UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
CUMMINS ENGINE COMPANY, INC.
____________________________
For the Quarter Ended March 31, 1996 Commission File Number 1-4949
______________ ______
Indiana 35-0257090
_______ __________
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
500 Jackson Street, Box 3005
____________________________
Columbus, Indiana 47202-3005
_________________ __________
(Address of Principal Executive Offices) (Zip Code)
812-377-5000
____________
Registrant's Telephone Number
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the proceeding 12 months and (2) has been
subject to such filing requirements for the past 90 days:
Yes [x]
No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date:
As of March 31, 1996, 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 First 3
Quarter Ended March 31, 1996 and April 2, 1995
Consolidated Statement of Financial Position at 4
March 31, 1996 and December 31, 1995
Consolidated Statement of Cash Flows for the First 5
Quarter Ended March 31, 1996 and April 2, 1995
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Results of 7
Operations, Cash Flows and Financial Condition
PART II. OTHER INFORMATION
___________________________
Item 1. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 12
Index to Exhibits 13
<PAGE>
CUMMINS ENGINE COMPANY, INC.
CONSOLIDATED STATEMENT OF EARNINGS
Unaudited
__________________________________
First Quarter Ended
Millions, Except per Share Amounts 3/31/96 4/2/95
__________________________________ _______ ______
Net sales $1,316 $1,334
Cost of goods sold 1,000 991
______ ______
Gross profit 316 343
Selling & administrative expenses 180 183
Research & engineering expenses 62 66
Interest expense 4 4
Expense (income) from joint ventures & alliances 2 (1)
Other (income) expense, net (3) 4
______ ______
Earnings before income taxes 71 87
Provision for income taxes 22 20
______ ______
Net earnings $ 49 $ 67
______ ______
______ ______
Earnings per share $ 1.21 $ 1.63
Cash dividends declared per share .25 .25
<PAGE>
CUMMINS ENGINE COMPANY, INC.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Unaudited
____________________________________________
Millions, Except per Share Amounts 3/31/96 12/31/95
__________________________________ _______ ________
Assets
Current assets:
Cash and cash equivalents $ 153 $ 60
Receivables 602 597
Inventories 542 513
Other current assets 219 218
______ ______
1,516 1,388
Investments and other assets 288 326
Property, plant & equipment less accumulated
depreciation of $1,327 1,134 1,148
Intangibles, deferred taxes & deferred charges 198 194
______ ______
Total assets $3,136 $3,056
______ ______
______ ______
Liabilities and shareholders' investment
Current liabilities:
Loans payable $ 29 $ 60
Current maturities of long-term debt 38 42
Accounts payable 379 376
Other current liabilities 548 575
______ ______
994 1,053
______ ______
Long-term debt 222 117
______ ______
Other liabilities 710 703
______ ______
Shareholders' investment:
Common stock, $2.50 par value, 43.9 shares issued 110 110
Additional contributed capital 926 926
Retained earnings 444 406
Common stock in treasury, at cost, 3.8 & 3.7 shares (139) (135)
Unearned ESOP compensation ( 46) (51)
Cumulative translation adjustments ( 85) (73)
______ ______
1,210 1,183
______ ______
Total liabilities & shareholders' investment $3,136 $3,056
______ ______
______ ______
<PAGE>
CUMMINS ENGINE COMPANY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited
____________________________________
First Quarter Ended
Millions 3/31/96 4/2/95
________ _______ ______
Cash flows from operating activities:
Net earnings $ 49 $ 67
_____ _____
Adjustments to reconcile net earnings
to net cash from operating activities:
Payments on restructuring actions (18) -
Depreciation and amortization 38 35
Accounts receivable (13) (105)
Inventories (35) (32)
Accounts payable and accrued expenses ( 3) 60
Income taxes payable 13 4
Other ( 6) 9
______ ______
Total adjustments ( 24) (29)
_____ _____
Net cash provided by operating activities 25 38
_____ _____
Cash flows from investing activities:
Property, plant and equipment:
Additions ( 36) (32)
Disposals 2 1
Investments in and advances from (to) joint
