will be selected. As with SEA testing, if an
in-use test is failed, an engine recall may be necessary. Cummins
believes that its engines meet the EPA's in-use criteria.
In November, 1990, the Clean Air Act Amendments of 1990 were signed
into law. These amendments include special provisions for certain
truck fleets in nonattainment metropolitan areas and instruct the EPA
to consider regulating emissions from engines used in mobile off-
highway applications. The EPA completed the mandated study of these
sources and concluded that regulations are required. Promulgation of
the final rule is anticipated to occur in the second quarter of 1994.
Effective in 1995, CARB has promulgated new emissions standards for
vehicles from 8,500 to 14,000 pounds gross vehicle weight. Cummins' B
Series engines compete in this category. Design and development
activity toward meeting these standards is well underway.
In January 1992, CARB promulgated regulations for mobile off-highway
applications that use engines rated at or above 175 horsepower. The
effective date of the first tier of regulations is January 1, 1996.
The Company expects that its products will comply with these
regulations before the effective date.
More stringent emissions standards also are being adopted in
international markets, including Europe and Japan. Given the
Company's experience in meeting US emissions standards, it believes
that it is well positioned to take advantage of opportunities in these
markets as the need for emissions-control capability grows.
There are several Federal and state regulations which encourage and,
in some cases, mandate the use of alternatively fueled heavy-duty
engines. The Company currently offers a natural gas fueled version of
its L10 engine and has several development programs underway to expand
its alternatively fueled product offering.
Vehicles and certain industrial equipment in which diesel engines are
installed must meet Federal noise standards. The Company believes
that applications in which its engines are now installed meet these
noise standards and that future installations also will be in
compliance.
Other Environmental Statutes and Regulations
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
With respect to environmental statutes and regulations applicable to
the plants and operations of the Company and its subsidiaries, Cummins
believes it is in compliance in all material aspects with applicable
laws and regulations. During the last five years, expenditures for
environmental control facilities and environmental remediation
projects at the Company's operating facilities in the United States
have not been a major portion of annual capital outlays and are not
expected to be material in 1994.
The Company or its subsidiaries have been identified as potentially
responsible parties ("PRPs") pursuant to the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as
amended or similar state laws, at a number of waste disposal sites.
Under such laws, PRPs typically are jointly and severally liable for
any investigation and remediation costs incurred with respect to such
sites. The Company's ultimate responsibility, therefore, could be
greater than the share of waste contributed by the Company would
otherwise indicate.
While the Company is unable at this time to determine the aggregate
cost of remediation at these sites or the Company's ultimate liability
with respect thereto, the Company has attempted to analyze its
proportionate and actual liability by analyzing the amounts of
hazardous materials contributed by the Company to such sites, the
estimated costs, the number and identities of other PRPs and the level
of insurance coverage.
The Company has entered into administrative agreements at certain of
these sites to perform remedial actions. Onan Corporation, a
subsidiary of the Company, has entered into an administrative
agreement to participate in remediation of the Waste Disposal
Engineering landfill in Andover, Minnesota, along with 28 other PRPs.
The cost of remediation at this site is estimated to range from $10
million to $15 million, of which Onan expects to contribute
approximately $600,000, which has been reserved fully. The parties to
the remediation agreement are in the process of seeking contributions
from third parties, which may reduce Onan's proportionate share of the
remediation costs. Onan also has entered into an administrative
agreement for the Oak Grove Sanitary Landfill in Oak Grove Township,
Minnesota. The estimated cost to remediate this site is
approximately $6 million. Onan has agreed to contribute $127,000 to
cover its share of the cost of remediation. Onan is in the process of
seeking insurance reimbursement (which is being contested by the
insurers) and contributions from other PRPs, which could reduce this
amount.
At the Old City Landfill in Columbus, Indiana, the Company and two
other PRPs have entered into a Consent Order with the Indiana
Department of Environmental Management to implement the Record of
Decision issued by EPA in 1992. The cost to implement the Consent
Order is estimated to be approximately $300,000 based upon current
conditions at the site. The Company's share of this expense will be
approximately 50 percent. At the Purity Oil Site located in Fresno,
California, a subsidiary of the Company has been identified as a PRP
and is one of several PRPs who have been issued an order by EPA to
undertake remedial action at the site. The Company's subsidiary has
contributed $150,000 toward the first phase of remedial action at the
site. While the subsidiary's liability for future expenditures has
not been determined, the Company estimates that its percentage
contribution of hazardous waste to the site was less than 1 percent.
It is unclear whether the Company's share of future remediation cost
will be based upon its proportionate share of waste contributed to the
site. The costs of future remediation have not yet been determined
but are likely to exceed the cost of the first phase of remedial
action. As a result, the Company's share of such future expenses is
likely to exceed amounts spent to date at this site. The Company
believes that it has adequate reserves to cover its share of future
expenses at each of these sites.
With respect to other sites at which the Company or its subsidiaries
have been named as PRPs, the Company cannot estimate reasonably the
future remediation costs. At several sites, the remedial action to be
implemented has not been determined for the site or the Company has
been named only recently as a PRP. In addition, the Company presently
is contesting any liability at several of these sites. Based upon the
Company's prior experiences at similar sites, however, the aggregate
future cost of all PRPs to remediate these sites is likely to be
significant. While the Company believes that it has good defenses at
several of these sites, that its percentage contribution at other
sites is likely to be de minimis and that other PRPs will bear most of
the future remediation costs, the Company's ultimate responsibility
will be based on many factors outside the Company's control and,
therefore, could be material in the event that the Company becomes
obligated to pay a significant portion of those expenses. Based upon
information presently available, the Company believes that such
liability is unlikely and that its actual and proportionate costs of
participating in the remediation of these sites will not be material.
ITEM 2. PROPERTIES
~~~~~~~ ~~~~~~~~~~
Cummins' worldwide manufacturing facilities occupy approximately 13
million square feet, including approximately 5 million square feet
outside the United States. Principal engine manufacturing facilities
in the United States include the Company's plants in Southern Indiana
and Jamestown, New York, as well as an engine plant in Rocky Mount,
North Carolina, which is operated in partnership with J I Case.
Countries of manufacture outside of the United States include England,
Scotland, Brazil, Mexico, France, Spain, Australia and Germany. In
addition, engines and engine components are manufactured by joint
ventures or independent licensees at plants in China, India, Japan,
Pakistan, South Korea and Turkey.
Cummins believes that all of its plants have been maintained
adequately, are in good operating condition and are suitable for its
current needs through productive utilization of the facilities.
ITEM 3. LEGAL PROCEEDINGS
~~~~~~~ ~~~~~~~~~~~~~~~~~
The information appearing in Note 15 to the Consolidated Financial
Statements is incorporated herein by reference.
On April 5, 1990, Raphael Warkel and Alan J. Stransky filed a
complaint in the US District Court for the Southern District of
Indiana against the Company, all of its then-current directors and one
past director. The complaint purported to be brought as a class
action on behalf of persons who purchased the Company's common stock
between May 1, 1989 and September 21, 1989. The complaint alleged
that the Company and the other defendants violated Section 10(b) and
Section 20 of the Securities Exchange Act of 1934 by failing to
disclose material financial information concerning the Company in an
effort to "artificially inflate" the market price of the Company's
common stock. The complaint sought compensatory damages of
unspecified amount, costs and attorneys' fees. All defendants
answered denying the substantive allegations of the complaint. The
plaintiffs moved for class certification, which motion was opposed by
the defendants. On November 30, 1992, the court granted defendants'
motion for judgment on the pleading and dismissed the complaint. The
court held that the complaint failed to state a claim for relief under
the Federal securities laws. The court gave the plaintiffs 30 days to
file an amended complaint. On December 29, 1992, plaintiffs filed an
amended complaint against the same defendants. The amended complaint,
which alleges the Company and other defendants violated Section 10(b)
and Section 20 of the Securities Exchange Act by failing to disclose
material financial information concerning the Company in an effort to
"artificially inflate" the market price of the Company's common stock,
is also brought as a class action and seeks compensatory damages of
unspecified amount, costs and attorneys' fees. On March 3, 1993,
defendants moved to dismiss the amended complaint. On September 13,
1993, the court dismissed the claims of plaintiff Stransky with
prejudice. The court also dismissed the claims of plaintiff Warkel
except for a claim based on an allegedly false and misleading press
release issued by the Company in July 1989. Warkel was given until
December 13, 1993 to file an amended complaint, which time has passed
and no amended complaint has been filed. Plaintiff Stransky has
moved the court for reconsideration of the order dismissing his
claims, which motion remains pending. Defendants believe the
remaining allegations in the amended complaint are without merit and
intend to defend the action vigorously.
The material in Item 1 "Other Environmental Statutes and Regulations"
is incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
~~~~~~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
None.
PART II
~~~~~~~
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
The Company's common stock is listed on the New York Stock Exchange
and the Pacific Stock Exchange under the symbol "CUM". On October 12,
1993, the Board of Directors authorized a two-for-one stock split of
the common stock, which was effected by a stock dividend payable to
holders of record on October 25, 1993. The following table sets
forth, for the calendar quarters shown, the range of high and low
composite prices of the common stock on the New York Stock Exchange
and the cash dividends declared on the common stock. The information
in the table has been adjusted to give effect to the stock split.
High Low Dividends Declared
~~~~~~~ ~~~~~~~ ~~~~~~~~~~~~~~~~~~
1993
~~~~
First quarter $48 3/4 $37 3/8 $.025
Second quarter 49 5/16 38 1/2 .025
Third quarter 45 39 .025
Fourth quarter 54 3/8 38 7/8 .125
1992
~~~~
First quarter $33 $26 5/8 $.025
Second quarter 38 3/8 28 3/8 .025
Third quarter 35 7/8 30 5/16 .025
Fourth quarter 40 7/16 29 11/16 .025
During the fourth quarter of 1993, the Board of Directors of the
Company increased the common stock dividend from $.025 to $.125 per
quarter. The declaration and payment of future dividends by the Board
of Directors of the Company will be dependent upon the Company's
earnings and financial condition, economic and market conditions and
other factors deemed relevant by the Board of Directors.
At December 31, 1993, the approximate number of holders of record of
the Company's common stock was 4,400.
Certain of the Company's loan indentures and agreements contain
provisions which permit the holders to require the Company to
repurchase the obligations upon a change of control of the Company, as
defined in the applicable debt instruments.
As more fully described in Note 13 to the Consolidated Financial
Statements, which information is incorporated herein by reference, the
Company has a Shareholders' Rights Plan.
The Company's bylaws provide that Cummins is not subject to the
provisions of the Indiana Control Share Act. However, Cummins is
governed by certain other laws of the State of Indiana applicable to
transactions involving a potential change of control of the Company.
ITEM 6. SELECTED FINANCIAL DATA
(Dollars in Millions, except per share amounts)
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
1993 1992 1991 1990 1989
~~~~~~~~ ~~~~~~~~ ~~~~~~~~ ~~~~~~~~ ~~~~~~~~
Net sales $4,247.9 $3,749.2 $3,405.5 $3,461.8 $3,519.5
Earnings (loss) before
extraordinary items &
cumulative effect of
accounting changes 182.6 67.1 (65.6) (165.1) (6.1)
Net earnings (loss) 177.1 (189.5) (14.1) (137.7) (6.1)
Primary earnings (loss)
per common share:
Before extraordinary
items & cumulative
effect of accounting
changes 4.95 1.77 (2.48) ( 7.23) (.76)
Net 4.79 ( 6.01) ( .75) ( 6.13) (.76)
Fully diluted earnings
(loss) per common share:
Before extraordinary
items & cumulative
effect of accounting
changes 4.77 1.77 (2.48) ( 7.23) (.76)
Net 4.63 ( 6.01) ( .75) ( 6.13) (.76)
Cash dividends per
common share .20 .10 .35 1.10 1.10
Total assets 2,390.6 2,230.5 2,041.2 2,086.3 2,030.8
Long-term debt and
redeemable preferred
stock 189.6 412.4 443.2 411.4 473.7
All pre-share data have been restated to give effect to the October
1993 two-for-one stock split.
In December 1993, the Company sold 2.6 million shares of its common
stock in a public offering and used a portion of the proceeds to
redeem $77.2 in principal amount of the Company's outstanding 9-3/4
percent sinking fund debentures. This early extinguishment of debt
resulted in an extraordinary charge of $5.5.
In 1992, the Company sold 4.6 million shares of its common stock in a
public offering and used a portion of the proceeds to extinguish $71.1
of debt of Consolidated Diesel Company, an unconsolidated, 50-percent
owned partnership, $8.2 of the Company's 8-7/8 percent sinking fund
debentures and $11.4 of a 15-percent note payable to an insurance
company. These early extinguishments of debt resulted in an
extraordinary charge of $5.5. In 1992, the Company's results also
included a charge of $251.1 for the cumulative effect of changes in
accounting as prescribed by SFAS Nos. 106, 109 and 112 related to
accounting of retirees' health care and life insurance benefits,
income taxes and postemployment benefits.
The Company's results for 1991 included a credit of $51.5 for the
cumulative effect of changes in accounting to include in inventory
certain production-related costs previously charged directly to
expense and to adopt a modified units-of-production depreciation
method for substantially all engine production equipment.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION (Dollars in Millions, unless otherwise stated)
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
OVERVIEW
~~~~~~~~
Cummins recorded net sales of $4,248 in 1993, the highest level in the
Company's history. This was 13 percent higher than in 1992 and 25
percent higher than in 1991. The increase in sales during 1993 was
primarily attributable to higher sales of midrange engines worldwide
and the strong North American heavy-duty truck market.
The Company continued to achieve improvements in its financial results
in 1993, generating net earnings of $177.1, or $4.79 per share, due to
the increase in sales, continued cost-improvement measures and
operating efficiencies, and the ability to reduce a portion of its tax
valuation allowance.
Effective January 1, 1992, the Company adopted three new accounting
rules, which resulted in a one-time, non-cash, after-tax charge of
$251.1. This resulted in a net loss of $189.5, or $6.01 per share, in
1992. In both 1993 and 1992, the Company recorded extraordinary
charges of $5.5 related to early retirement of debt. The Company
reported a net loss of $14.1 in 1991, including a credit of $51.5 for
the cumulative effect of changes in accounting for inventory and
depreciation.
