UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
CUMMINS ENGINE COMPANY, INC.
____________________________
For the Quarter Ended October 1, 1995 Commission File Number 1-4949
_______________ ______
Indiana 35-0257090
_______ __________
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
500 Jackson Street, Box 3005
____________________________
Columbus, Indiana 47202-3005
_________________ __________
(Address of Principal Executive Offices) (Zip Code)
812-377-5000
____________
Registrant's Telephone Number
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the proceeding 12 months and (2) has been
subject to such filing requirements for the past 90 days:
Yes [x]
No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date:
As of October 1, 1995, the number of shares outstanding of the
registrant's only class of common stock was 40.1 million.
<PAGE>
TABLE OF CONTENTS
_________________
Page No.
________
PART I. FINANCIAL INFORMATION
______________________________
Item 1. Financial Statements
Consolidated Statement of Earnings for the Third 3
Quarter and Nine Months Ended October 1, 1995 and
October 2, 1994
Consolidated Statement of Financial Position at 4
October 1, 1995 and December 31, 1994
Consolidated Statement of Cash Flows for the Nine 5
Months Ended October 1, 1995 and October 2, 1994
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Results of 7
Operations, Cash Flow and Financial Condition
PART II. OTHER INFORMATION
___________________________
Item 6. Exhibits and Reports on Form 8-K 11
Index to Exhibits 12
<PAGE>
CUMMINS ENGINE COMPANY, INC.
CONSOLIDATED STATEMENT OF EARNINGS
FOR THE THIRD QUARTER AND NINE MONTHS ENDED
OCTOBER 1, 1995 AND OCTOBER 2, 1994
___________________________________________
Unaudited
_________
Third Quarter Nine Months
Millions, Except per Share Amounts 1995 1994 1995 1994
__________________________________ ______ ______ ______ ______
Net sales $1,219 $1,156 $3,914 $3,460
Cost of goods sold 943 861 2,955 2,597
______ ______ ______ ______
Gross profit 276 295 959 863
Selling & administrative expenses 154 162 518 471
Research & engineering expenses 62 60 195 170
Interest expense 3 5 10 14
Other expense (income), net 2 (4) 4 (4)
______ ______ ______ ______
Earnings before income taxes 55 72 232 212
Provision for income taxes 9 10 50 29
______ ______ _______ _______
Net earnings $ 46 $ 62 $ 182 $ 183
______ ______ _______ _______
______ ______ _______ _______
Earnings per share $ 1.14 $ 1.48 $ 4.47 $ 4.43
Cash dividends declared per share .25 .125 .75 .375
<PAGE>
CUMMINS ENGINE COMPANY, INC.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
____________________________________________
Unaudited
_________
Millions, Except per Share Amounts 10/1/95 12/31/94
__________________________________ _______ ________
Assets
Current assets:
Cash and cash equivalents $ 77 $ 147
Accounts and notes receivable 579 504
Inventories 569 515
Other current assets 138 132
______ ______
1,363 1,298
Investments and other assets 255 190
Property, plant and equipment less accumulated
depreciation of $1,351 & $1,279 1,123 1,090
Intangibles, deferred taxes and deferred charges 137 128
______ ______
Total assets $2,878 $2,706
______ ______
______ ______
Liabilities and shareholders' investment
Current liabilities:
Loans payable $ 82 $ 41
Current maturities of long-term debt 38 37
Accounts payable 296 322
Other current liabilities 504 440
______ ______
920 840
______ ______
Long-term debt 148 155
______ ______
Other liabilities 651 639
______ ______
Shareholders' investment:
Common stock, $2.50 par value, 43.8 shares issued 109 109
Additional contributed capital 923 927
Retained earnings 384 232
Common stock in treasury,at cost,3.7 & 2.2 shares (135) (72)
Unearned ESOP compensation ( 51) (55)
Cumulative translation adjustments ( 71) (69)
______ ______
1,159 1,072
______ ______
Total liabilities & shareholders' investment $2,878 $2,706
______ ______
______ ______
<PAGE>
CUMMINS ENGINE COMPANY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
___________________________________
Unaudited
_________
Nine Months Ended
Millions 10/1/95 10/2/94
