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 July 2, 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 July 2, 1995, the number of shares outstanding of the
registrant's only class of common stock was 40.5 million.
<PAGE>
TABLE OF CONTENTS
_________________
Page No.
________
PART I. FINANCIAL INFORMATION
______________________________
Item 1. Financial Statements
Consolidated Statement of Earnings for the Second 3
Quarter and First Half Ended July 2, 1995 and
July 3, 1994
Consolidated Statement of Financial Position at 4
July 2, 1995 and December 31, 1994
Consolidated Statement of Cash Flows for the First 5
Half Ended July 2, 1995 and July 3, 1994
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Results of 7
Operations and Financial Condition
PART II. OTHER INFORMATION
___________________________
Item 1. Legal Proceedings 11
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 SECOND QUARTER AND FIRST HALF ENDED JULY 2, 1995 AND JULY 3, 1994
Unaudited
(Millions, Except per Share Amounts)
_________________________________________________________________________
Second Quarter First Half
________________ ________________
1995 1994 1995 1994
______ ______ ______ ______
NET SALES $1,361 $1,205 $2,695 $2,304
Cost of goods sold 1,021 908 2,012 1,736
______ ______ ______ ______
GROSS PROFIT 340 297 683 568
Selling & administrative expenses 181 160 364 309
Research & engineering expenses 67 56 133 110
Interest expense 3 5 7 9
Other (income) expense, net (1) - 2 -
_______ ______ ______ ______
Earnings before income taxes 90 76 177 140
Provision for income taxes 21 10 41 19
______ ______ ______ ______
NET EARNINGS $ 69 $ 66 $ 136 $ 121
______ ______ ______ ______
______ ______ ______ ______
Earnings per share $ 1.69 $ 1.58 $ 3.32 $ 2.94
Cash dividends declared per share .25 .125 .50 .25
<PAGE>
CUMMINS ENGINE COMPANY, INC.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Unaudited
(Millions, Except per Share Amounts)
____________________________________________
7/2/95 12/31/94
______ ________
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 93 $ 147
Receivables less allowances of $11 & $10 613 504
Inventories 580 515
Other current assets 131 132
______ ______
1,417 1,298
INVESTMENTS AND OTHER ASSETS 221 190
PROPERTY, PLANT & EQUIPMENT less accumulated
depreciation of $1,330 and $1,279 1,113 1,090
INTANGIBLES, DEFERRED TAXES & DEFERRED CHARGES 128 128
______ _____
TOTAL ASSETS $2,879 $2,706
______ ______
______ ______
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Loans payable $ 25 $ 41
Current maturities of long-term debt 37 37
Accounts payable 357 322
Other current liabilities 513 440
______ ______
932 840
______ ______
LONG-TERM DEBT 154 155
______ ______
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 348 232
Common stock in treasury, at cost, 3.3 and 2.2
shares (119) (72)
Unearned ESOP compensation ( 51) (55)
Cumulative translation adjustments ( 68) (69)
______ ______
1,142 1,072
______ ______
TOTAL LIABILITIES & SHAREHOLDERS' INVESTMENT $2,879 $2,706
______ ______
______ ______
<PAGE>
CUMMINS ENGINE COMPANY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited
(Millions)
____________________________________
First Half Ended
_____________________
7/2/95 7/3/94
______ ______
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $136 $121
____ ____
Adjustments to reconcile net earnings
to net cash from operating activities:
Depreciation and amortization 70 62
Accounts receivable (110) (45)
Inventories ( 60) (60)
Accounts payable and accrued expenses 101 84
Income taxes payable 8 -
Other 19 9
____ ____
Total adjustments 28 50
____ ____
Net cash provided by operating activities 164 171
____ ____
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment:
Additions ( 84) (76)
Disposals 2 3
Investments in and advances to affiliates
and unconsolidated companies ( 45) ( 6)
Other ( 1) -
_____ _____
Net cash used in investing activities (128) (79)
_____ _____
NET CASH FLOWS FROM OPERATING & INVESTING
ACTIVITIES 36 92
____ ____
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on borrowings ( 3) ( 3)
Net borrowings under credit agreements ( 16) ( 3)
Payments of dividends ( 20) (10)
Repurchases of common stock ( 53) -
Other 1 ( 5)
_____ ____
Net cash used for financing activities ( 91) (21)