RESULTS OF OPERATIONS
~~~~~~~~~~~~~~~~~~~~~
The percentage relationship between net sales and other elements of
the Company's Consolidated Statement of Operations for each of the
last three years was:
Percent of Net Sales 1993 1992 1991
~~~~~~~~~~~~~~~~~~~~ ~~~~~ ~~~~~ ~~~~~
Net sales 100.0 100.0 100.0
Cost of goods sold 75.6 77.5 81.5
~~~~~ ~~~~~ ~~~~~
Gross profit 24.4 22.5 18.5
Selling & administrative expenses 13.6 14.2 13.9
Research & engineering expenses 4.9 4.8 4.3
Interest expense .9 1.1 1.2
Other expenses .2 .4 .4
~~~~ ~~~~ ~~~~
Earnings (loss) before income taxes 4.8 2.0 (1.3)
Provision for income taxes .5 .2 .5
Minority interest - - .1
~~~~ ~~~~ ~~~~~
Earnings (loss) before extraordinary items
& cumulative effect of accounting changes 4.3 1.8 (1.9)
Extraordinary items ( .1) ( .1) -
Cumulative effect of accounting changes - (6.7) 1.5
~~~~~ ~~~~~ ~~~~~
Net earnings (loss) 4.2 (5.0) ( .4)
~~~~~ ~~~~~ ~~~~~
Sales by Market
~~~~~~~~~~~~~~~
The Company's sales for each of its key markets during the last three
years were:
1993 1992 1991
~~~~~~~~~~~~~~~~ ~~~~~~~~~~~~~~~~ ~~~~~~~~~~~~~~~~
Dollars Percent Dollars Percent Dollars Percent
~~~~~~~ ~~~~~~~ ~~~~~~~ ~~~~~~~ ~~~~~~~ ~~~~~~~
Heavy-duty truck 1,230 29 1,081 29 940 28
Midrange truck 482 11 221 6 69 2
Power generation 963 23 914 24 813 24
Bus & light commercial
vehicles 498 12 423 11 417 12
Industrial products 438 10 425 11 450 13
Government 109 3 173 5 236 7
Marine 68 1 64 2 61 2
Fleetguard, Holset and
Cummins Electronics (a) 460 11 448 12 420 12
~~~~~ ~~ ~~~~~ ~~ ~~~~~ ~~
Net sales 4,248 100 3,749 100 3,406 100
~~~~~ ~~~ ~~~~~ ~~~ ~~~~~ ~~~
(a) Included sales of McCord prior to the third quarter of 1993.
Sales to the heavy-duty truck market in 1993 were 14 percent higher
than in 1992 and 31 percent higher than the 1991 level. The increase
in sales since 1991 has been due to increasing demand for engines in
the North American heavy-duty truck market. In 1993, the Company's
heavy-duty engine shipments in this market increased approximately 30
percent over 1992 and were more than double the 1991 level. The
Company continued to lead this market with a 35-percent market share
in 1993. The Company's market share was 37 percent in 1992 and 38
percent in 1991.
Heavy-duty truck engine shipments in international markets in 1993
were approximately 10 percent lower than in 1992 but 5 percent above
the 1991 level. While markets in the United Kingdom are showing signs
of emerging from recessionary levels, no significant recovery is
apparent in European markets. The Company's operations in Brazil were
moderately profitable due to cost reductions and operating
efficiencies that resulted in their lowering the break-even point.
Even though there have been signs that the Brazilian truck market is
recovering, uncertainty continues to exist in this market due to
inflationary and other economic pressures. The heavy-duty truck
market in Mexico also remains depressed due to the tightening of
credit, which has limited the ability of fleets to purchase new
trucks.
Sales to the midrange truck market have more than doubled since 1991.
In 1993, the Company completed the first full year of a contract with
Ford Motor Company to provide exclusive diesel power for Ford's
medium-duty trucks. While some customers made advance purchases of
midrange engines at the end of 1993, the current level of demand
indicates continued growth in this market.
Power generation sales of $963 in 1993 increased 5 percent over the
1992 level and were 18 percent higher than in 1991. During 1993,
power generation sales continued to benefit from strong demand for
industrial generator sets in international markets, particularly in
China where sales were double the 1992 level. The Company also
benefited from an increase in demand for generator sets for
recreational vehicles in 1993 over 1992.
In the bus and light commercial vehicle market, the Company's sales
were approximately 18 percent higher than in both 1992 and 1991.
Engine shipments for the bus market in North America were
significantly higher than prior year's levels. The Company's sales to
this market also benefited in 1993 from continued strong demand for
midrange engines for Chrysler's Dodge Ram pickup truck.
Sales to industrial markets in 1993 were essentially level with those
of the two prior years, although sales of engine parts and components,
primarily to China and Turkey, increased significantly. Engine
shipments to construction and agricultural markets in North America
also showed modest gains in 1993; however, there was no improvement in
shipments for logging or mining markets, which continue at low levels.
Government sales continue to be lower than prior years' levels due
primarily to the reduction in US government expenditures. Sales have
declined from 1991 peak of 7 percent of the Company's net sales to 5
percent of net sales in 1992 and 3 percent of net sales in 1993. The
Company believes this market may decline further due to reductions in
US military expenditures.
Sales for the marine business continued to increase but represented
less than 2 percent of the Company's net sales in the three years'
reporting periods.
Engine shipments for all markets in 1993 were 263,000, compared to
222,000 in 1992 and 200,600 in 1991. Shipments by engine family for
the comparative periods were:
1993 1992 1991
~~~~~~~~ ~~~~~~~~ ~~~~~~~~
Midrange engines 167,900 139,800 129,700
Heavy-duty engines 86,500 73,900 62,800
High-horsepower engines 8,600 8,300 8,100
~~~~~~~ ~~~~~~~ ~~~~~~~
Total engine shipments 263,000 222,000 200,600
~~~~~~~ ~~~~~~~ ~~~~~~~
Sales of filters, turbochargers and electronic systems increased from
the 1992 level and were approximately 10 percent higher than in 1991.
These businesses have benefited from an increase in sales for both the
midrange and heavy-duty engine markets in North America. European
markets for these products remained at depressed levels. Prior to the
third quarter of 1993, sales of McCord Heat Transfer Co., were
reported in this business market. Effective at the beginning of the
third quarter of 1993, the Company transferred its 80-percent interest
in McCord to Behr America Holding, Inc., for a 35-percent interest in
Behr America Holding, Inc. The Company's minority interest in Behr
America Holding, Inc., has been reported as an unconsolidated company
since the transfer.
Gross Profit
~~~~~~~~~~~~
The Company's gross profit percentage increased to 24.4 percent of net
sales in 1993 from 22.5 percent in 1992 and 18.5 percent in 1991.
The Company continued to benefit from improved margins across all of
its engine families during 1993. The key factor contributing to the
improved margin in 1993 was the increase in demand for the Company's
products, which represented approximately 50 percent of the increase
in gross profit. Other factors included the effects of cost-
improvement measures implemented since 1991 to improve production
systems and throughput time, engine and parts pricing actions
subsequent to the first quarter of 1992, and lower costs associated
with product coverage programs. The cost of product coverage
programs, which includes both warranty and extended coverage, improved
to 2.1 percent of net sales in 1993, compared to 2.4 percent in 1992
and 3.8 percent in 1991. Improvements included reduced warranty rates
for engines sold in 1993 and adjustments to reduce the product
coverage liability for engines previously placed in service.
In 1993, members of the Diesel Workers Union in Southern Indiana
approved an 11-year contract. The contract provided for a team-based
work system designed to increase flexibility, employee involvement and
efficiency in exchange for improved pension and health care benefits
for future retirees. Based upon the composition of age and service of
the labor force, the increased expense associated with prior service
of these employees will be recognized during the early years of the
contract.
In 1991, the Company's margin contribution was low due to a decline in
sales of heavy-duty engines, as well as higher costs related to
introduction of the 1991 product line, which incorporated electronic
controls for the first time.
Operating Expenses
~~~~~~~~~~~~~~~~~~
Selling and administrative expenses were $579.2 in 1993, compared to
$532.5 in 1992 and $472.3 in 1991. The increase in these expenditures
in 1993 was primarily attributable to variable operating expenses to
support the higher sales volumes.
Research and engineering expenses were $209.6 in 1993, compared to
$179.5 in 1992 and $147.0 in 1991. The increase in 1993 of 17 percent
compared to 1992 and 43 percent compared to 1991 was due to continued
expenditures for fuel systems development, electronic systems and
future technology developments.
Other Expenses
~~~~~~~~~~~~~~
Interest expense of $36.3 in 1993 was $4.7 lower than in 1992 and $6.2
lower than in 1991 due to the Company's early retirement and
redemption of debt obligations during 1993 and 1992 and an overall
decline in interest rates. In 1993, the decrease in other expense of
$6.3 compared to 1992 and $5.9 compared to 1991 was due to a reduction
in interest expense as a result of debt retirement at Consolidated
Diesel Company, an unconsolidated 50-percent owned partnership, in the
fourth quarter of 1992. This was offset partially by lower income
from unconsolidated companies.
Provision for Income Taxes
~~~~~~~~~~~~~~~~~~~~~~~~~~
As described in Note 9 to the Consolidated Financial Statements, the
Company reduced its valuation allowance for tax benefit carryforwards
during 1993 and 1992. The tax provision also included a one-time
credit of $4.4 in 1993 as a result of the Omnibus Budget
Reconciliation Act of 1993. In 1991, Cummins' effective tax rate
varied from the US statutory rate because of operating losses for
which no tax benefit was recorded and the recognition of foreign and
state taxes.
Extraordinary Items
~~~~~~~~~~~~~~~~~~~
As disclosed in Note 7 to the Consolidated Financial Statements, the
Company extinguished certain indebtedness in 1993 and 1992 that
resulted in an extraordinary charge of $5.5 in each year.
Accounting Changes
~~~~~~~~~~~~~~~~~~
As disclosed more fully in Note 1 to the Consolidated Financial
Statements, in 1992, the Company changed its method of accounting for
retirees' health care and life insurance benefits, postemployment
benefits and income taxes, all of which were required by new
accounting rules released by the Financial Accounting Standards Board.
In 1991, the Company changed its method of accounting for inventory
and depreciation.
FINANCIAL CONDITION AN CASH FLOW
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
During 1993, the Company's financial position improved significantly.
Shareholders' investment increased from $501.1 at year-end 1992 to
$821.1 at December 31, 1993. The improvement in financial position
was the result of the issuance of 2.6 million shares of common stock,
which produced net proceeds of $124.5, the conversion by holders of
$48.5 of convertible debt into 1.0 million shares of common stock and
the generation of net earnings of $177.1 during the year. In
addition, the proceeds from the common stock offering and net cash
flow from operations were applied to reduce the Company's indebtedness
from $488.0 at December 31, 1992 to $235.6 at December 31, 1993, a 52-
percent decrease. The combination of the significantly strengthened
equity position and reduced debt level lowered the Company's debt-to-
capital ratio from 49.3 percent at December 31, 1992 to 22.3 percent
at December 31, 1993.
At December 31, 1993, "Other liabilities" in the Consolidated
Statement of Financial Position increased $86.8 compared to December
31, 1992. This increase reflects the minimum liability related to
improved pension benefits that were granted in 1993 for prior service
of employees covered by collectively bargained pension plans. An
intangible asset of $68.1 was recorded in "Intangibles, deferred taxes
and deferred charges" related to this liability.
Key elements of the Consolidated Statement of Cash Flows were:
1993 1992 1991
~~~~~~ ~~~~~~ ~~~~~~
Net cash provided by (used for):
Operating activities $285.6 $197.7 $106.7
Investing activities (148.8) (296.5) (136.3)
Financing activities (113.5) 104.9 2.2
Effect of exchange rate
changes on cash ( .2) ( 3.4) ( 1.1)
~~~~~~~ ~~~~~~~ ~~~~~~~
Net change in cash and cash
equivalents $ 23.1 $ 2.7 $ 28.5)
~~~~~~ ~~~~~~ ~~~~~~~
Net cash flow from operating and investing activities totaled $136.8
in 1993, compared to a net cash outflow of $98.8 in 1992 and $29.6 in
1991. The cash outflow in 1992 included $65.1 to acquire the
remaining 36-percent interest in Onan Corporation and a capital
contribution of $71.1 to Consolidated Diesel Company to retire
indebtedness. Capital expenditures during 1993 increased to $174.2
compared to $139.3 in 1992 and $123.9 in 1991. The increase in 1993
was related to investments for new product introductions and fuel
systems. The Company expects that capital expenditures will increase
in 1994 to fund continued investments in these areas. The Company
also expects to make investments in 1994 in joint ventures announced
during 1993, including the joint venture with TELCO to produce
midrange engines in India for TELCO vehicles and with Komatsu to
produce midrange engines in Japan and high-horsepower engines in the
United States.
During the fourth quarter of 1993, the Company split its common stock
on a two-for-one basis through the declaration of a stock dividend.
Concurrently, the common stock dividend was increased from 2.5 cents
per share per quarter, on a post-split basis, to 12.5 cents per share.
Cash at year-end 1993 was $77.3, an increase of $23.1 above the 1992
year-end level. In addition, the Company had no borrowings
outstanding on its $300 revolving credit agreement at December 31,
1993. In 1993, the term of this credit facility was extended to 1997.
On January 24, 1994, the Company announced that its outstanding
Convertible Exchangeable Preference Stock, which had a face value of
$112.2 at December 31, 1993, would be redeemed on February 23, 1994 at
a price of $51.05 per depositary share, plus accrued dividends.
Holders of the stock elected to convert their shares into 2.9 million
shares of common stock.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
~~~~~~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
See index to Financial Statements and Schedules on page 25.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
~~~~~~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
None.
PART III
~~~~~~~~
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
~~~~~~~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
The information appearing under the caption "Election of Directors" of
the Company's definitive Proxy Statement, dated March 4, 1994, for the
Annual Meeting of the Shareholders to be held on April 5, 1994
(hereinafter the "Proxy Statement") is incorporated by reference in
partial answer to this item.
The executive officers of the Company at December 31, 1993 are set
forth below. The Chairman of the Board and President are elected
annually by the Board of Directors at the Board's first meeting
following the Annual Meeting of the Shareholders. Other officers hold
office for such period as the Board of Directors or Chairman of the
Board may prescribe.