________ _______ _______
Cash flows from operating activities:
Net earnings $ 182 $ 183
_____ _____
Adjustments to reconcile net earnings to
net cash from operating activities:
Depreciation and amortization 106 96
Accounts receivable ( 74) ( 59)
Inventories ( 49) ( 93)
Accounts payable and accrued expenses 31 97
Other 10 10
_____ _____
Total adjustments 24 51
_____ _____
Net cash provided by operating activities 206 234
_____ _____
Cash flows from investing activities:
Property, plant and equipment:
Additions (130) (131)
Disposals 3 5
Investments in and advances to affiliates
and unconsolidated companies ( 85) ( 16)
Other ( 1) -
______ ______
Net cash used for investing activities (213) (142)
______ ______
Net cash flows from operating and
investing activities ( 7) 92
______ _____
Cash flows from financing activities:
Payments on borrowings ( 8) ( 8)
Net borrowings under credit agreements 42 24
Dividend payments ( 30) ( 16)
Repurchase of common stock ( 69) -
Other 1 ( 3)
______ ______
Net cash used for financing activities ( 64) ( 3)
______ ______
Effect of exchange rate changes on cash 1 2
______ _____
Net change in cash and cash equivalents ( 70) 91
Cash & cash equivalents at beginning of year 147 77
_____ _____
Cash & cash equivalents at the end of quarter $ 77 $ 168
_____ _____
_____ _____
<PAGE>
CUMMINS ENGINE COMPANY, INC.
____________________________
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
__________________________________________
Unaudited
_________
Note 1. Accounting Policies: The Consolidated Financial Statements for
the interim periods ended October 1, 1995 and October 2, 1994 have been
prepared in accordance with the accounting policies described in the
Company's Annual Report to Shareholders and Form 10-K. Management
believes the statements include all adjustments of a normal recurring
nature necessary to present fairly the results of operations for the
interim periods. Inventory values at interim reporting dates are based
upon estimates of the annual adjustments for taking physical inventory and
for the change in cost of LIFO inventories.
Note 2. Income Taxes: Income tax expense is reported during the
interim reporting periods on the basis of the estimated annual effective
tax rate for the taxable jurisdictions in which the Company operates.
In the first nine months of both 1995 and 1994, the Company recognized
approximately $31 million and $32 million, respectively, related to a
reduction in its valuation allowance for tax benefit carryforwards.
Note 3. Stock Repurchase Program: In October 1994, the Board of
Directors authorized repurchase by the Company of up to 2,500,000 shares
of its common stock. During the first nine months of 1995, the Company
repurchased on the open market 1,575,400 shares at an aggregate purchase
price of $69 million, or average price of $43.57 per share. The Company
repurchased 103,100 shares at an aggregate purchase price of $4 million,
or average price of $42.47 per share, in 1994.
Note 4. Earnings per Share: Earnings per share of common stock are
computed by dividing net earnings by the weighted-average number of common
shares outstanding during the period. The weighted-average number of
shares, which includes the exercise of certain stock options granted to
employees, was 40.4 million in the third quarter of 1995 and 40.8 million
in the first nine months of 1995. The weighted-average number of shares
was 41.7 million in the third quarter of 1994 and 41.3 million in the
first nine months of 1994.
<PAGE>
CUMMINS ENGINE COMPANY, INC.
____________________________
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS,
CASH FLOW AND FINANCIAL CONDITION
______________________________________________________________
OVERVIEW
________
The Company's net sales of $1.2 billion in the third quarter of
1995 were $63 million, or 5 percent, higher than the third quarter of
1994. In the first nine months of 1995, the Company's net sales were $3.9
billion, compared to $3.5 billion in the first nine months of 1994.
The Company shipped 256,900 engines in the first nine months of 1995, a 14-
percent increase over the first nine months of 1994.