ventures and alliances 26 ( 4)
Disposition of business activities 6 -
Other 14 ( 1)
_____ _____
Net cash provided from (used in) investing
activities 12 (36)
_____ ______
Net cash flows from operating & investing
activities 37 2
_____ _____
Cash flows from financing activities:
Proceeds from borrowings 109 -
Payments on borrowings ( 7) ( 2)
Net borrowings under credit agreements ( 30) ( 2)
Payments of dividends ( 10) (10)
Repurchases of common stock ( 4) (37)
Other ( 1) ( 4)
______ ______
Net cash provided from (used for)
financing activities 57 (55)
______ ______
Effect of exchange rate changes on cash (1) 1
_____ ______
Net change in cash and cash equivalents 93 (52)
Cash & cash equivalents at beginning of the year 60 147
_____ _____
Cash & cash equivalents at the end of the quarter $ 153 $ 95
_____ _____
_____ _____
<PAGE>
CUMMINS ENGINE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
______________________________________________
Note 1. Accounting Policies: The Consolidated Financial Statements for
the interim periods ended March 31, 1996 and April 2, 1995 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 quarter of 1995, the Company recognized
approximately $11 million related to a reduction in its valuation
allowance for tax benefit carryforwards.
Note 3. Common 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 quarter of 1996, the
Company repurchased on the open market 96,100 shares at an aggregate
purchase price of $4 million, or average price of $40.75 per share.
The Company repurchased 1,575,400 shares at an aggregate purchase price
of $69 million, or average price of $43.57 per share in 1995 and
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 40.3 million in the first quarter of 1996 and
41.3 million in the first quarter of 1995.
<PAGE>
CUMMINS ENGINE COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS,
CASH FLOWS AND FINANCIAL CONDITION
_____________________________________________________________
OVERVIEW
________
Sales of $1.32 billion in the first quarter of 1996 were essentially
level with net sales in the first quarter of 1995. Sales in the first
quarter of 1996 reflected lower demand for heavy-duty truck engines,
particularly in North America, that was offset by strong demand for the
Company's midrange engines. The Company expects a further softening in
the heavy-duty truck market in the second half of 1996 but anticipates
that sales in other markets will help offset the decline in heavy-duty
engines. Shipments by engine family for the comparative periods were:
First Quarter
Engine Shipments 1996 1995
________________ ______ ______
Midrange engines 62,600 58,100
Heavy-duty engines 24,600 28,500
High-horsepower engines 2,000 2,300
______ ______
Total 89,200 88,900
______ ______
______ ______
Net earnings were $49 million, or $1.21 per share, in the first quarter
of 1996, compared to $67 million, or $1.63 per share, in the first
quarter of 1995.
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:
First Quarter
Percent of Net Sales 1996 1995
____________________ _____ _____
Net sales 100.0 100.0
Cost of goods sold 76.0 74.3
_____ _____
Gross profit 24.0 25.7
Selling and administrative expenses 13.7 13.7
Research and engineering expenses 4.7 4.9
Interest expense .3 .3
Expense (income) from joint ventures & alliances .1 (.1)
Other (income) expense, net (.2) .4
_____ _____
Earnings before income taxes 5.4 6.5
Provision for income taxes 1.7 1.5
_____ _____
Net earnings 3.7 5.0
_____ _____
_____ _____
Net Sales
_________
Sales for each of the Company's markets for the comparative reporting
periods were:
First Quarter 1996 First Quarter 1995
Dollars Percent Dollars Percent
_______ _______ _______ _______
Heavy-duty truck 346 26 396 30
Midrange truck 163 12 144 11
Power generation 260 20 277 21
Bus & light commercial vehicles 202 15 183 13
Industrial products 174 13 169 13
Marine 32 3 21 1
Fleetguard and Holset 139 11 144 11
_____ ___ _____ ___
Net sales 1,316 100 1,334 100
_____ ___ _____ ___
_____ ___ _____ ___
First-quarter 1996 sales of $346 million to the heavy-duty truck market
were 13 percent lower than the first quarter of 1995, due to the
reduced market size in North America.