Present Position & Business Experience During
Name Age Last 5 Years
~~~~~~~~~~~~~~ ~~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
M. E. Chesnut 47 Vice President - Quality & Organizational
Effectiveness (1992 to present), Vice President-
Human Resources & Organizational Effectiveness
(1989-1992)
C. R. Cordaro 44 Group Vice President - Marketing (1990 to
present), Vice President - Automotive Marketing
(1988 to 1990)
J. K. Edwards 49 Vice President - International (1989 to present)
R. L. Fealy 42 Vice President - Treasurer (1988 to present)
P. B. Hamilton 47 Vice President & Chief Financial Officer
(1988 to present)
J. A. Henderson 59 President & Chief Operating Officer
(1977 to present)
M. D. Jones 47 Vice President - Aftermarket Group
(1989 to present)
F. J. Loughrey 44 Group Vice President - Worldwide Operations
(1990 to present), Vice President - Heavy-Duty
Engines (1988 to 1990)
J. McLachlan 61 Vice President - Corporate Controller (1991
to present), Vice President - Engine Business
Controller (1989-1991)
G. D. Nelson 53 Vice President - Alternate Fueled Products
(1993 to present), Vice President - Research &
Development & Chief Technical Officer (1984
to 1993)
H. B. Schacht 59 Chairman of the Board of Directors and Chief
Executive Officer (1977 to present)
T. M. Solso 47 Executive Vice President - Operations (1992 to
present), Vice President & General Manager
Engine Business (1988 to 1992)
R. B. Stoner-Jr. 47 Vice President - Cummins Power Generation Group
and President - Onan Corporation (1992 to
present), Managing Director - Holset (1986-1992)
S. L. Zeller 37 Vice President - Law & External Affairs &
Corporate Secretary (1992 to present), Vice
President - General Counsel & Secretary (1990
to 1992), Vice President - General Counsel
(1989 to 1990)
ITEM 11. EXECUTIVE COMPENSATION
~~~~~~~~ ~~~~~~~~~~~~~~~~~~~~~~
The information appearing under the following captions in the
Company's Proxy Statement is hereby incorporated by reference: "The
Board of Directors and Its Committees", "Executive Compensation --
Compensation Tables and Other Information" (including the tables and
information contained at pages 16 to 18 of the Proxy Statement),
"Executive Compensation -- Change of Control Arrangements" and
"Executive Compensation -- Compensation Committee Interlocks and
Insider Participation". Except as otherwise specifically incorporated
by reference, the Proxy Statement is not to be deemed filed as part of
this report.
The Company has adopted various benefit and compensation plans
covering officers and other key employees under which certain benefits
become payable upon a change of control of the Company. Cummins also
has adopted an employee retention program covering approximately 350
employees of the Company and its subsidiaries, which provides for the
payment of severance benefits in the event of termination of
employment following a change of control of Cummins. The Company and
its subsidiaries also have severance programs for other exempt
employees of the Company whose employment is terminated following a
change of control of the Company. Certain of the pension plans
covering employees of the Company provide, upon a change of control of
Cummins, that excess plan assets become dedicated solely to fund
benefits for plan participants.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
~~~~~~~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
A discussion of the security ownership of certain beneficial owners
and management appearing under the captions "Principal Security
Ownership", "Election of Directors" and "Executive Compensation --
Security Ownership of Management" in the Proxy Statement is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
~~~~~~~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
The information appearing under the captions "The Board of Directors
and Its Committees", "Executive Compensation - Compensation Committee
Interlocks and Insider Participation" and "Other Transactions and
Agreements with Directors, Officers and Certain Shareholders" in the
Proxy Statement is incorporated herein by reference.
Reference is made to the information on related parties appearing in
Note 4 to the Consolidated Financial Statements.
PART IV
~~~~~~~
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
~~~~~~~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Documents filed as a part of this report:
1. See Index to Financial Statements and Schedules on page 25
for a list of the financial statements and schedules filed
as a part of this report.
2. See Exhibit Index on page 59 for a list of the exhibits filed
or incorporated herein as a part of this report.
No reports on Form 8-K were filed during the fourth quarter of 1993.
(page
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Page
~~~~
Management's Responsibility for Financial Statements 26
Report of the Independent Public Accountants 27
Consolidated Statement of Operations 28
Consolidated Statement of Financial Position 29
Consolidated Statement of Cash Flows 31
Consolidated Statement of Shareholders' Investment 33
Notes to Consolidated Financial Statements 35
Quarterly Financial Data 51
Property, Plant and Equipment 52
Accumulated Depreciation of Property, Plant & Equipment 53
Valuation and Qualifying Accounts 54
Short-term Borrowings 55
Supplementary Income Statement Information 56
(page)
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Management is responsible for the preparation of the Company's
consolidated financial statements and all related information
appearing in this Form 10-K. The statements and notes have been
prepared in conformity with generally accepted accounting principles
and include some amounts which are estimates based upon currently
available information and management's judgment of current conditions
and circumstances. The Company engaged Arthur Andersen & Company,
independent public accountants, to examine the consolidated financial
statements. Their report appears on page 27.
To provide reasonable assurance that assets are safeguarded against
loss from unauthorized use or disposition and that accounting records
are reliable for preparing financial statements, management maintains
a system of accounting and controls, including an internal audit
program. The system of accounting and controls is improved and
modified in response to changes in business conditions and operations
and to recommendations made by the independent public accountants and
the internal auditors.
The Board of Directors has an Audit Committee whose members are not
employees of the Company. The committee met four times in 1993 with
management, internal auditors and representatives of the Company's
independent public accountants to review the Company's program of
internal controls, audit plans and results and the recommendations of
the internal and external auditors and management's responses to those
recommendations.
(page)
REPORT OF THE INDEPENDENT PUBLIC ACCOUNTANTS
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
To the Shareholders and Board of Directors of Cummins Engine Company,
Inc.:
We have audited the accompanying consolidated statement of financial
position of Cummins Engine Company, Inc., (an Indiana corporation) and
subsidiaries as of December 31, 1993 and 1992 and the related
consolidated statements of operations, cash flows and shareholders'
investment for each of the three years in the period ended December
31, 1993. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly in all material respects, the financial position of Cummins
Engine Company, Inc., and subsidiaries as of December 31, 1993 and
1992 and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1993 in conformity
with generally accepted accounting principles.
As explained in Note 1 to the financial statements, effective January
1, 1992, the Company changed its method of accounting for the cost of
retirees' health care and life insurance benefits, postemployment
benefits and income taxes. Also, as disclosed in Note 1, effective
January 1, 1991, the Company changed its method of accounting for
inventory and depreciation.
Our audits were made for the purpose of forming an opinion on the
consolidated statements taken as a whole. The schedules listed under
Item 14 are the responsibility of the Company's management and are
presented for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic consolidated
financial statements. These schedules have been subjected to the
auditing procedures applied to the audit of the basic consolidated
financial statements and, in our opinion, fairly state in all material
respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a
whole.
Arthur Andersen & Co.
Chicago, Illinois,
January 26, 1994.
(page)
CUMMINS ENGINE COMPANY, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in Millions, except per share amounts)
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
1993 1992 1991
~~~~~~~~ ~~~~~~~~ ~~~~~~~~
NET SALES $4,247.9 $3,749.2 $3,405.5
Cost of goods sold 3,211.0 2,906.7 2,776.7
~~~~~~~~ ~~~~~~~~ ~~~~~~~~
Gross profit 1,036.9 842.5 628.8
Selling & administrative expenses 579.2 532.5 472.3
Research & engineering expenses 209.6 179.5 147.0
Interest expense 36.3 41.0 42.5
Other expenses 6.8 13.1 12.7
~~~~~~~~ ~~~~~~~~ ~~~~~~~~
Earnings (loss) before income taxes 205.0 76.4 (45.7)
Provision for income taxes 22.3 8.9 16.9
Minority interest .1 .4 3.0
~~~~~~~~ ~~~~~~~~ ~~~~~~~~~
EARNINGS (LOSS) BEFORE EXTRAORDINARY
ITEMS AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGES 182.6 67.1 (65.6)
Extraordinary items (Note 7) (5.5) (5.5) -
Cumulative effect of accounting
changes (Note 1) - (251.1) 51.5
~~~~~~~~~ ~~~~~~~~~ ~~~~~~~~~
NET EARNINGS (LOSS) 177.1 (189.5) (14.1)
Preference stock dividends 8.0 8.0 8.0
~~~~~~~~ ~~~~~~~~~ ~~~~~~~~~
EARNINGS (LOSS) AVAILABLE FOR
COMMON SHARES $ 169.1 $ (197.5) $ (22.1)
~~~~~~~~ ~~~~~~~~~ ~~~~~~~~~
~~~~~~~~ ~~~~~~~~~ ~~~~~~~~~
Primary earnings (loss) per common
share:
Before extraordinary items and
cumulative effect of accounting
changes $ 4.95 $ 1.77 $ (2.48)
Net 4.79 (6.01) (.75)
Fully diluted earnings (loss) per
common share:
Before extraordinary items and
cumulative effect of accounting
changes $ 4.77 $ 1.77 $ (2.48)
Net 4.63 (6.01) ( .75)
The accompanying notes are an integral part of this statement.
(page)
CUMMINS ENGINE COMPANY, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Millions, except per share amounts)
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
December 31,
1993 1992
~~~~~~~~ ~~~~~~~~
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 77.3 $ 54.2
Receivables less allowances of $9.5 & $11.8 426.3 372.7
Inventories 440.2 440.4
Other current assets 127.9 128.3
~~~~~~~~ ~~~~~~~~
1,071.7 995.6
~~~~~~~~ ~~~~~~~~
INVESTMENTS AND OTHER ASSETS:
Investments in and advances to unconsolidated
companies 101.9 146.2
Other assets 88.8 71.7
~~~~~~~~ ~~~~~~~~
190.7 217.9
PROPERTY, PLANT AND EQUIPMENT: ~~~~~~~~ ~~~~~~~~
Land and buildings 357.9 351.9
Machinery, equipment and fixtures 1,689.9 1,680.7
Construction in progress 132.7 89.7
~~~~~~~~ ~~~~~~~~
2,180.5 2,122.3
Less accumulated depreciation 1,222.3 1,193.6
~~~~~~~~ ~~~~~~~~
958.2 928.7
~~~~~~~~ ~~~~~~~~
INTANGIBLES, DEFERRED TAXES & DEFERRED CHARGES 170.0 88.3
~~~~~~~~ ~~~~~~~~
TOTAL ASSETS $2,390.6 $2,230.5
~~~~~~~~ ~~~~~~~~
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Loans payable $ 13.4 $ 50.5
Current maturities of long-term debt 32.6 25.1
Accounts payable 267.5 255.3
Accrued salaries and wages 78.1 71.4
Accrued product coverage & marketing expenses 123.5 139.9
Income taxes payable 21.2 11.5
Other accrued expenses 164.0 170.5
~~~~~~~~ ~~~~~~~~
700.3 724.2
~~~~~~~~ ~~~~~~~~
LONG-TERM DEBT 189.6 412.4
~~~~~~~~ ~~~~~~~~
OTHER LIABILITIES 679.6 592.8
~~~~~~~~ ~~~~~~~~
SHAREHOLDERS' INVESTMENT:
Convertible preference stock, no par value,
.2 shares outstanding 112.2 114.9
Common stock, $2.50 par value, 40.6 & 36.5
shares issued 101.5 91.3
Additional contributed capital 822.8 654.4
Retained earnings (deficit) 4.1 (146.1)
Common stock in treasury, at cost, 2.1 shares ( 67.3) ( 67.3)
Unearned ESOP compensation ( 59.3) ( 63.5)
Cumulative translation adjustments ( 92.9) ( 82.6)
~~~~~~~~~ ~~~~~~~~~
821.1 501.1
~~~~~~~~~ ~~~~~~~~~
TOTAL LIABILITIES & SHAREHOLDERS' INVESTMENT $2,390.6 $2,230.5
~~~~~~~~~ ~~~~~~~~
The accompanying notes are an integral part of this statement.
(page)
CUMMINS ENGINE COMPANY, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Millions)
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
1993 1992 1991
~~~~~~~ ~~~~~~~~ ~~~~~~~~
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 177.1 $(189.5) $( 14.1)
~~~~~~~ ~~~~~~~~ ~~~~~~~~
Adjustments to reconcile net earnings (loss)
to net cash from operating activities:
Depreciation and amortization 125.1 122.5 127.2
Extraordinary items & cumulative effect
of accounting changes 5.5 256.6 ( 51.5)
Accounts receivable ( 59.4) ( 30.9) 5.3
Inventories .9 ( 18.8) 31.1
Accounts payable and accrued expenses 6.6 14.1 ( 10.8)
Other 29.8 43.7 19.5
~~~~~~~~ ~~~~~~~~ ~~~~~~~~
Total adjustments 108.5 387.2 120.8
~~~~~~~~ ~~~~~~~~ ~~~~~~~~
Net cash provided by operating activities 285.6 197.7 106.7
~~~~~~~~ ~~~~~~~~ ~~~~~~~~
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment:
Additions (174.2) (139.3) (123.9)
Disposals 12.0 22.9 2.2
Acquisition of new business activities 3.4 ( 66.8) -
Net cash proceeds from the disposition
of certain business activities - 1.9 19.0
Investments in and advances to affiliates
and unconsolidated companies 10.0 (115.2) ( 33.6)
~~~~~~~~ ~~~~~~~~ ~~~~~~~~
Net cash used for investing activities (148.8) (296.5) (136.3)
~~~~~~~~ ~~~~~~~~ ~~~~~~~~
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 56.5 112.3 48.4
Payments on borrowings (247.5) (128.3) ( 26.2)
Net borrowings under credit agreements ( 25.5) 16.2 ( .6)
Net proceeds from common stock issuances 124.5 126.1 -
Payments of dividends ( 15.0) ( 11.3) ( 18.4)
Other ( 6.5) ( 10.1) ( 1.0)
~~~~~~~~ ~~~~~~~~ ~~~~~~~~
Net cash (used for) provided by financing
activities (113.5) 104.9 2.2
~~~~~~~~ ~~~~~~~~ ~~~~~~~~
EFFECT OF EXCHANGE RATE CHANGES ON CASH ( .2) ( 3.4) ( 1.1)
~~~~~~~~ ~~~~~~~~ ~~~~~~~~
NET CHANGE IN CASH AND CASH EQUIVALENTS 23.1 2.7 ( 28.5)
Cash & cash equivalents at beginning of year 54.2 51.5 80.0
~~~~~~~ ~~~~~~~ ~~~~~~~
CASH & CASH EQUIVALENTS AT END OF YEAR $ 77.3 $ 54.2 $ 51.5
~~~~~~~ ~~~~~~~ ~~~~~~~
Cash payments during the year for:
Interest $ 39.5 $ 41.5 $ 40.6
Income taxes 18.1 20.6 26.8
The accompanying notes are an integral part of this statement.