_____ ____
EFFECT OF EXCHANGE RATE CHANGES ON CASH 1 2
____ ___
NET CHANGE IN CASH & CASH EQUIVALENTS ( 54) 73
Cash & cash equivalents at beginning of year 147 77
____ ____
CASH & CASH EQUIVALENTS AT END OF FIRST HALF $ 93 $150
____ ____
____ ____
<PAGE>
CUMMINS ENGINE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
__________________________________________
NOTE 1. ACCOUNTING POLICIES: The Consolidated Financial Statements for
the interim periods ended July 2, 1995 and July 3, 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 half of 1995 and 1994, the Company recognized approximately
$21 million and $25 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 half of 1995, the Company
repurchased on the open market 1,177,000 shares at an aggregate
purchase price of $53 million, or average price of $44.86 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 40.8 million in the second quarter of 1995 and 41.0 million
in the first half of 1995. The weighted-average number of shares was 41.7
million in the second quarter of 1994 and 41.1 million in the first half
of 1994.
<PAGE>
CUMMINS ENGINE COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
_____________________________________________
OVERVIEW
________
Cummins continued to benefit from strong demand in most markets in the
second quarter of 1995, which resulted in record sales of $1.4 billion,
13 percent higher than the second quarter of 1994. In the first half
of 1995, the Company's net sales were $2.7 billion, 17 percent higher
than the first half of 1994.
The Company shipped 180,600 engines in the first half of 1995, a 20-
percent increase over first-half 1994.
Second Quarter First Half
_______________ ________________
1995 1994 1995 1994
______ ______ _______ _______
Midrange engines 60,400 52,600 118,500 97,600
Heavy-duty engines 28,900 25,900 57,300 48,900
High-horsepower engines 2,400 2,600 4,800 4,500
______ ______ _______ _______
Total engine shipments 91,700 81,100 180,600 151,000
______ ______ _______ _______
______ ______ _______ _______
The Company also had record earnings before income taxes of $90 million
in the second quarter of 1995, $14 million (18 percent) higher than the
second quarter of 1994. The Company's net earnings were $69 million,
or $1.69 per share, in the second quarter of 1995, compared to $66
million, or $1.58 per share, in the second quarter of 1994. For the
first half of 1995, net earnings were $136 million, or $3.32 per share,
compared to $121 million, or $2.94 per share, in the first half of
1994.
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:
Second Quarter First Half
______________ _____________
Percent of Net Sales 1995 1994 1995 1994
____________________ ______ _____ _____ _____
Net sales 100.0 100.0 100.0 100.0
Cost of goods sold 75.0 75.3 74.7 75.3
_____ _____ _____ _____
Gross profit 25.0 24.7 25.3 24.7
Selling and administrative expenses 13.3 13.3 13.5 13.4
Research and engineering expenses 4.9 4.6 4.9 4.8
Interest expense .2 .4 .3 .4
Other (income) expense, net - - .1 -
______ ______ _____ _____
Earnings before income taxes 6.6 6.4 6.5 6.1
Provision for income taxes 1.5 .9 1.5 .9
_____ _____ _____ _____
Net earnings 5.1 5.5 5.0 5.2
_____ _____ _____ _____
_____ _____ _____ _____
Net Sales
_________
Sales for each of the Company's markets for the comparative reporting
periods were:
Second Quarter First Half
______________ ______________
1995 1994 1995 1994
______ ______ ______ ______
Millions
________
Heavy-duty truck $ 398 $ 354 $ 794 $ 689
Midrange truck 159 133 303 231
Power generation 278 268 555 498
Bus and light commercial vehicles 180 146 363 302
Industrial products 172 143 330 267
Marine 25 21 46 38
Government 9 16 20 33
Fleetguard, Holset and Cummins
Electronics 140 124 284 246
______ ______ ______ ______
Net sales $1,361 $1,205 $2,695 $2,304
______ ______ ______ ______
______ ______ ______ ______
Heavy-duty truck engine sales of $398 million in the second quarter and
$794 million in the first half of 1995 were 12 percent and 15 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 this market was
above 35 percent. Demand was strong in other markets, with the
exception of Mexico, where engine sales have been at very low levels in
1995 due to economic conditions in that country.