Third Quarter Nine Months
1995 1994 1995 1994
______ ______ _______ _______
Midrange engines 49,000 46,900 167,500 144,500
Heavy-duty engines 25,000 24,500 82,400 73,400
High-horsepower engines 2,300 2,100 7,000 6,600
______ ______ _______ _______
Total engine shipments 76,300 73,500 256,900 224,500
______ ______ _______ _______
______ ______ _______ _______
The Company's net earnings were $46 million, or $1.14 per share, in the
third quarter of 1995, compared to $62 million, or $1.48 per share, in the
third quarter of 1994. For the first nine months of 1995, net earnings
were $182 million, or $4.47 per share, compared to $183 million, or $4.43
per share, in the first nine months of 1994.
Although sales exceeded the 1994 level, the Company's operating results
were affected adversely by several factors, including increased product
costs, higher discounting in the North American heavy-duty truck market,
costs to close a facility in California and lower parts sales. The
Company also experienced a reduction in sales of engines for North
American heavy-duty trucks that is continuing into the fourth quarter. On
October 30, the Company announced that it will take cost-reduction actions
in the fourth quarter to improve long-term operating performance and
respond to declining North American heavy-duty truck engine demand. The
Company is evaluating the consolidation and disposal of certain assets and
plans to reduce its worldwide work force by approximately 2,000 people.
The Company expects to incur a charge in the fourth quarter for these
actions. The amount of the charge will depend upon the specific decisions
made by the Company.
RESULTS OF OPERATIONS
_____________________
The percentage relationships between net sales and other elements of
the Company's Consolidated Statement of Earnings for the comparative
reporting periods were:
Third Quarter Nine Months
Percent of Net Sales 1995 1994 1995 1994
____________________ _____ _____ _____ _____
Net sales 100.0 100.0 100.0 100.0
Cost of goods sold 77.4 74.5 75.5 75.1
_____ _____ _____ _____
Gross profit 22.6 25.5 24.5 24.9
Selling and administrative expenses 12.6 14.0 13.2 13.6
Research and engineering expenses 5.1 5.1 5.0 4.9
Interest expense .2 .4 .3 .4
Other expense (income), net .2 (.2) .1 (.1)
______ _____ ______ _____
Earnings before income taxes 4.5 6.2 5.9 6.1
Provision for income taxes .7 .8 1.3 .8
_____ _____ _____ _____
Net earnings 3.8 5.4 4.6 5.3
_____ _____ _____ _____
_____ _____ _____ _____
Net Sales
_________
Sales for each of the Company's markets for the comparative reporting
periods were:
Third Quarter Nine Months
Millions 1995 1994 1995 1994
________ ______ ______ ______ ______
Heavy-duty truck $ 361 $ 353 $1,155 $1,042
Midrange truck 143 134 446 365
Power generation 269 249 824 747
Bus and light commercial vehicles 139 138 502 440
Industrial products 141 121 471 388
Government 8 17 28 50
Marine 23 18 69 56
Fleetguard and Holset 135 126 419 372
______ ______ ______ ______
Net sales $1,219 $1,156 $3,914 $3,460
______ ______ ______ ______
______ ______ ______ ______
Heavy-duty truck engine sales of $361 million in the third quarter and
$1.2 billion in the first nine months of 1995 were 2 percent and 11
percent higher than the respective periods of 1994. The increase in sales
during 1995 was due to demand for engines for the North American heavy-
duty truck market. Year-to-date, Cummins' share of the North American
heavy-duty truck market was 35.4 percent. While this market is expected
to have record sales in 1995, the Company experienced a decline in orders
for engines late in the third quarter due to a downturn in the market, in
addition to the traditional seasonal decline in sales. International
engine shipments were significantly lower compared to the third quarter of
1994, primarily in Mexico, where engine sales have been at very low levels
in 1995 due to economic conditions in that country.
Midrange truck engine sales of $143 million in the third quarter and $446
million in the first nine months of 1995 were 7 percent and 22 percent
higher, respectively, than the comparable periods of 1994. Engine
shipments to Ford, where Cummins is the exclusive diesel power for its
medium-duty trucks, were 5 percent higher than the third quarter of 1994.