Midrange truck engine sales of $163 million in the first quarter of
1996 were 13 percent higher than the first quarter of 1995 due to
shipments for North American markets. International markets were
essentially level with the first quarter of 1995.
In the first quarter of 1996, power generation sales of $260 million
were 6 percent lower than the first quarter of 1995. Both recreational
vehicle and alternator markets were strong in the first quarter of
1996, while sales of generator sets to industrial and power generation
markets declined.
In the bus and light commercial vehicles market, sales of $202 million
in the first quarter of 1996 were 10 percent higher than the first
quarter of 1995. The increase in sales in the first quarter of 1996
was due to higher shipments to Chrysler, which are expected to exceed
the 1995 record. In the first quarter of 1996, engine shipments for
bus markets were essentially level with the first quarter of 1995.
Sales of $174 million to industrial markets in the first quarter of
1996 were 3 percent higher than first-quarter 1995, reflecting strong
sales for construction equipment in North America. International sales
in the first quarter of 1996 were essentially flat compared to the
first quarter of 1995.
In the first quarter of 1996, sales of filtration products and
turbochargers were $139 million, 3 percent lower than the first quarter
of 1995 due primarily to the softer demand in North American heavy-duty
markets.
Gross Profit
____________
The Company's gross profit percentage in the first quarter of 1996 was
24.0 percent of net sales compared to 25.7 percent in the first quarter
of 1995. The reduction in gross margin in the first quarter of 1996
was due to several factors, the most significant of which was the
decline in heavy-duty engine production that resulted in lower fixed
cost absorption. Gross margin also was affected by expenses associated
with the restructuring actions announced in the fourth quarter of 1995
and material cost increases. Depreciation expense in the first quarter
of 1996 was $3 million higher than first-quarter 1995, reflecting
capital spending levels during the last two years to fund new products
and fuel systems. Product coverage expense was 2.5 percent of sales in
both first-quarter periods.
Operating Expenses
__________________
Selling and administrative expenses of $180 million in the first
quarter of 1996 were 13.7 percent of net sales, level with the first
quarter of 1995 as a percent of net sales. Expenditures associated
with the restructuring actions to relocate and consolidate operations
in the first quarter of 1996 offset a decrease in salaries and wages as
a result of employee separations.
Research and engineering expenses were $62 million in the first quarter
of 1996, compared to $66 million in the first quarter of 1995. The
lower level of expenditures was primarily due to timing but also
reflected a reduction in the number of employees and lower costs.
Expense of $2 million from joint ventures and alliances primarily was
associated with product development and start-up costs of the joint
venture with Wartsila. The Company entered this joint venture in the
second quarter of 1995.
Interest and Other Income and Expense
_____________________________________
Interest expense of $4 million in the first quarter of 1996 was level
with the first quarter of 1995. Other income and expense includes a
variety of items, such as foreign currency exchange gains and losses,
royalty and technical fees, interest income, and gains and losses
associated with fixed asset dispositions. In the first quarter of
1996, income of $3 million was due to technical fee income and proceeds
from the sale of excess property.
Provision For Income Taxes
__________________________
Income tax expense is based upon the estimated annual effective tax
rate for the taxable jurisdictions in which the Company operates. The
estimated effective tax rate for 1996 is 31.5 percent. In the first
quarter of 1995, the Company recognized approximately $11 million
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:
Dollars in Millions 1996 1995
___________________ ____ ____
Net cash provided by operating activities $25 $ 38
Net cash provided from (used in) investing activities 12 (36)
___ ____
Net cash flows from operating and investing
activities 37 2
Net cash provided from (used for) financing
activities 57 (55)
Effect of exchange rate changes on cash (1) 1
___ ____
Net change in cash and cash equivalents $93 $(52)
___ _____
___ _____
Cash increased $93 million in the first quarter of 1996 to $153
million. Capital expenditures of $36 million in the first quarter of
1996 were slightly higher than the first quarter of 1995. The Company
expects a significant increase in these expenditures during the
remainder of 1996. Net cash from joint ventures and alliances of $26
million in the first quarter of 1996 included $39 million from
Consolidated Diesel Company for repayment of a temporary advance.