Midrange truck engine sales of $159 million in the second quarter and
$303 million in the first half of 1995 were 20 percent and 31 percent
higher, respectively, than the comparable periods of 1994. Engine
shipments to Ford, where Cummins is the exclusive diesel power in its
medium-duty trucks, were at record levels in the second quarter.
Shipments for international markets, which represented approximately 30
percent of the Company's midrange truck engine sales, have been higher
in the first half of 1995 due to increased demand in the United Kingdom
and in Brazil.
Sales to the power generation market continued to represent 20 percent
of the Company's net sales. Sales of $278 million to this market in
the second quarter and $555 million in the first half of 1995 were 4
percent and 11 percent higher than the respective periods of 1994. The
increase in sales in 1995 was due to sales of Power Group
International, which was acquired at the beginning of the fourth
quarter of 1994.
In the bus and light commercial vehicle market, the Company's sales of
$180 million in the second quarter of 1995, were 23 percent higher than
second-quarter 1994. Engines for the Chrysler Dodge Ram pickup have
been at record levels in the first half of 1995. Engine shipments for
bus markets were 26 percent higher than the first-half 1994 level,
primarily due to demand for transit buses worldwide.
Sales to industrial markets were 20 percent higher in the second
quarter and 24 percent higher in the first half of 1995, compared to
corresponding reporting periods of 1994. The increase in sales in 1995
was due to strong demand in worldwide construction markets and for US
agricultural markets.
Sales of Fleetguard, Holset and Cummins Electronics were approximately
15 percent higher in the first half of 1995, compared to the first half
of 1994. The increase in sales of these subsidiaries during 1995 was
due primarily to demand for the Company's filter products and
turbochargers in international markets.
Gross Profit
____________
In the second quarter of 1995, the Company's gross profit percentage
was 25.0 percent of net sales, compared to 24.7 percent in the second
quarter of 1994. In the first half of 1995, the gross profit
percentage was 25.3 percent of net sales, compared to 24.7 percent in
the first half of 1994. The key factor contributing to the improved
margin in 1995 was the increase in demand for the Company's products,
which represented more than 60 percent of the increase in gross profit.
Other factors included the effects of cost-improvement measures and the
full-year effect of price increases subsequent to the first quarter of
1994. Product coverage expense was 2.5 percent of sales in the second
quarter and first half of 1995, compared to 2.5 percent in the second
quarter and 2.6 percent in the first half of 1994.
Operating Expenses
__________________
Selling and administrative expenses of $181 million in the second
quarter of 1995 and $364 million in the first half of 1995 were $21
million and $55 million higher, respectively, than the corresponding
periods of 1994. The increase in expenditures in 1995 was primarily
attributable to expenses related to the higher sales volumes. Research
and engineering expenses were 4.9 percent of net sales in the second
quarter and first half of 1995, compared to 4.6 percent in the second
quarter and 4.8 percent in the first half of 1994. The increase in the
first half of 1995 was associated with investments in fuel systems and
new products.
Interest and Other Income Expense
_________________________________
Interest expense in the second quarter and first half of 1995 was $2
million lower than the comparable periods of 1994 due to the lower
level of short-term borrowings. Other income and expense includes
foreign exchange gains and losses, interest income, earnings and losses
of unconsolidated companies and royalty income.