(page)
CUMMINS ENGINE COMPANY, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' INVESTMENT
(Millions, except per share amounts)
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
1993 1992 1991
~~~~~~ ~~~~~~ ~~~~~~
CONVERTIBLE PREFERENCE STOCK, no par value,
1.0 shares authorized (.2 shares):
Beginning balance $114.9 $114.9 $114.9
Converted to common stock ( 2.7) - -
~~~~~~ ~~~~~~ ~~~~~~
Ending balance 112.2 114.9 114.9
~~~~~~ ~~~~~~ ~~~~~~
COMMON STOCK, $2.50 par value, 50.0 shares
authorized:
Beginning balance (36.5, 31.8 & 31.8 shares) 91.3 79.4 79.4
Retired (.2, .2 and .1 shares) ( .6) ( .6) ( .1)
Issued in public offerings (2.6 & 4.6 shares) 6.6 11.5 -
Conversion of LYONs and preference stock
(1.1 shares) 2.8 - -
Other (.6, .3 and .1 shares) 1.4 1.0 .1
~~~~~~ ~~~~~~ ~~~~~~
Ending balance (40.6, 36.5 & 31.8 shares) 101.5 91.3 79.4
~~~~~~ ~~~~~~ ~~~~~~
ADDITIONAL CONTRIBUTED CAPITAL:
Beginning balance 654.4 537.5 533.0
Retired ( 9.9) ( 7.3) ( 1.1)
Issued in public offerings 117.9 114.6 -
Conversion of LYONs & preference stock 48.0 - -
Other 12.4 9.6 5.6
~~~~~~ ~~~~~~ ~~~~~~
Ending balance 822.8 654.4 537.5
~~~~~~ ~~~~~~ ~~~~~~
RETAINED EARNINGS (DEFICIT):
Beginning balance (146.1) 48.0 82.0
Net earnings (loss) for the year 177.1 (189.5) (14.1)
Cash dividends declared:
Convertible preference stock ( 8.0) ( 8.0) ( 8.0)
Common stock ( 7.0) ( 3.3) (10.4)
Additional minimum liability for pensions ( 11.9) 6.7 ( 1.5)
~~~~~~~ ~~~~~~~ ~~~~~~~
Ending balance 4.1 (146.1) 48.0
~~~~~~~ ~~~~~~~ ~~~~~~~
COMMON STOCK IN TREASURY, at cost (2.1
(shares) ( 67.3) ( 67.3) (67.3)
~~~~~~~ ~~~~~~~ ~~~~~~~
UNEARNED ESOP COMPENSATION:
Beginning balance ( 63.5) ( 67.9) (72.2)
Shares allocated to participants 4.2 4.4 4.3
~~~~~~~ ~~~~~~~ ~~~~~~~
Ending balance ( 59.3) ( 63.5) (67.9)
~~~~~~~ ~~~~~~~ ~~~~~~~
CUMULATIVE TRANSLATION ADJUSTMENTS:
Beginning balance ( 82.6) ( 20.8) ( .5)
Adjustments ( 10.3) ( 61.8) (20.3)
~~~~~~ ~~~~~~ ~~~~~~
Ending balance ( 92.9) ( 82.6) (20.8)
~~~~~~~ ~~~~~~~ ~~~~~~~
SHAREHOLDERS' INVESTMENT $821.1 $501.1 $623.8
~~~~~~~ ~~~~~~~ ~~~~~~~
The accompanying notes are an integral part of this statement.
(page)
CUMMINS ENGINE COMPANY, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions, unless otherwise stated)
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
NOTE 1. SUMMARY OF ACCOUNTING POLICIES:
Principles of Consolidation: The consolidated financial statements
include the accounts of Cummins Engine Company, Inc., and its
majority-owned subsidiaries. Affiliated companies in which Cummins
does not have a controlling interest or in which control is expected
to be temporary are accounted for using the equity method.
Stock Split: On October 12, 1993, the Company announced a two-for-one
common stock split that was distributed on November 11, 1993 to
shareholders of record on October 25, 1993. All references to the
number of shares issued or outstanding and to per-share information
have been adjusted to reflect the stock split on a retroactive basis.
Foreign Currency: The Company uses the local currency as the
functional currency for its significant manufacturing operations
outside the United States, except those in Brazil and Mexico for which
it uses the US dollar. At operations which use the local currency as
the functional currency, results are translated into US dollars using
average exchange rates for the year, while assets and liabilities are
translated into US dollars using year-end exchange rates. The
resulting translation adjustments are recorded in a separate component
of shareholders' investment. Gains and losses from foreign currency
transactions are included in net earnings. The financial statements
of operations in Brazil and Mexico are translated into US dollars
using both current and historical exchange rates, with the resulting
translation adjustments reflected in net earnings.
The Company enters into forward exchange contracts to hedge the
effects of fluctuation currency rates on certain assets and
liabilities, such as accounts receivable and payable, that are
denominated in foreign currencies. The contracts typically provide
for the exchange of different currencies at specified future dates and
rates. The gain or loss due to the difference between the forward
exchange rates of the contracts and current rates offsets in whole or
in part the loss or gain on the assets or liabilities being hedged.
Cash Equivalents: Cash equivalents are investments that are readily
convertible to known amounts of cash and have original maturities of
three months or less.
Inventories: The company accounts for substantially all of its US
heavy-duty and high-horsepower engine and engine parts inventories on
the last-in, first-out (LIFO) cost method. All other inventories are
valued at the lower of first-in, first-out (FIFO) cost or net
realizable value.
LIFO inventories were $144.9 at December 31, 1993 and $147.8 at
December 31, 1992. The current cost of these inventories was $49.8
higher than LIFO cost at December 31, 1993 and $52.9 higher than LIFO
cost at December 31, 1992. During 1993, 1992 and 1991, certain of the
Company's LIFO inventory investment was reduced, resulting in the
liquidation of low-cost LIFO inventory layers. The effect of the LIFO
liquidation was to reduce cost of goods sold by $2.0 in 1993, $1.4 in
1992 and $6.3 in 1991.
Inventory values include the combined costs of purchased materials,
labor and manufacturing overhead. Effective January 1, 1991, the
Company recognized a credit of $25.0 as a result of a change in
accounting to include in inventory certain production-related costs
previously charged directly to expense. The Company's operations are
integrated vertically, which makes it impracticable to distinguish
between raw material and work-in-process on a consolidated basis. At
December 31, 1993 and 1992, the FIFO value of finished goods, which
represented products available for shipment to the Company's
customers, approximated $273 and $251, respectively.
Futures Contracts and Interest Rate Swaps: The Company has entered
into forward exchange and commodity futures contracts which are
accounted for as hedges. The gains or losses on forward exchange
contracts are reflected in earnings concurrently with the hedged items
while gains or losses on commodity futures contracts are charged or
credited to earnings when the contracts are settled.
The Company also has entered into interest rate swap agreements that
have the effect of fixing interest rates on certain of the Company's
floating rate indebtedness. The net difference to be paid or received
on the interest rate swaps is charged or credited to interest expense
as interest rates change.
Property, Plant and Equipment: Property, plant and equipment are
recorded at cost. Effective January 1, 1991, the Company changed its
accounting for depreciation of substantially all engine production
equipment to a modified units-of-production method, which is based
upon units produced subject to a minimum level. The cumulative effect
of this change in accounting was a credit of $26.5 in 1991.
Depreciation of all other equipment is computed using the straight-
line method for financial reporting purposes. The estimated service
lives to compute depreciation range from 20 to 40 years for buildings
and 3 to 20 years for machinery, equipment and fixtures. Where
appropriate, the Company uses accelerated depreciation methods for tax
purposes. Maintenance and repair costs are charged to earnings as
incurred.
Technical Investment: Expenditures associated with research and
development of new products and major improvements to existing
products, as well as engineering expenditures during early production
and ongoing efforts to improve existing products, are charged to
earnings as incurred, net of contract reimbursements:
1993 1992 1991
~~~~~~ ~~~~~~ ~~~~~~
Research & engineering expenses $209.6 $179.5 $147.0
Reimbursements 28.8 36.9 28.6
Other technical spending 38.1 31.0 33.1
~~~~~~ ~~~~~~ ~~~~~~
Technical investment expenditures $276.5 $247.4 $208.7
~~~~~~ ~~~~~~ ~~~~~~
Included above in research and engineering expenses are research and
development costs approximating $158 in 1993, $129 in 1992 and $99 in
1991.
Product Coverage Programs: Estimated costs of warranty and extended
coverage are charged to earnings at the time the Company sells its
products.
Retirement and Postemployment Benefits: The Company charges the cost
of all retirement benefits to earnings during employees' active
service as a form of deferred compensation. The change in accounting
from a cash basis to this policy for health care and life insurance,
effective January 1, 1992, resulted in an after-tax charge of $228.6
for prior service. This change resulted in an incremental annual
expense of $11.4, net of taxes, during 1992.
The cost of postemployment benefits, such as long-term disability, is
charged to earnings at the time employees leave active service. The
cumulative effect of the change to this accounting from a cash basis,
effective January 1, 1992, was $22.5, net of taxes. This change
resulted in an incremental expense of $3.2, net of taxes, in 1992.
Income Tax Accounting: Deferred tax assets and liabilities are
recognized for the future tax effects of temporary differences between
the financial statement basis and the tax basis of assets and
liabilities. Future tax benefits of tax loss and tax credit
carryforwards also are recognized as deferred tax assets. Deferred
tax assets are offset by a valuation allowance to the extent the
Company concludes there is uncertainty as to their ultimate
realization.
Earnings (Loss) Per Common Share: Primary earnings per share of
common stock are computed by subtracting preference stock dividend
requirements from net earnings (loss) and dividing that amount by the
weighted average number of common shares outstanding during each year.
The weighted average number of shares, which includes the exercise of
certain stock options granted to employees, was 35.3 million in 1993,
32.9 million in 1992 and 29.7 million in 1991. Fully diluted earnings
per share are computed by dividing net earnings (loss) by the weighted
average number of shares assuming the exercise of stock options and
the conversion of debt and preference stock to common stock.
NOTE 2. SUBSEQUENT EVENT: On January 24, 1994, the Company announced
that its outstanding Convertible Exchangeable Preference Stock, which
had a face value of $112.2 at December 31, 1993, would be redeemed on
February 23, 1994 at a price of $51.05 per depositary share, plus
accrued dividends. Holders of the stock elected to convert their
shares into 2.9 million shares of common stock. Had the stock
conversion and cash redemption occurred on January 1, 1993, pro forma
net earnings per share would have approximated $4.63 in 1993.
NOTE 3. ACQUISITION: On June 15, 1992, the Company acquired for $64
in cash the remaining 36 percent of Onan Corporation from Hawker
Siddeley Overseas Investments Limited, a UK company. Cummins had
owned the majority interest in Onan since 1986. The acquisition was
accounted for as a purchase. Had the acquisition occurred as of
January 1, 1991, the pro forma net loss per share for 1992 would have
approximated $6.00 and the pro forma net loss per share for 1991 would
have approximated 63 cents. Such pro forma per share information is
not necessarily indicative of what the results of operations would
have been had the acquisition actually occurred earlier, nor is it
indicative of what may occur in the future.
NOTE 4. RELATED PARTIES: In 1990, Ford Motor Company and Tenneco
Inc., each purchased from Cummins 3.2 million shares of the Company's
common stock. The shares were purchased pursuant to separate
investment agreements between Cummins and the investors. Both Ford
and Tenneco have agreed to certain voting, standstill and other
provisions and each has the right to designate a representative to the
Company's Board of Directors. The Company also entered into an option
agreement with Ford pursuant to which Ford has the right, exercisable
until 1996, to purchase up to 2.96 million additional shares of the
Company's common stock at a price equal to 120 percent of the market
price of the common stock for the 30 trading days prior to the
exercise of the option but for no less than $31.25 per share. In
December 1993, Tenneco transferred the shares of Cummins common stock
it held to a trust that funds pension plans sponsored by Tenneco. The
shares will continue to be subject to the terms of the investment
agreement, and the trust has agreed to assume all of Tenneco's rights
and obligations under such agreement.
Cummins' sales of diesel engines and parts and related products to
Ford approximated $343 in 1993, $182 in 1992 and $56 in 1991. In
addition, Cummins' purchases of gasoline engines and parts from Ford
approximated $4 in 1993 and $3 in both 1992 and 1991. At December 31,
1993 and 1992, the Company had accounts receivable outstanding of
approximately $27 and $20, respectively, with Ford. Cummins and J I
Case, a subsidiary of Tenneco Inc., are partners in the manufacture of
midrange diesel engines at Consolidated Diesel Company. In 1993, 1992
and 1991, Cummins' sales of heavy-duty midrange diesel engines,
components, service parts and related products and services to J I
Case and other subsidiaries of Tenneco approximated $43, $52 and $61,
respectively. Cummins' purchases from J I Case approximated $1 in
both 1993 and 1992 and $7 in 1991. At both December 31, 1993 and
1992, the Company had accounts receivable outstanding of $6 with
subsidiaries of Tenneco.
NOTE 5. SALE OF RECEIVABLES: The Company has an agreement to sell,
without recourse, up to $110.0 of eligible trade receivables. The
amount of receivables outstanding was $108.0 under this agreement at
December 31, 1993 and $100.0 at December 31, 1992. As collections
reduce previously sold receivables, new receivables customarily are
sold up to the $110.0 level.
NOTE 6. INVESTMENTS IN UNCONSOLIDATED COMPANIES:
December 31,
Location Ownership 1993 1992
~~~~~~~~~~~~~ ~~~~~~~~~ ~~~~~~ ~~~~~~
Consolidated Diesel Company United States 50% $ 50.9 $100.1
Kirloskar Cummins Limited India 50% 16.9 17.3
Behr America Holding, Inc. United States 35% 12.1 -
Other investments Various Various 22.0 28.8
~~~~~~ ~~~~~~
$101.9 $146.2
~~~~~~ ~~~~~~
Included above in other investments at December 31, 1993 and 1992 were $18.5
and $21.8, respectively, related to temporarily owned distributorships.
Cummins' sales to temporarily owned distributorships approximated $57
in 1993, $49 in 1992 and $143 in 1991.