Shipments for international markets, which represented approximately 30
percent of the Company's midrange truck engine sales, have been higher in
1995 due to demand in Europe and Brazil.
Sales to the power generation market represented approximately 20 percent
of the Company's net sales. Sales of $269 million to this market in the
third quarter and $824 million in the first nine months of 1995 were 8
percent and 10 percent higher than the respective periods of 1994. The
increase in sales in 1995 was attributable to sales of Power Group
International, a UK-based generator set assembler, which was acquired in
the fourth quarter of 1994.
Sales for bus and light commercial vehicles were $139 million in the third
quarter of 1995, essentially level with the third quarter of 1994. In
addition to the traditional seasonal decline for model year changeover,
shipments for the Dodge Ram pickup truck were affected by the phasing out
of production at Chrysler's Dodge City plant. In the first nine months of
1995, sales for this market were 14 percent higher than the prior year's
level due to strong demand from Chrysler as well as engines for the North
American bus market.
Sales to industrial markets, which traditionally are affected by a
seasonal decline in the third quarter, were 17 percent higher, compared to
the third quarter of 1994. The increase was due to strong sales in
construction markets in North Asia and Europe and for North American
agricultural customers. Sales in the first nine months of 1995 were $471
million, 21 percent higher than the first nine months of 1994.
In the third quarter and first nine months of 1995, sales of Fleetguard
and Holset were 7 percent and 13 percent higher, respectively, than the
comparable periods of 1994. The increase in sales of these subsidiaries
during 1995 was due primarily to demand in international markets.
Gross Profit
____________
In the third quarter of 1995, the Company's gross profit percentage was
22.6 percent of net sales, compared to 25.5 percent in the third quarter
of 1994. In the first nine months of 1995, the Company's gross profit
percentage was 24.5 percent of net sales, compared to 24.9 percent in the
first nine months of 1994.
The Company's gross profit was affected adversely by several factors,
including increased product costs, higher discounting in the North
American heavy-duty truck market, the lower level of parts sales in North
America and a $2 million charge to close a facility in California. The
most significant factor contributing to the increase in product costs was
the slowdown in the North American truck market late in the quarter, which
resulted in lower overhead absorption. Product costs also were affected
by material pricing pressures and higher technical spending. Product
coverage expense was 2.6 percent of net sales in the third quarter of
1995, compared to 2.0 percent in 1994. In the third quarter of 1994,
product coverage expense included a one-time favorable adjustment that did
not occur in 1995. In the first nine months of 1995, product coverage
expense was 2.5 percent of net sales, compared to 2.4 percent in the first
nine months of 1994.
Operating Expenses
__________________
Selling and administrative expenses were $154 million, 12.6 percent of net
sales, in the third quarter of 1995, compared to $162 million in the third
quarter of 1994, due primarily to favorable accrual adjustments that will
not recur. In the first nine months of 1995, selling and administrative
expenses of $518 million were 13.2 percent of net sales, compared to $471
million, or 13.6 percent of net sales, in the first nine months of 1994.
The increase in expenditures of $47 million in 1995 was primarily
attributable to variable operating expenses related to the higher sales
volumes. Research and engineering expenses were approximately 5 percent
of net sales in both the 1995 and 1994 reporting periods.
Interest and Other Income and Expense
_____________________________________
Interest expense was $3 million in the third quarter of 1995 and $10
million in the first nine months of 1995, compared to $5 million and $14
million in the respective periods of 1994. Other income and expense
includes foreign exchange gains and losses, interest income, earnings and
losses of unconsolidated companies and royalty income. The increase in
expense of $8 million in 1995 was primarily due to technical spending and
start-up costs of joint ventures.
Provision For Income Taxes
__________________________
Income taxes of $9 million in the third quarter of 1995 reflect an
adjustment to reduce the annual effective tax rate to 21.5 percent for
1995. The Company had estimated 1995 taxes would be 23 percent. The
adjustment to reduce tax expense to 21.5 percent for the first half of the
year resulted in an effective tax rate of 16.4 percent for the third
quarter. The Company also recognized approximately $31 million in the
first nine months of 1995 and $32 million in the first nine months of 1994
related to a reduction in its valuation allowance for tax benefit
carryforwards.