Total indebtedness (including the guaranteed notes of the ESOP Trust)
was $289 million at the end of the first quarter of 1996, compared to
$219 million at December 31, 1995. The Company's debt-to-capital ratio
was 19 percent at March 31, 1996 and 16 percent at December 31, 1995.
PART II. OTHER INFORMATION
___________________________
Item 1. Legal Proceedings
__________________________
On April 18, 1996, the United States District Court for the Southern
District of Indiana entered an order preliminarily approving the
settlement of Warkel v. Cummins Engine Company, et al., and setting a
schedule for the procedural steps leading to a decision by the Court on
final approval.
Item 4. Submission of Matters to a Vote of Security Holders
____________________________________________________________
The Company held its annual meeting of security holders on April 9,
1996 at which security holders: (a) elected 14 directors of the
Company for the ensuing year and (b) ratified the appointment of Arthur
Andersen LLP as auditors for the year 1996.
Results of the voting in connection with each of the items were as
follows:
Voting on Directors:
____________________
For Withheld
__________ ________
H. Brown 34,258,919 1,861,626
K. R. Dabrowski 34,431,230 1,689,315
R. Darnall 34,467,220 1,653,325
W. Y. Elisha 34,462,725 1,657,820
H. H. Gray 34,438,600 1,681,945
J. A. Henderson 34,451,723 1,668,822
J. I. Miller 34,455,772 1,664,773
W. I. Miller 34,459,804 1,660,741
D. S. Perkins 34,458,426 1,662,119
W. D. Ruckelshaus 34,449,938 1,670,607
H. B. Schacht 34,283,196 1,837,349
T. M. Solso 34,441,938 1,678,607
F. A. Thomas 34,459,103 1,661,442
J. L. Wilson 34,466,625 1,653,920
Ratify Appointment of Auditors:
_______________________________
For Against Abstain
__________ _______ _______
34,900,594 131,419 88,532
With regard to the election of directors, votes were cast in favor of
or withheld from each nominee; votes that were withheld were excluded
entirely from the vote and had no effect. Abstentions on the
ratification of the appointment of Arthur Andersen LLP were counted as
present for purposes of determining the existence of a quorum. Under
the rules of the New York Stock Exchange, brokers who held shares in
street names had the authority to vote on certain items when they did
not receive instructions from beneficial owners. Brokers that did not
receive instructions were entitled to vote on the election of
directors. Under applicable Indiana law, a broker non-vote had no
effect on the outcome of the election of directors.
Item 6. Exhibits and Reports on Form 8-K:
__________________________________________
(a) See the Index to Exhibits on Page 13 for a list of exhibits filed
herewith.
(b) The Company was not required to file a Form 8-K during the first
quarter of 1996.
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 April 29, 1996
_________________
John McLachlan
Vice President - Corporate Controller
(Chief Accounting Officer)
<PAGE>
CUMMINS ENGINE COMPANY, INC.
____________________________
INDEX TO EXHIBITS
_________________
11 Schedule of Computation of Per Share Earnings
for the First Quarter ended March 31, 1996 and
April 2, 1995 (filed herewith)
27 Financial Data Schedule (filed herewith)
CUMMINS ENGINE COMPANY, INC.
EXHIBIT 11
SCHEDULE OF COMPUTATION OF PER SHARE EARNINGS
FOR THE FIRST QUARTER ENDED MARCH 31, 1996 and APRIL 2, 1995
Unaudited
___________________________________________________________
Weighted
Average Net Calculated
Millions, Except per Share Amounts Shares Earnings Per Share
__________________________________ ________ ________ __________
1996
____
Net earnings 40.2 $49 $1.21
Options .1 -
____ ___
Primary and fully diluted earnings
per common share 40.3 $49 $1.21
____ ___
____ ___
1995
____
Net earnings 41.2 $67 $1.63
Options .1 -
____ ___
Primary and fully diluted earnings
per common share 41.3 $67 $1.63
____ ___
____ ___
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