Summary financial information for Consolidated Diesel Company, Kirloskar
Cummins Limited, Behr America Holding, Inc., and other 50-percent or less
owned companies follows:
Earnings Statement Data 1993 1992 1991
~~~~~~~~~~~~~~~~~~~~~~~ ~~~~~~ ~~~~~~ ~~~~~~
Net sales $746.4 $695.9 $733.1
Earnings before extraordinary item 3.4 14.4 12.4
Earnings 3.4 6.4 12.4
Cummins' share of earnings .4 3.4 6.4
December 31,
Balance Sheet Data 1993 1992
~~~~~~~~~~~~~~~~~~~ ~~~~~~ ~~~~~~
Current assets $151.4 $178.1
Noncurrent assets 207.0 220.6
Current liabilities (127.0) (111.2)
Noncurrent liabilities ( 38.2) ( 41.9)
~~~~~~~ ~~~~~~~
Net assets $193.2 $245.6
~~~~~~ ~~~~~~
Cummins' share of net assets $ 82.7 $123.4
~~~~~~ ~~~~~~
NOTE 7. LONG-TERM DEBT:
December 31,
1993 1992
~~~~~~ ~~~~~~
Senior debt:
9.74%-10.65% medium-term notes, due 1993 to 1998 $126.2 $136.2
9-3/4% sinking fund debentures, due 1998 to 2016 - 77.2
8.76% guaranteed notes of ESOP Trust, due 1998 70.7 71.8
9.45% note payable to insurance company, due
through 1999 - 18.6
3.875%-10.4% notes payable to banks due through
1998 8.0 63.4
Mortgage, capitalized leases and other notes,
due through 2005 17.3 25.1
Subordinated debt:
LYONs - 45.2
~~~~~~ ~~~~~~
Total indebtedness 222.2 437.5
Less current maturities 32.6 25.1
~~~~~~ ~~~~~~
Long-term debt $189.6 $412.4
~~~~~~ ~~~~~~
Aggregate maturities of long-term debt for the five years subsequent to
December 31, 1993 are $32.6, $36.3, $41.5, $23.7 and $16.7.
In December 1993, the Company sold 2.6 million shares of its common
stock in a public offering for $49 per share. A portion of the
proceeds was used to redeem $77.2 in principal amount of the Company's
outstanding 9-3/4 percent sinking fund debentures. This early
extinguishment of debt resulted in an extraordinary charge of $5.5.
The Company also called for redemption of all the outstanding LYONs.
Holders submitted 112,808 LYONs with an accreted value of $48.5 for
conversion into 1.0 million shares of common stock, and the remaining
were redeemed for $.2. Had the stock issuance, debt repayments and
conversion of LYONs occurred as of January 1, 1993, pro forma net
earnings per share would have approximated $4.65 in 1993.
In April 1992, the Company sold 4.6 million shares of its common stock
in a public offering for $28.50 per share. A portion of the net
proceeds was used at the time of the issuance to repay borrowings
under the Company's revolving credit agreement. During the fourth
quarter of 1992, the Company extinguished $71.1 of debt of
Consolidated Diesel Company, an unconsolidated, 50-percent owned
partnership, $8.2 of the Company's 8-7/8 percent sinking fund
debentures and $11.4 of a 15-percent note payable to an insurance
company. These early extinguishments of debt resulted in an
extraordinary charge of $5.5. Had the stock issuance and debt
repayments occurred as of January 1, 1992, the pro forma net loss per
share would have approximated $5.80 in 1992.
The Company maintains a $300 revolving credit agreement, under which
there were no outstanding borrowings at December 31, 1993. At
December 31, 1992, there were $90.0 outstanding borrowings under the
revolving credit agreement. In 1993, the term of the revolving credit
agreement was extended to 1997. The Company also maintains other
domestic and international credit lines with approximately $170
available at December 31, 1993.
The Company has guaranteed the outstanding borrowings of its ESOP
Trust. The ESOP was established for certain of the Company's domestic
salaried employees who participate in the qualified benefit savings
plans. The Company's cash contributions to the ESOP Trust, together
with the dividends accumulated on the common stock held by the ESOP
Trust, are used to pay interest and principal due on the notes. Cash
contributions and dividends to the ESOP Trust approximated $7 in 1993
and 1992 to fund its principal payment of $1 and interest payment of
$6. The Company's compensation expense was $10.0 in 1993, $10.3 in
1992 and $9.9 in 1991. The unearned compensation, which is reflected
as a reduction to shareholders' investment, represents the historical
cost of the ESOP Trust's shares of common stock that have not yet been
allocated to participants.
Based on borrowing rates currently available to the Company for bank
loans and similar terms and average maturities, the fair value of
total indebtedness approximated $237 at December 31, 1993 and $436 at
December 31, 1992.
NOTE 8. OTHER LIABILITIES:
December 31,
1993 1992
~~~~~~ ~~~~~~
Accrued retirement & postemployment benefits $521.8 $436.4
Accrued product coverage & marketing expenses 90.5 102.9
Deferred taxes 17.3 9.3
Accrued compensation expenses 5.6 4.3
Other 44.4 39.9
~~~~~~ ~~~~~~
Other liabilities $679.6 $592.8
~~~~~~ ~~~~~~
NOTE 9. INCOME TAXES:
Income Tax Provision 1993 1992 1991
~~~~~~~~~~~~~~~~~~~~ ~~~~~ ~~~~~ ~~~~~
Current:
US federal and state $ 4.7 $ 1.8 $(4.2)
Foreign 19.1 15.6 23.6
~~~~~ ~~~~~ ~~~~~
23.8 17.4 19.4
~~~~~ ~~~~~ ~~~~~
Deferred:
US federal and state (12.3) (8.5) (1.9)
Foreign 10.8 - ( .6)
~~~~~~ ~~~~~~ ~~~~~~
( 1.5) (8.5) (2.5)
~~~~~~ ~~~~~~ ~~~~~~
Income tax provision $22.3 $ 8.9 $16.9
~~~~~~ ~~~~~~ ~~~~~~
Prior to 1992, losses at the Company's operations in the United States
and United Kingdom had eliminated the need for virtually all deferred
income taxes. Effective January 1, 1992, the Company adopted an asset
and liability approach to income tax accounting. At the same time,
the Company recorded substantial obligations for retirement and other
postemployment benefits that are tax deductible only on a cash basis.
The tax benefit of the future tax deduction represented by these
accruals is recognized as a deferred asset along with the effect of
all other temporary differences between the tax basis and financial
statement basis of assets and liabilities. Deferred income taxes also
reflect the value of the tax benefit carryforwards and an offsetting
valuation allowance.
December 31,
Net Deferred Tax Asset 1993 1992
~~~~~~~~~~~~~~~~~~~~~~ ~~~~~~ ~~~~~~
Tax effects of future tax deductible differences
related to:
Accrued health care, life insurance & postemployment
benefits $174.0 $161.6
Other accrued employee benefit expenses 29.9 31.1
Accrued product coverage & marketing expenses 63.4 67.3
Other net deductible differences 19.3 9.7
Tax effects of future taxable differences related to:
Accelerated tax depreciation & other tax over book
deductions related to US plant & equipment (114.1) (107.9)
Net UK taxable differences related primarily to
plant and equipment ( 10.2) -
Miscellaneous net foreign taxable differences ( 1.3) ( .7)
~~~~~~~ ~~~~~~~
Net tax effects of temporary differences 161.0 161.1
~~~~~~~ ~~~~~~~
Tax effects of carryforward benefits:
US federal net operating loss carryforwards,
expiring 2006 to 2007 18.7 58.6
US federal foreign tax credits, expiring 1998 4.7 -
US federal general business tax credits, expiring
1996 to 2008 71.6 58.4
US federal minimum tax credits with no expiration 7.1 3.1
UK net tax benefit carryforwards with no expiration - 4.1
~~~~~~ ~~~~~~~
Tax effects of carryforwards 102.1 124.2
~~~~~~ ~~~~~~~
Tax effects of temporary differences & carryforwards 263.1 285.3
Less valuation allowance (100.7) (124.4)
~~~~~~~ ~~~~~~~
Net deferred tax asset $162.4 $160.9
~~~~~~~ ~~~~~~~
Classified in the Consolidated Statement of Financial
Position as:
Current assets $ 89.2 $ 96.4
Noncurrent assets 90.5 73.8
Noncurrent liabilities ( 17.3) ( 9.3)
~~~~~~~ ~~~~~~~
Net deferred tax asset $162.4 $160.9
~~~~~~~ ~~~~~~~
While the company believes all tax assets ultimately will be realized,
such realization is dependent upon future earnings in specific tax
jurisdictions. Dependent upon the level of profitability, the
Company's net operating loss carryforwards may be utilized but
replaced with foreign tax credit carryforwards, which have a shorter
life and significant limitations on utilization. The Company's other
carryforwards also have significant usage limitations which can be
overcome only by generating earnings at considerably higher levels
than have been generated in all but the most recent two years. The
Company, therefore, has recorded a full valuation allowance against
those tax assets which represent carryforwards of tax benefits because
of previous unprofitable operations. While the need for this
valuation allowance is subject to periodic review, it is expected that
the allowance will be reduced and the tax benefits of the
carryforwards will thereby be recorded in future operations as a
reduction of income tax expense as the carryforwards actually are
realized by future earnings. Such reductions in the valuation
allowance and realizations of carryforwards amounted to $41.5 in 1993
and $17.4 in 1992.
The Omnibus Budget Reconciliation Act ("OBRA") of 1993 retroactively
extended the research tax credit from its 1992 expiration date through
June 30, 1995. Research tax credits of $6.1 for 1992 and an estimated
$8.0 for 1993 have increased both the general business credit
carryforwards and the offsetting valuation allowance disclosed above
as of December 31, 1993.
Earnings (loss) before income taxes and differences between the
effective tax rate at US federal income tax rate were:
1993 1992 1991
~~~~~~ ~~~~~~ ~~~~~~
Earnings (loss) before income taxes:
Domestic $110.7 $(36.4) $(142.7)
Foreign 94.3 112.8 97.0
~~~~~~ ~~~~~~~ ~~~~~~~~
$205.0 $ 76.4 $( 45.7)
~~~~~~ ~~~~~~ ~~~~~~~~
Tax (benefit) at US statutory tax rate $ 71.8 $ 25.9 $( 15.5)
Increase in the value of net US
deferred tax assets as a result of
the OBRA change in the tax rate
from 34% to 35% ( 4.4) - -
Utilization of net operating loss
and tax credit carryforwards from
prior years (41.5) (17.4) -
Current year operating losses & tax
credits for which no benefit has
been recognized - - 31.7
Other ( 3.6) .4 .7
~~~~~~~ ~~~~~~ ~~~~~~~
Income tax provision $ 22.3 $ 8.9 $ 16.9
~~~~~~~ ~~~~~~ ~~~~~~~
NOTE 10. OPERATING LEASES: Certain of the Company's manufacturing
plants, warehouses and offices are leased facilities. The Company
also leases automobiles and manufacturing and office equipment. Most
of these leases require fixed rental payments, expire over the next 10
years and can be renewed or replaced with similar leases. Rental
expense under these leases in 1993, 1992 and 1991 was $50.8, $45.3 and
$44.0, respectively. Future minimum payments for operating leases
with original terms of more than one year are $28.7 in 1994, $22.8 in
1995, $17.6 in 1996, $16.1 in 1997, $14.5 in 1998 and $114.4
thereafter.
NOTE 11. RETIREMENT PLANS: The Company and its subsidiaries have
several contributory and noncontributory pension plans covering
substantially all employees. Benefits for salaried plans generally
are based upon the employee's compensation during the three to five
years preceding retirement. Under the hourly plans, benefits
generally are based upon various monthly amounts for each year of
credited service. It is the Company's policy to make contributions to
these plans sufficient to meet the funding requirements of applicable
laws and regulations, plus such additional amounts, if any, as the
Company deems appropriate. Plan assets consist principally of equity
securities and corporate and Government fixed-income obligations.
Net Periodic Pension Cost 1993 1992 1991
~~~~~~~~~~~~~~~~~~~~~~~~~ ~~~~~~ ~~~~~~ ~~~~~~
Service cost for benefits earned during
the year $ 30.9 $ 28.7 $ 28.2
Interest cost on projected benefit
obligation 80.7 78.1 82.1
Return on plan assets:
Actual (202.5) (79.6) (235.4)
Deferred gain (loss) 99.5 (26.2) 135.0
Amortization of transition asset ( 9.2) ( 9.6) ( 9.6)
Other amortization, net 2.4 ( 2.2) 3.1
~~~~~~~~ ~~~~~~~ ~~~~~~~
Net periodic pension cost (credit) $ 1.8 $(10.8) $ 3.4
~~~~~~~~ ~~~~~~~ ~~~~~~~
Funded Status Overfunded Underfunded Combined
~~~~~~~~~~~~~ ~~~~~~~~~~ ~~~~~~~~~~~ ~~~~~~~~
1993
~~~~
Actuarial present value of:
Vested benefit obligation $(569.2) $(425.5) $( 994.7)
~~~~~~~~ ~~~~~~~~ ~~~~~~~~~~
Accumulated benefit obligation $(642.3) $(522.8) $(1,165.1)
~~~~~~~~ ~~~~~~~~ ~~~~~~~~~~
Projected benefit obligation $(736.0) $(539.8) $(1,275.8)
Plan assets at fair value 780.8 401.2 1,182.0
~~~~~~~~ ~~~~~~~~ ~~~~~~~~~~
Excess of assets over (under) projected
benefit obligation 44.8 (138.6) ( 93.8)
Unrecognized net experience loss 17.6 3.1 20.7
Unrecognized prior service cost 22.7 98.5 121.2
Additional minimum liability - ( 87.7) ( 87.7)
Unamortized transition asset ( 36.1) ( 11.5) ( 47.6)
~~~~~~~~ ~~~~~~~~ ~~~~~~~~~~
Accrued pension asset (liability) $ 49.0 $(136.2) $( 87.2)
~~~~~~~~ ~~~~~~~~ ~~~~~~~~~~
1992
~~~~
Actuarial present value of:
Vested benefit obligation $(358.5) $(393.0) $ (751.5)
~~~~~~~~ ~~~~~~~~ ~~~~~~~~~~
Accumulated benefit obligation $(414.2) $(480.7) $ (894.9)
~~~~~~~~ ~~~~~~~~ ~~~~~~~~~~
Projected benefit obligation $(468.6) $(529.8) $ (998.4)
Plan assets at fair value 542.4 481.1 1,023.5
~~~~~~~~ ~~~~~~~~ ~~~~~~~~~~
Excess of assets over (under) projected
benefit obligation 73.8 ( 48.7) 25.1
Unrecognized net experience gain ( 23.1) ( 28.1) ( 51.2)
Unrecognized prior service cost 9.7 66.8 76.5
Additional minimum liability - ( 4.3) ( 4.3)
Unamortized transition asset ( 32.8) ( 24.2) ( 57.0)
~~~~~~~~ ~~~~~~~~ ~~~~~~~~~~
Accrued pension asset (liability) $ 27.6 $( 38.5) $ ( 10.9)
~~~~~~~~ ~~~~~~~~ ~~~~~~~~~~
In 1993, the projected benefit obligation was determined using
weighted average discount rates ranging from 6.75 percent for the US
plans to 8 percent for the international plans and in 1992 rates
ranging from 8 percent to 9 percent, respectively. The assumed long-
term rates of compensation increase for salaried plans approximated
expected inflation in both 1993 and 1992. The long-term rates of
return on assets were assumed to be 9.25 percent in 1993 and 9.6
percent in 1992 for the US plans and 10 percent in 1993 and 11 percent
in 1992 for the international plans.