CASH FLOW AND FINANCIAL CONDITION
_________________________________
Key elements of the Consolidated Statement of Cash Flows were:
First Nine Months
Millions 1995 1994
________ ______ ______
Net cash provided by operating activities $206 $234
Net cash used for investing activities (213) (142)
______ ______
Net cash flows from operating and
investing activities ( 7) 92
Net cash used for financing activities ( 64) ( 3)
Effect of exchange rate changes on cash 1 2
______ _____
Net change in cash and cash equivalents $( 70) $ 91
______ ____
______ ____
During the first nine months of 1995, the Company generated cash flows
from operating activities of $206 million, compared to $234 million in
the first nine months of 1994. A higher level of working capital was
required in 1995 due to the increase in demand for the Company's
products. Investing activities required net cash resources of $213
million, including $130 million for capital expenditures and $85 million
for investments in joint ventures and unconsolidated companies in the
first nine months of 1995.
Total indebtedness (including the guaranteed notes of the ESOP Trust) was
$268 million at the end of the third quarter of 1995, including $30
million outstanding under the Company's revolving credit agreement. The
Company's debt-to-capital ratio was 19 percent at the end of the third
quarter of 1995 and 18 percent at December 31, 1994. In March 1995,
Standard & Poor's upgraded the ratings of the Company's senior debt to
BBB+ from BBB. In June 1995, Moody's upgraded its rating of the
Company's senior debt to Baa1 from Baa2.
As disclosed in Note 3 to the Consolidated Financial Statements, the
Company repurchased on the open market 1,575,400 shares of its common
stock at an average price of $43.57 per share in the first nine months of
1995.
PART II. OTHER INFORMATION
___________________________
Item 6. Exhibits and Reports on Form 8-K:
__________________________________________
(a) See the Index to Exhibits on Page 12 for a list of exhibits filed
herewith.
(b) The Company was not required to file a Form 8-K during the third
quarter of 1995.
SIGNATURES
__________
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
CUMMINS ENGINE COMPANY, INC.
By: /s/John McLachlan
_________________
John McLachlan
Vice President - Corporate Controller
(Chief Accounting Officer) November 6, 1995
<PAGE>
CUMMINS ENGINE COMPANY, INC.
____________________________
INDEX TO EXHIBITS
_________________
Page No.
________
11 Schedule of Computation of Per Share Earnings
for the Third Quarter and Nine Months Ended
October 1, 1995 and October 2, 1994 (filed
herewith) 13
27 Financial Data Schedule (filed herewith) 14
CUMMINS ENGINE COMPANY, INC.
____________________________
EXHIBIT 11
__________
SCHEDULE OF COMPUTATION OF PER SHARE EARNINGS
FOR THE THIRD QUARTER ENDED OCTOBER 1, 1995 AND OCTOBER 2, 1994
_______________________________________________________________
Third Quarter Nine Months
_________________ _________________
Weighted Weighted
Average Net Average Net
Millions, Except per Share Amounts Shares Earnings Shares Earnings
__________________________________ ______ ________ ______ ________
1995
____
Shares outstanding & net earnings 40.3 $ 46 40.7 $182
Options .1 - .1 -
____ ___ ____ ____
Used in the determination of
primary and fully diluted
earnings per share 40.4 $ 46 40.8 $182
____ ___ ____ ____
____ ___ ____ ____
Primary and fully diluted
earnings per share $1.14 $4.47
_____ _____
_____ _____
1994
____
Shares outstanding & net earnings 41.6 $ 62 41.1 $183
Options .1 - .2 -
____ ___ ____ ____
Used in the determination of
primary and fully diluted
earnings per share 41.7 $ 62 41.3 $183
____ ___ ____ ____
____ ___ ____ ____
Primary and fully diluted
earnings per share $1.48 $4.43
_____ _____
_____ _____
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