Provision for Income Taxes
__________________________
As disclosed in Note 2 to the Consolidated Financial Statements, the
Company reduced its valuation allowance for tax benefit carryforwards
approximately $21 million in the first half of 1995 and $25 million in
the first half of 1994.
CASH FLOW AND FINANCIAL CONDITION
_________________________________
Key elements of the Consolidated Statement of Cash Flows were:
First Half
________________
Millions 1995 1994
________ ____ ____
Net cash provided by operating activities $164 $171
Net cash used for investing activities (128) (79)
_____ _____
Net cash flows from operating and
investing activities 36 92
Net cash used for financing activities (91) (21)
Effect of exchange rate changes on cash 1 2
_____ ____
Net change in cash and cash equivalents $(54) $ 73
_____ ____
_____ ____
During the first half of 1995, the Company generated cash flows from
operating activities of $164 million, compared to $171 million in the
first half of 1995. 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 $128 million for
capital expenditures and investments in unconsolidated companies. Cash
and cash equivalents at the end of the first half totaled $93 million.
Total indebtedness (including the guaranteed notes of the ESOP Trust)
was $154 million at the end of the second quarter of 1995. The
Company's debt-to-capital ratio was 16 percent at the end of the second
quarter of 1995 and 18 percent at December 31, 1994. In March 1995,
Standard & Poor upgraded the ratings of the Company's senior debt to
BBB+ from BBB. In June 1995, Moody upgraded its rating of the
Company's senior debt to Baa1 from Baa2.
As disclosed more fully in Note 3 to the Consolidated Financial
Statements, the Company repurchased on the open market 1,177,000 shares
of its common stock at an average price of $44.86 per share in the
first half of 1995.
PART II. OTHER INFORMATION
___________________________
Item 1. Legal Proceedings:
___________________________
On July 18, 1995, the US District Court for the Southern District of
Indiana granted plaintiff motion to certify Warkel, etal. v. Cummins
Engine Company, Inc., etal., as a class action on behalf of persons who
purchased the Company's common stock between May 1, 1989 and October
11, 1989. The Company believes the allegations are without merit and
intends to defend the action vigorously.
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 second
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) July 31, 1995
<PAGE>
CUMMINS ENGINE COMPANY, INC.
____________________________
INDEX TO EXHIBITS
_________________
Page No.
________
11 Schedule of Computation of Per Share Earnings
for the Second Quarter and First Half Ended
July 2, 1995 and July 3, 1994 (filed herewith) 12
27 Financial Data Schedule (filed herewith) 13
CUMMINS ENGINE COMPANY, INC.
____________________________
EXHIBIT 11
__________
SCHEDULE OF COMPUTATION OF PER SHARE EARNINGS
FOR THE SECOND QUARTER & FIRST HALF ENDED JULY 2, 1995 & JULY 3, 1994
(Millions, Except per Share Amounts)
_____________________________________________________________________
Second Quarter First Half
_________________ _________________
Weighted Weighted
Average Net Average Net
Shares Earnings Shares Earnings
______ ________ ______ ________
1995
____
Net earnings 40.7 $ 69 41.0 $136
Options .1 - - -
____ ____ ____ ____
Used in the determination of
primary and fully diluted
earnings per share 40.8 $ 69 41.0 $136
____ ____ ____ ____
____ ____ ____ ____
Primary and fully diluted
earnings per share $1.69 $3.32
_____ _____
_____ _____
1994
____
Net earnings 41.6 $ 66 40.9 $121
Options .1 - .2 -
____ ____ ____ ____
Used in the determination of
primary and fully diluted
earnings per share 41.7 $ 66 41.1 $121
____ ____ ____ ____
____ ____ ____ ____
Primary and fully diluted
earnings per share $1.58 $2.94
_____ _____
_____ _____
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