The Company has a non-qualified excess benefit plan that provides
certain employees with defined retirement benefits in excess of
qualified plan limits imposed by US tax law. In addition, the Company
has a supplementary life insurance plan that provides officers and
other key employees with term life protection during their active
employment and supplemental retirement benefits upon retirement. The
cost of these plans was $3.6 in 1993, $3.2 in 1992 and $2.7 in 1991.
At December 31, 1993 and 1992, the accrued pension liability for these
plans was $18.7 and $15.9, respectively.
In addition to the pension plans, the Company provides certain health
care and life insurance benefits to eligible retirees and their
dependents. The plans are contributory, with retirees' contributions
adjusted annually, and contain other cost-sharing features, such as
deductibles, coinsurance and spousal contributions. The general
policy is to fund these benefits as claims and premiums are incurred.
In 1992, Cummins adopted a new accounting rule for these benefits and
chose to recognize immediately the unfunded liability for prior
service. Prior to 1992, the cost of benefits for eligible retirees
and their dependents was included in costs as funded and totaled $13.6
in 1991.
Net Periodic Cost 1993 1992
~~~~~~~~~~~~~~~~~ ~~~~~~ ~~~~~~
Service cost for benefits earned during the year $ 5.7 $ 5.2
Interest cost on benefit obligation 29.5 29.7
Other (.1) -
~~~~~~~ ~~~~~~
Net periodic cost $ 35.1 $ 34.9
~~~~~~~ ~~~~~~
Funded Status
~~~~~~~~~~~~~
Actuarial present value of accumulated benefit
obligation for:
Retirees $210.0 $241.7
Employees eligible to retire 102.1 55.6
Other active plan participants 191.7 99.9
Unrecognized prior service cost (24.5) -
Unrecognized net experience loss (69.2) (1.9)
~~~~~~~ ~~~~~~~
Accrued benefit liability $410.1 $395.3
~~~~~~~ ~~~~~~~
The weighted average discount rate used in determining the accumulated
benefit obligation was 6.75 percent in 1993 and 8 percent in 1992.
The trend rate for medical benefits provided prior to Medicare
eligibility is 15.5 percent, grading down to an ultimate rate of 4.5
percent by 2006. For medical benefits provided after Medicare
eligibility, the trend rate is 8 percent, grading down to an ultimate
rate of 4.5 percent by 1997. The health care cost trend rate
assumption has a significant effect on the determination of the
accumulated benefit obligation. For example, increasing the rate by 1
percent would increase the accumulated benefit obligation by $29 and
net periodic cost by $2.
NOTE 12. EMPLOYEE STOCK PLANS: The Company has various stock
incentive plans under which officers and other eligible employees may
be awarded stock options, stock appreciation rights and restricted
stock during the next 10 years. Under the provisions of the plans, up
to 1 percent of the Company's outstanding shares of common stock on
December 31 of the preceding year is available for issuance under the
plans each year. At December 31, 1993, there were 439,820 shares of
common stock available for grant under the plans. There were 78,220
options exercisable under the plans at December 31, 1993.
Number of
Shares Option Price per Share
~~~~~~~~~ ~~~~~~~~~~~~~~~~~~~~~~
Outstanding options at 12/31/91 261,360 $15.94 to $38.91
Granted 4,900 $30.94 to $35.28
Exercised (67,260) $15.94 to $31.38
Canceled or expired ( 3,740) $20.88 to $30.72
~~~~~~~~
Outstanding options at 12/31/92 195,260 $15.94 to $38.91
Granted 456,150 $37.41 to $52.56
Exercised (123,740) $15.94 to $40.25
Canceled or expired ( 2,600) $24.20 to $31.63
~~~~~~~~~
Outstanding options at 12/31/93 525,070 $15.94 to $52.56
~~~~~~~~
NOTE 13. SHAREHOLDERS' RIGHTS PLAN: The Company has a Shareholders'
Rights Plan which it first adopted in 1986. The Rights Plan provides
that each share of the Company's common stock has associated with it a
stock purchase right. The Rights Plan becomes operative when a person
or entity acquires 15 percent of the Company's common stock or
commences a tender offer to purchase 20 percent or more of the
Company's common stock without the approval of the Company's Board of
Directors. In the event a person or entity acquires 15 percent of the
Company's common stock, each right, except for the acquiring person's
rights, can be exercised to purchase $400 worth of the Company's
common stock for $200. In addition, for a period of 10 days after
such acquisition, the Board of Directors can exchange such right for a
new right which permits the holders to purchase one share of the
Company's common stock for $1 per share. If a person or entity
commences a tender offer to purchase 20 percent or more of the
Company's common stock, unless the Board of Directors redeems the
rights within 10 days of the event, each right can be exercised to
purchase one share for $200. If the person or entity becomes an
acquiring person, the provisions noted above apply. The Rights Plan
also allows holders of the rights to purchase shares of the acquiring
person's stock at a discount if the Company is acquired or 50 percent
of the assets or earnings power of the Company is transferred to an
acquiring person.
NOTE 14. SEGMENTS OF THE BUSINESS: The Company operates in a single
industry segment -- designing, manufacturing and marketing diesel
engines and related products. Manufacturing, marketing and technical
operations are maintained in major areas of the world.
Summary financial information is listed below for each geographic
area. Earnings (loss) for each area may not be a meaningful
representation of each area's contribution to consolidated operating
results because of significant sales of products between and among the
Company's various domestic and foreign operations.
UK/ All Corp. Items &
US Europe Other Eliminations Combined
1993 ~~~~~~ ~~~~~~ ~~~~~ ~~~~~~~~~~~~ ~~~~~~~~
~~~~
Net sales:
To customers in the area $2,374 $590 $439 $ - $3,403
To customers outside the
area 589 251 5 - 845
Intergeographic transfers 317 149 84 (550) -
~~~~~~ ~~~~ ~~~~ ~~~~~~ ~~~~~~
Total $3,280 $990 $528 $(550) $4,248
~~~~~~ ~~~~ ~~~~ ~~~~~~ ~~~~~~
Earnings (loss) before
income taxes $ 140 $ 89 $ 19 $( 43) $ 205
~~~~~~ ~~~~ ~~~~ ~~~~~~ ~~~~~~
Identifiable assets $1,487 $407 $340 $ 157 $2,391
~~~~~~ ~~~~ ~~~~ ~~~~~~ ~~~~~~
1992
~~~~
Net sales:
To customers in the area $1,996 $616 $418 $ - $3,030
To customers outside the
area 508 209 2 - 719
Intergeographic transfers 273 129 69 (471) -
~~~~~~ ~~~~ ~~~~ ~~~~~~ ~~~~~~
Total $2,777 $954 $489 $(471) $3,749
~~~~~~ ~~~~ ~~~~ ~~~~~~ ~~~~~~
Earnings (loss) before
income taxes $ 32 $ 93 $ 5 $( 54) $ 76
~~~~~~ ~~~~ ~~~~ ~~~~~~ ~~~~~~
Identifiable assets $1,432 $404 $322 $ 72 $2,230
~~~~~~ ~~~~ ~~~~ ~~~~~~ ~~~~~~
1991
~~~~
Net sales:
To customers in the area $1,946 $568 $427 $ - $2,941
To customers outside the
area 276 188 1 - 465
Intergeographic transfers 250 117 80 (447) -
~~~~~~ ~~~~ ~~~~ ~~~~~~ ~~~~~~
Total $2,472 $873 $508 $(447) $3,406
~~~~~~ ~~~~ ~~~~ ~~~~~~ ~~~~~~
Earnings (loss) before
income taxes $ (74) $ 62 $ 21 $( 55) $ (46)
~~~~~~~ ~~~~ ~~~~ ~~~~~~ ~~~~~~~
Identifiable assets $1,148 $462 $322 $ 109 $2,041
~~~~~~~ ~~~~ ~~~~ ~~~~~~ ~~~~~~~
Total sales for each geographic area are classified by manufacturing
source and include sales to customers within and outside the area and
intergeographic transfers. Transfer prices for sales between the
Company's various operating units generally are at arm's length, based
upon business conditions, distribution costs and other costs which are
expected to be incurred in producing and marketing products.
Corporate items include interest and other income and expense.
Identifiable assets are those resources associated with the operations
in each area. Corporate assets are principally cash and investments.
The Company generally sells its products on open account under credit
terms customary to the region of distribution. The Company performs
ongoing credit evaluations of its customers and generally does not
require collateral to secure its customers' receivables.
Net Sales by Marketing Territory 1993 1992 1991
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ~~~~~~ ~~~~~~ ~~~~~~
United States $2,389 $2,016 $1,955
United Kingdom/Europe 600 629 582
Asia/Far East/Australia 559 455 340
Mexico/South America 330 355 290
Canada 257 187 161
Africa/Middle East 113 107 78
~~~~~~ ~~~~~~ ~~~~~~
Net sales $4,248 $3,749 $3,406
~~~~~~ ~~~~~~ ~~~~~~
NOTE 15. GUARANTEES, COMMITMENTS AND CONTINGENT LIABILITIES: In
connection with the disposition of certain products and operations in
1989, the Company sold substantially all of the loan and lease
portfolios of its former finance subsidiary. Under the terms of the
sale, the purchaser has recourse to Cummins should certain amounts of
the loans or leases prove to be uncollectible. At December 31, 1993,
the loan and lease portfolios amounted to $14.3. Accounts receivable
that have been sold with recourse amounted to $26.5 at December 31,
1993.
At December 31, 1993, the Company was a party to interest rate swap
agreements, maturing in 1994 and having an aggregate notional amount
of $12.0. The Company had $258.3 of foreign exchange contracts
outstanding at December 31, 1993. The foreign exchange contracts
mature through 1995 and are denominated primarily in UK sterling,
Japanese yen and European currencies. The Company had a currency swap
with a notional amount of $202.6 at December 31, 1993, which matures
in 1994. Commodity futures contracts of $5.2 were outstanding at
December 31, 1993. These contracts mature through 1995. At December
31, 1993, commitments under outstanding letters of credit, guarantees
and contingencies approximated $100.
Cummins and its subsidiaries are defendants in a number of pending
legal actions, including actions relating to use and performance of
the Company's products. The Company carries product liability
insurance covering significant claims for damages involving personal
injury and property damage. The Company also has been identified as a
potentially responsible party at several waste disposal sites under US
and related state environmental statutes and regulations. The Company
denies liability with respect to many of these legal actions and
environmental proceedings and vigorously is defending such actions or
proceedings. The Company has established reserves for its expected
future liability in such actions and proceedings when the nature and
extent of such liability can be estimated reasonably based upon
presently available information. In the event the Company is
determined to be liable for damages in connection with such actions
and proceedings, the unreserved and uninsured portion of such
liability is not expected to be material.
NOTE 16. QUARTERLY FINANCIAL DATA (unaudited):
First Second Third Fourth Full
1993 Quarter Quarter Quarter Quarter Year
~~~~ ~~~~~~~ ~~~~~~~ ~~~~~~~ ~~~~~~~ ~~~~~~~~
Net sales $1,048.4 $1,093.4 $988.3 $1,117.8 $4,247.9
Gross profit 251.0 260.6 239.4 285.9 1,036.9
Earnings before the
extraordinary item 41.1 48.2 40.7 52.6 182.6
Net earnings 41.1 48.2 40.7 47.1 177.1
Primary earnings per
common share:
Before the extra-
ordinary item $ 1.12 $ 1.32 $ 1.11 $ 1.42 $ 4.95
Net 1.12 1.32 1.11 1.26 4.79
Fully diluted earnings
per common share:
Before the extra-
ordinary item 1.07 1.25 1.06 1.36 4.77
Net 1.07 1.25 1.06 1.22 4.63
1992
~~~~
Net sales $ 881.3 $ 948.1 $903.6 $1,016.2 $3,749.2
Gross profit 190.4 211.7 202.7 237.7 842.5
Earnings before the
extraordinary item &
cumulative effect of
accounting changes 5.0 18.8 13.8 29.5 67.1
Net earnings (loss) (246.1) 18.8 13.8 24.0 (189.5)
Primary & fully
diluted earnings (loss)
per common share:
Before the extra-
ordinary item &
cumulative effect of
accounting changes $ .10 $ .50 $ .34 $ .79 $ 1.77
Net (8.33) .50 .34 .63 (6.01)
Net earnings in the third quarter of 1993 included a one-time tax
credit of $4.4 resulting from the OBRA. As disclosed in Note 7, net
earnings in the fourth quarter of 1993 and 1992 included extraordinary
charges of $5.5 related to early extinguishments of debt.
(page)
CUMMINS ENGINE COMPANY, INC., AND SUBSIDIARIES
SCHEDULE V
PROPERTY, PLANT AND EQUIPMENT
(Dollars in Million)
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Balance Retirements Balance
Jan. 1 Adds. or Sales Other Dec. 31
~~~~~~~~ ~~~~~~ ~~~~~~~~ ~~~~~~ ~~~~~~~~
1993
~~~~
Land and buildings $ 351.9 $ 8.3 $ 5.5 $ 3.2 $ 357.9
Machinery, equipment
and fixtures 1,680.7 46.4 109.5 72.3 1,689.9
Construction in progress 89.7 129.0 2.0 (84.0) 132.7
~~~~~~~~ ~~~~~~ ~~~~~~ ~~~~~~~ ~~~~~~~~
Total $2,122.3 $183.7 $117.0 $( 8.5) $2,180.5
~~~~~~~~ ~~~~~~ ~~~~~~ ~~~~~~~ ~~~~~~~~
1992
~~~~
Land and buildings $ 354.3 $ 1.4 $ .4 $( 3.4) $ 351.9
Machinery, equipment
and fixtures 1,666.8 38.4 56.9 32.4 1,680.7
Construction in progress 89.9 100.8 .4 (99.6) 89.7
~~~~~~~~ ~~~~~~ ~~~~~~ ~~~~~~~ ~~~~~~~~
Total $2,110.0 $140.6 $ 57.7 $(70.6) $2,122.3
~~~~~~~~ ~~~~~~ ~~~~~~ ~~~~~~~ ~~~~~~~~
1991
~~~~
Land and buildings $ 330.7 $ 19.5 $ 2.5 $ 6.6 $ 354.3
Machinery, equipment
and fixtures 1,588.9 34.1 44.9 88.7 1,666.8
Construction in progress 107.7 88.6 2.3 (105.1) 88.9
~~~~~~~~ ~~~~~~ ~~~~~~ ~~~~~~~~ ~~~~~~~~
Total $2,027.3 $142.2 $ 49.7 $( 9.8) $2,110.0
~~~~~~~~ ~~~~~~ ~~~~~~ ~~~~~~~ ~~~~~~~~
The net change in "Other" primarily represents translation adjustments per
SFAS No. 52.
(page)
CUMMINS ENGINE COMPANY, INC., AND SUBSIDIARIES
SCHEDULE VI
ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT
(Dollars in Millions)
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Balance Retirements Balance
Jan. 1 Adds. or Sales Other Dec. 31
~~~~~~~~ ~~~~~~ ~~~~~~~~ ~~~~~~ ~~~~~~~~
1993
~~~~
Buildings $ 156.8 $ 11.9 $ 2.5 $( 1.9) $ 164.3
Machinery, equipment
and fixtures 1,036.8 110.0 86.5 ( 2.3) 1,058.0
~~~~~~~~ ~~~~~~ ~~~~~~ ~~~~~~~ ~~~~~~~~
Total $1,193,6 $121.9 $ 89.0 $( 4.2) $1,222.3
~~~~~~~~ ~~~~~~ ~~~~~~ ~~~~~~~ ~~~~~~~~
1992
~~~~
Buildings $ 149.1 $ 11.9 $ .1 $( 4.1) $ 156.8
Machinery, equipment
and fixtures 1,007.9 108.5 52.2 (27.4) 1,036.8
~~~~~~~~ ~~~~~~ ~~~~~~ ~~~~~~~ ~~~~~~~~
Total $1,157.0 $120.4 $ 52.3 $(31.5) $1,193.6
~~~~~~~~ ~~~~~~ ~~~~~~ ~~~~~~~ ~~~~~~~~
1991
~~~~
Buildings $ 139.2 $ 11.7 $ 1.3 $( .5) $ 149.1
Machinery, equipment
and fixtures 966.9 113.3 42.0 ( 30.3) 1,007.9
~~~~~~~~ ~~~~~~ ~~~~~~ ~~~~~~~ ~~~~~~~~
Total $1,106.1 $125.0 $ 43.3 $(30.8) $1,157.0
~~~~~~~~ ~~~~~~ ~~~~~~ ~~~~~~~ ~~~~~~~~
The net change in "Other" primarily represents translation adjustments per
SFAS No. 52.
(page)
CUMMINS ENGINE COMPANY, INC., AND SUBSIDIARIES
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in Millions)
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
1993 1992 1991
~~~~ ~~~~ ~~~~
Allowance for Doubtful Accounts:
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Balance beginning of period $11.8 $14.4 $14.6
Additions:
Provisions 4.9 1.8 2.8
Recoveries and translation adjustments .1 (.1) .7
Deductions:
Write-offs 7.3 4.3 3.7
~~~~ ~~~~ ~~~~
Balance end of period $ 9.5 $11.8 $14.4
~~~~~ ~~~~~ ~~~~~
Tax Valuation Allowance:
~~~~~~~~~~~~~~~~~~~~~~~~
Balance beginning of period $124.4
Additions to offset increases in deferred
tax assets related to:
Tax benefit carryforwards recognized as
assets upon the initial January 1, 1992
adoption of SFAS No. 109 - $139.9
Additional general business tax credits
for 1992 and 1993 research tax credits
generated 14.1 -
Increase in the value of net operating
tax carryforwards as a result of the
OBRA tax rate increase 1.7 -
Reduction in the utilization of net
operating loss carryforwards due to
extraordinary charges for early
extinguishment of debt 1.9 1.9
Deductions to reflect reductions in
deferred tax assets related to actual
utilization of tax benefit carryforwards (41.5) (17.4)
Other .1 -
~~~~~~ ~~~~~~
$100.7 $124.4
~~~~~~ ~~~~~~
(page)
CUMMINS ENGINE COMPANY, INC., AND SUBSIDIARIES
SCHEDULE IX
SHORT-TERM BORROWINGS
(Dollars in Millions)
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
At Year-end During the Year
~~~~~~~~~~~~~~~~~~~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Average Average
Interest Maximum Average Interest
Borrowed Rate Outstanding Outstanding Rate
~~~~~~~~ ~~~~~~~~ ~~~~~~~~~~~ ~~~~~~~~~~~ ~~~~~~~~
1993
~~~~
Domestic $ - - $40.0 $25.9 4.0%
Foreign 13.4 18.4% 42.2 11.6 11.5%
~~~~~ ~~~~~ ~~~~~
Total $13.4 $82.2 $37.5
~~~~~ ~~~~~ ~~~~~
1992
~~~~
Domestic $40.0 4.8% $61.0 $38.9 4.4%
Foreign 10.5 11.9% 12.5 17.7 13.0%
~~~~~ ~~~~~ ~~~~~
Total $50.5 $73.5 $56.6
~~~~~ ~~~~~ ~~~~~
1991
~~~~
Domestic $10.0 6.4% $35.3 $26.6 6.5%
Foreign 11.3 12.3% 17.7 15.0 12.7%
~~~~~ ~~~~~ ~~~~~
Total $21.3 $53.0 $41.6
~~~~~ ~~~~~ ~~~~~
Average outstanding borrowings during the year were calculated for
each entity based on the sum of daily outstanding balances divided by
365 days, or using the average monthly balances.
Average interest rates during the year were calculated by dividing
related interest expense for the year by average outstanding
borrowings.
Short-term borrowings are payable to banks and include amounts
outstanding under various formal and informal credit arrangements
including certain amounts where related interest rates are subsidized
to promote trade exports. The Company also maintains a $300 revolving
credit agreement available for short- and/or long-term borrowings with
banks. At December 31, 1993, there were no outstanding borrowings
under this agreement. At December 31, 1992, the Company had $40.0
outstanding short-term borrowings and $50.0 outstanding long-term
borrowings under this agreement. At December 31, 1991, the Company
had $20.0 of outstanding long-term borrowings under this agreement.
(page)
CUMMINS ENGINE COMPANY, INC., AND SUBSIDIARIES
SCHEDULE X
SUPPLEMENTARY INCOME STATEMENT INFORMATION
(Dollars in Millions)
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
1993 1992 1991
~~~~~~ ~~~~~~ ~~~~~~
Maintenance and repairs $145.0 $125.1 $118.7
Depreciation & amortization
of intangibles $125.1 $122.5 $127.2
(page)
SIGNATURES
~~~~~~~~~~
Pursuant to the requirements of Section 13 or 15(d) of the Securities
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/Peter B. Hamilton By /s/John McLachlan
~~~~~~~~~~~~~~~~~~~~ ~~~~~~~~~~~~~~~~~
P. B. Hamilton J. McLachlan
Vice President & Chief Vice President - Corporate
Financial Officer Controller (Principal
(Principal Financial Accounting Officer)
Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
Signatures Title Date
~~~~~~~~~~ ~~~~~ ~~~~
Director & Chairman of the Board 3/4/94
* of Directors & Chief Executive
~~~~~~~~~~~~~~~~~~~~~ Officer (Principal Executive Officer)
(H. B. Schacht)
* Director and President & Chief 3/4/94
~~~~~~~~~~~~~~~~~~~~~ Operating Officer
(J. A. Henderson)
* 3/4/94
~~~~~~~~~~~~~~~~~~~~~ Director
(H. Brown)
*
~~~~~~~~~~~~~~~~~~~~~ Director 3/4/94
(R. J. Darnall)
*
~~~~~~~~~~~~~~~~~~~~~ Director 3/4/94
(J. D. Donaldson)
*
~~~~~~~~~~~~~~~~~~~~~ Director 2/24/94
(W. Y. Elisha)
*
~~~~~~~~~~~~~~~~~~~~~ Director 2/22/94
(H. H. Gray)
~~~~~~~~~~~~~~~~~~~~~ Director
(D. G. Mead)
*
~~~~~~~~~~~~~~~~~~~~~ Director 3/4/94
(J. I. Miller)
*
~~~~~~~~~~~~~~~~~~~~~ Director 2/22/94
(W. I. Miller)
*
~~~~~~~~~~~~~~~~~~~~~ Director 3/4/94
(D. S. Perkins)
~~~~~~~~~~~~~~~~~~~~~ Director
(W. D. Ruckelshaus)
*
~~~~~~~~~~~~~~~~~~~~~ Director 2/22/94
(F. A. Thomas)
* 3/4/94
~~~~~~~~~~~~~~~~~~~~~ Director
(J. L. Wilson)
By /s/Steven L. Zeller
~~~~~~~~~~~~~~~~~~~
Steven L. Zeller
Attorney-in-fact
(page)
CUMMINS ENGINE COMPANY, INC., AND SUBSIDIARIES
EXHIBIT INDEX
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
3(a) Restated Articles of Incorporation of Cummins Engine Company,
Inc., as amended (incorporated 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 16, 1990).
3(b) By-laws, as amended and restated, of the Company (incorporated
by reference to Annual Report on Form 10-K for the year ended
December 31, 1988 and by reference to Quarterly Report on Form
10-Q for the quarter ended April 2, 1980).
4(b) Revolving Credit Agreement dated as of June 4, 1993, among
Cummins Engine Company, Inc., certain banks, Chemical Bank as
Administrative Agent and Morgan Guaranty Trust Company of New
York as Co-Agent (incorporated by reference to Quarterly
Report on Form 10-Q for the quarter ended July 4, 1993).
4(c) Rights Agreement, as amended (incorporated by reference to
Annual Report on Form 10-K for the year ended December 31,
1989, by reference to Form 8-K, dated July 26, 1990, by
reference to Form 8, dated November 6, 1990, by reference to
Form 8-A12B/A, dated November 1, 1993, and by reference to
Form 8-A12B/A, dated January 12, 1994).
10(a) Target Bonus Plan (incorporated by reference to Annual Report
on Form 10-K for the year ended December 31, 1992).
10(b) Five-Year Performance Plan, as amended (incorporated by
reference to Annual Report on Form 10-K for the year ended
December 31, 1988).
10(c) Key Employee Stock Investment Plan, as amended (incorporated
by reference to Annual Report on Form 10-K for the year ended
December 31, 1988).
10(d) Supplemental Life Insurance and Deferred Income Program, as
amended (incorporated by reference to Annual Report on Form
10-K for the year ended December 31, 1988).
10(e) Financial Counseling Program, as amended (incorporated by
reference to Annual Report on Form 10-K for the year ended
December 31, 1983).
10(f) 1986 Stock Option Plan (incorporated by reference to Quarterly
Report on Form 10-Q for the quarter ended March 30, 1986).
10(g) Deferred Compensation Plan for Non-Employee Directors, as
amended (incorporated by reference to Annual Report on Form
10-K for the year ended December 31, 1988).
10(h) Key Executive Compensation Protection Plan (incorporated by
reference to Annual Report on Form 10-K for the year ended
December 31, 1988).
10(i) Excess Benefit Retirement Plan, as amended (incorporated by
reference to Annual Report on Form 10-K for the year ended
December 31, 1988).
10(j) Performance Share Plan, as amended (incorporated by reference
to Annual Report on Form 10-K for the year ended December 31,
1988).
10(k) Restated Sponsors Agreement between Case Corporation and
Cummins Engine Company, Inc., dated December 7, 1990, together
with the Restated Partnership Agreement between Case Engine
Holding Company, Inc., and Cummins Engine Holding Company,
Inc., dated December 7, 1990 (incorporated by reference to
Annual Report on Form 10-K for the year ended December 31,
1990).
10(l) Retirement Plan for Non-Employee Directors of Cummins Engine
Company, Inc., (incorporated by reference to Annual Report on
Form 10-K for the year ended December 31, 1989).
10(m) Stock Unit Appreciation Plan (incorporated by reference to
Annual Report on Form 10-K for the year ended December 31,
1990).
10(n) Investment Agreement between Ford Motor Company and Cummins
Engine Company, Inc., dated July 16, 1990 (incorporated by
reference to Form 8-K, dated July 26, 1990).
10(o) Investment Agreement between Tenneco Inc., and Cummins Engine
Company, Inc., dated July 16, 1990 (incorporated by reference
to Form 8-K, dated July 26, 1990).
10(p) Investment Agreement between Kubota Corporation and Cummins
Engine Company, Inc., dated July 16, 1990 (incorporated by
reference to Form 8-K, dated July 26, 1990).
10(q) Three Year Performance Plan (incorporated by reference to
Annual Report on Form 10-K for the year ended December 31,
1992).
10(r) Consulting Arrangement with Harold Brown (incorporated by
reference to the description thereof provided in the Company's
definitive Proxy Statement, dated March 4, 1994).
10(s) 1992 Stock Incentive Plan (incorporated by reference to
Quarterly Report on Form 10-Q for the quarter ended April 4,
1993).
11 Schedule of Computation of Per Share Earnings for each of the
three years ended December 31, 1993 (filed herewith).
21 Subsidiaries of the Registrant (filed herewith).
23 Consent of Arthur Andersen & Co. (filed herewith).
24 Powers of Attorney (filed herewith).
EXHIBIT 11
CUMMINS ENGINE COMPANY, INC., AND SUBSIDIARIES
SCHEDULE OF COMPUTATION OF PER SHARE EARNINGS FOR EACH OF THE THREE
YEARS ENDED DECEMBER 31, 1993
(Millions, except per share data)
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Weighted Net
Average Earnings Calculated
Shares (Loss) Per Share
~~~~~~~~ ~~~~~~~~ ~~~~~~~~~~
1993
~~~~
Earnings available for common stock
shareholders 34.9 $ 169.1 $ 4.85
Options .4 -
~~~~ ~~~~~~~
Primary earnings per common share 35.3 169.1 $ 4.79
Convertible preference stock 3.0 8.0
~~~~ ~~~~~~~
Fully diluted earnings per common share 38.3 $ 177.1 $ 4.63
~~~~ ~~~~~~~
1992
~~~~
Earnings (loss) available for common
stock shareholders 32.9 $(197.5) $(6.01)
Options .4 -
~~~~ ~~~~~~~~
Primary earnings (loss) per common share 33.3 $(197.5) $(5.92)
Convertible preference stock 3.0 8.0
LYONs 1.1 3.3
Other - ( .4)
~~~~ ~~~~~~~~
Fully diluted earnings (loss) per common
share 37.4 $(186.6) $(4.99)
~~~~ ~~~~~~~~
1991
~~~~
Earnings (loss) available for common
stock shareholders 29.7 $( 22.1) $( .75)
Options .3 -
~~~~ ~~~~~~~~
Primary earnings (loss) per common share 30.0 (22.1) $( .74)
Convertible preference stock 3.0 8.0
LYONs 1.1 3.0
~~~~ ~~~~~~~~
Fully diluted earnings (loss) per common
share 34.1 $( 11.1) $( .32)
~~~~ ~~~~~~~~
EXHIBIT 21
CUMMINS ENGINE COMPANY, INC., AND SUBSIDIARIES
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUBSIDIARIES OF THE REGISTRANT
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
State or Country of
Subsidiary/Joint Venture Incorporation
~~~~~~~~~~~~~~~~~~~~~~~~ ~~~~~~~~~~~~~~~~~~~
All Components Engineering Ltd. United Kingdom
Atlas Crankshaft Corporation d/b/a Atlas Inc. Ohio
Autofield Engineers Private Limited India
Behr America Holding, Inc. Delaware
Behr of America, Inc. New Jersey
Cadec Systems, Inc. Indiana
Cal Disposition, Inc. California
C. E. Sonora S.A. de C.V. Mexico
C. G. Newage Electrical, Ltd. India
CNE S/A Industrial Brazil
Combustion Technologies, Inc. Indiana
Consolidated Diesel Company North Carolina
Consolidated Diesel, Inc. Delaware
Consolidated Diesel of North Carolina, Inc. North Carolina
Cummins Americas, Inc. Indiana
Cummins Australia Pty. Limited Australia
Cummins Brasil S.A. Ltda. Brazil
Cummins Corporation Indiana
Cummins de Colombia S.A. Colombia
Cummins Diesel Deutschland GmbH Germany
Cummins Diesel Export Limited Barbados
Cummins Diesel of Canada Limited Canada
Cummins Diesel International Limited Barbados
Cummins Diesel Italia S.P.A. Italy
Cummins Diesel Japan Ltd. Japan
Cummins Diesel N.V. Belgium
Cummins Diesel Sales Corporation Indiana
Cummins Diesel Sales Corporation d/b/a
Cummins On-time Assemblies Michigan
Cummins Diesel Sales & Service (India) Limited India
Cummins Electronics Company, Inc. Indiana
Cummins Engine Company Limited United Kingdom
Cummins Engine H.K. Limited Hong Kong
Cummins Engine Holding Company, Inc. Indiana
Cummins Engine (Singapore) PTE LTD. Singapore
Cummins Engine Venture Corporation Indiana
Cummins Financial, Inc. Delaware
Cummins Great Lakes, Inc. Indiana
Cummins International Finance Corporation Delaware
Cummins KH-12, Inc. Delaware
Cummins Komatsu Engine Company Indiana
Cummins Korea, Ltd. South Korea
Cummins Mexicana, S.A. de C.V. Mexico
Cummins Military Systems Company Indiana
Cummins Natural Gas Engines, Inc. Delaware
Cummins Nordeste, S.A. Brazil
Cummins Power Generation, Inc. Indiana
Cummins Professional Training Center, Inc. Delaware
Cummins Research Limited Partnership United States
Cummins S.A. de C.V. Mexico
Cummins U.K. Limited United Kingdom
Cummins Venture Corporation Delaware
CUMZIN Pvt Ltd. Zimbabwe
Dampers Iberica, S.A. Spain
Dampers, S.A. France
Diesel ReCon Industria e Commercio Ltda. Brazil
Diesel ReCon de Mexico, S.A. de C.V. Mexico
Dunlite Power Generation Pty. Ltd. Australia
Empresas Cummins S.A. de C.V. Mexico
Enceratec, Inc. Maryland
Fleetguard Commercial S.A. de C.V. Mexico
Fleetguard Filteration Systems, India
Private Limited India
Fleetguard GmbH Germany
Fleetguard, Inc. Indiana
Fleetguard International Corporation Indiana
Fleetguard Korea Ltd. South Korea
Fleetguard Mexico S.A. de C.V. Mexico
Hodek Engineering Ltd. India
Holset Brasil Equipamentos Automotives Ltda. Brazil
Holset Engineering Company, Inc. Indiana
Holset Engineering Company Limited United Kingdom
Holset Korea Ltd. Korea
HPI Company Indiana
Hyperbar USA, Inc. Indiana
Industria e Comercio Cummins Ltda. Brazil
Integrated Distribution Systems, Inc. Delaware
J. A. Faguy & Sons Ltd. Canada
J. L. Holdings Ltd. United Kingdom
Kam Dizel Russia
Kirloskar Cummins Limited India
Komatsu Cummins Engine Co., Ltd. Japan
Kompressorenban Bannewitz GmbH Germany
Kuss Corporation Ohio
Lubricant Consultants, Inc. New Jersey
Markon Engineering Company Ltd. United Kingdom
McCord Heat Transfer, Inc. Delaware
MHTC Corporation Delaware
Motores Cummins Diesel do Brazil, Ltda. Brazil
Newage Engineers Ltd. United Kingdom
Newage Engineers Pty Ltd. Australia
Newage Equipment Ltd. Canada
Newage (Far East) Pte Ltd. Singapore
Newage GmbH Germany
Newage Holdings Ltd. United Kingdom
Newage International Limited United Kingdom
Newage Italia Srl Italy
Newage Ltd. United Kingdom
Newage Ltd. Pennsylvania
Newage Machine Tools United Kingdom
Newage Norge Norway
NWMW, Inc. California
Ona Corporation Alabama
Onan Canada Limited Canada
Onan Corporation Delaware
Onan Corporation d/b/a Onan Indiana Delaware
Onan Far East Limited Hong Kong
Onan Far East Pte. Ltd. Singapore
Onan Foreign Holdings, Ltd. Delaware
Onan FSC Ltd. Jamaica
Onan International B.V. Netherlands
Onan International Limited United Kingdom
Pacific World Trade, Inc. Indiana
Park Avenue Limited Partnership United States
Poona Couplings, Ltd. India
PT Newage Engineers Indonesia Indonesia
Stamford Iberica Spain
Techniparts S.A. France
Turbo Europa, B.V. Holland
Williams Equine Products, Inc. California
124747 Canada Limited Canada
14-15 Corporation Nevada
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
As independent public accountants, we hereby consent to the
incorporation of our report dated January 26, 1994 covering the
audited financial statements and related schedules of Cummins Engine
Company, Inc., for the year ended December 31, 1993, included in this
Form 10-K, into the Company's previously filed Registration Statement
File Nos. 2-32091, 2-53247, 2-58696, 33-2161, 33-8842, 33-31095,
33-37690, 33-46096, 33-46097, 33-46098 and 33-50665.
ARTHUR ANDERSEN & CO.
Chicago, Illinois
January 26, 1994
EXHIBIT 24
CUMMINS ENGINE COMPANY, INC., AND SUBSIDIARIES
POWER OF ATTORNEY
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints Steven L. Zeller and Peter B. Hamilton and
each of them, with full power to act without the other as his true and
lawful attorney-in-fact and agent, with full and several powers of
substitution and resubstitution for him in his name, place and stead,
in any and all capacities, to sign the Annual Report on Form 10-K of
Cummins Engine Company, Inc. ("the Company") for the Company's fiscal
year ended December 31, 1993 and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Dated: March 4, 1994
/s/H. B. Schacht
~~~~~~~~~~~~~~~~~~~~~~~~~~
Henry B. Schacht
Director & Chief Executive
Officer
(page)
CUMMINS ENGINE COMPANY, INC., AND SUBSIDIARIES
POWER OF ATTORNEY
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints Steven L. Zeller and Peter B. Hamilton and
each of them, with full power to act without the other as his true and
lawful attorney-in-fact and agent, with full and several powers of
substitution and resubstitution for him in his name, place and stead,
in any and all capacities, to sign the Annual Report on Form 10-K of
Cummins Engine Company, Inc. ("the Company") for the Company's fiscal
year ended December 31, 1993 and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Dated: March 4, 1994
/s/James A. Henderson
~~~~~~~~~~~~~~~~~~~~~~~~~~
James A. Henderson
Director & Chief Operating
Officer
(page)
CUMMINS ENGINE COMPANY, INC., AND SUBSIDIARIES
POWER OF ATTORNEY
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints Steven L. Zeller and Peter B. Hamilton and
each of them, with full power to act without the other as his true and
lawful attorney-in-fact and agent, with full and several powers of
substitution and resubstitution for him in his name, place and stead,
in any and all capacities, to sign the Annual Report on Form 10-K of
Cummins Engine Company, Inc. ("the Company") for the Company's fiscal
year ended December 31, 1993 and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Dated: March 4, 1994
/s/Harold Brown
~~~~~~~~~~~~~~~
Harold Brown
Director
(page)
CUMMINS ENGINE COMPANY, INC., AND SUBSIDIARIES
POWER OF ATTORNEY
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints Steven L. Zeller and Peter B. Hamilton and
each of them, with full power to act without the other as his true and
lawful attorney-in-fact and agent, with full and several powers of
substitution and resubstitution for him in his name, place and stead,
in any and all capacities, to sign the Annual Report on Form 10-K of
Cummins Engine Company, Inc. ("the Company") for the Company's fiscal
year ended December 31, 1993 and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Dated: March 4, 1994
/s/Robert J. Darnall
~~~~~~~~~~~~~~~~~~~~
Robert J. Darnall
Director
(page)
CUMMINS ENGINE COMPANY, INC., AND SUBSIDIARIES
POWER OF ATTORNEY
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints Steven L. Zeller and Peter B. Hamilton and
each of them, with full power to act without the other as his true and
lawful attorney-in-fact and agent, with full and several powers of
substitution and resubstitution for him in his name, place and stead,
in any and all capacities, to sign the Annual Report on Form 10-K of
Cummins Engine Company, Inc. ("the Company") for the Company's fiscal
year ended December 31, 1993 and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Dated: March 4, 1994
/s/James D. Donaldson
~~~~~~~~~~~~~~~~~~~~~
James D. Donaldson
Director
(page)
CUMMINS ENGINE COMPANY, INC., AND SUBSIDIARIES
POWER OF ATTORNEY
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints Steven L. Zeller and Peter B. Hamilton and
each of them, with full power to act without the other as his true and
lawful attorney-in-fact and agent, with full and several powers of
substitution and resubstitution for him in his name, place and stead,
in any and all capacities, to sign the Annual Report on Form 10-K of
Cummins Engine Company, Inc. ("the Company") for the Company's fiscal
year ended December 31, 1993 and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Dated: February 24, 1994
/s/W. Y. Elisha
~~~~~~~~~~~~~~~~
Walter Y. Elisha
Director
(page)
CUMMINS ENGINE COMPANY, INC., AND SUBSIDIARIES
POWER OF ATTORNEY
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints Steven L. Zeller and Peter B. Hamilton and
each of them, with full power to act without the other as his true and
lawful attorney-in-fact and agent, with full and several powers of
substitution and resubstitution for him in his name, place and stead,
in any and all capacities, to sign the Annual Report on Form 10-K of
Cummins Engine Company, Inc. ("the Company") for the Company's fiscal
year ended December 31, 1993 and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Dated: February 22, 1994
/s/Hanna H. Gray
~~~~~~~~~~~~~~~~
Hanna H. Gray
Director
(page)
CUMMINS ENGINE COMPANY, INC., AND SUBSIDIARIES
POWER OF ATTORNEY
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints Steven L. Zeller and Peter B. Hamilton and
each of them, with full power to act without the other as his true and
lawful attorney-in-fact and agent, with full and several powers of
substitution and resubstitution for him in his name, place and stead,
in any and all capacities, to sign the Annual Report on Form 10-K of
Cummins Engine Company, Inc. ("the Company") for the Company's fiscal
year ended December 31, 1993 and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Dated: March 4, 1994
/s/J. Irwin Miller
~~~~~~~~~~~~~~~~~~
J. Irwin Miller
Director
(page)
CUMMINS ENGINE COMPANY, INC., AND SUBSIDIARIES
POWER OF ATTORNEY
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints Steven L. Zeller and Peter B. Hamilton and
each of them, with full power to act without the other as his true and
lawful attorney-in-fact and agent, with full and several powers of
substitution and resubstitution for him in his name, place and stead,
in any and all capacities, to sign the Annual Report on Form 10-K of
Cummins Engine Company, Inc. ("the Company") for the Company's fiscal
year ended December 31, 1993 and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Dated: February 22, 1994
/s/William I. Miller
~~~~~~~~~~~~~~~~~~~~
William I. Miller
Director
(page)
CUMMINS ENGINE COMPANY, INC., AND SUBSIDIARIES
POWER OF ATTORNEY
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints Steven L. Zeller and Peter B. Hamilton and
each of them, with full power to act without the other as his true and
lawful attorney-in-fact and agent, with full and several powers of
substitution and resubstitution for him in his name, place and stead,
in any and all capacities, to sign the Annual Report on Form 10-K of
Cummins Engine Company, Inc. ("the Company") for the Company's fiscal
year ended December 31, 1993 and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Dated: March 4, 1994
/s/Donald S. Perkins
~~~~~~~~~~~~~~~~~~~~
Donald S. Perkins
Director
(page)
CUMMINS ENGINE COMPANY, INC., AND SUBSIDIARIES
POWER OF ATTORNEY
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints Steven L. Zeller and Peter B. Hamilton and
each of them, with full power to act without the other as his true and
lawful attorney-in-fact and agent, with full and several powers of
substitution and resubstitution for him in his name, place and stead,
in any and all capacities, to sign the Annual Report on Form 10-K of
Cummins Engine Company, Inc. ("the Company") for the Company's fiscal
year ended December 31, 1993 and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Dated: February 22, 1994
/s/F. A. Thomas
~~~~~~~~~~~~~~~~~~~~~
Franklin A. Thomas
Director
(page)
CUMMINS ENGINE COMPANY, INC., AND SUBSIDIARIES
POWER OF ATTORNEY
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints Steven L. Zeller and Peter B. Hamilton and
each of them, with full power to act without the other as his true and
lawful attorney-in-fact and agent, with full and several powers of
substitution and resubstitution for him in his name, place and stead,
in any and all capacities, to sign the Annual Report on Form 10-K of
Cummins Engine Company, Inc. ("the Company") for the Company's fiscal
year ended December 31, 1993 and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Dated: March 4, 1994
/s/J. Lawrence Wilson
~~~~~~~~~~~~~~~~~~~~~
J. Lawrence Wilson
Director
