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 June 29, 1997 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 June 29, 1997, the number of shares outstanding of the
registrant's only class of common stock was 42.0 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 June 29, 1997 and
June 30, 1996
Consolidated Statement of Financial Position at 4
June 29, 1997 and December 31, 1996
Consolidated Statement of Cash Flows for the First 5
Half Ended June 29, 1997 and June 30, 1996
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 12
Index to Exhibits 13
<PAGE>
CUMMINS ENGINE COMPANY, INC.
CONSOLIDATED STATEMENT OF EARNINGS
FOR THE SECOND QUARTER AND FIRST HALF
ENDED JUNE 29, 1997 AND JUNE 30, 1996
Unaudited
_____________________________________
Second Quarter First Half
________________ ________________
Millions, Except per Share Amounts 1997 1996 1997 1996
__________________________________ ______ ______ ______ ______
Net sales $1,396 $1,316 $2,700 $2,632
Cost of goods sold 1,072 1,016 2,090 2,016
______ ______ ______ ______
Gross profit 324 300 610 616
Selling & administrative expenses 186 180 364 360
Research & engineering expenses 64 66 125 128
Net (income) expense from joint
ventures and alliances (2) 3 (9) 5
Interest expense 7 4 12 8
Other (income) expense, net (5) (15) (12) (18)
_______ ______ ______ ______
Earnings before income taxes 74 62 130 133
Provision for income taxes 21 18 36 40
______ ______ ______ ______
Net earnings $ 53 $ 44 $ 94 $ 93
______ ______ ______ ______
______ ______ ______ ______
Earnings per share $ 1.39 $ 1.10 $ 2.45 $ 2.31
Cash dividends declared per share .275 .25 .525 .50
<PAGE>
CUMMINS ENGINE COMPANY, INC.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Unaudited
____________________________________________
Millions, Except per Share Amounts 6/29/97 12/31/96
__________________________________ _______ ________
Assets
Current assets:
Cash and cash equivalents $ 111 $ 108
Receivables 805 669
Inventories 633 587
Other current assets 201 189
______ ______
1,750 1,553
Investments and other assets 304 326
Property, plant & equipment less accumulated
depreciation of $1,394 and $1,375 1,396 1,286
Intangibles, deferred taxes and deferred charges 207 204
______ _____
Total assets $3,657 $3,369
______ ______
______ ______
Liabilities and shareholders' investment
Current liabilities:
Loans payable $ 38 $ 93
Current maturities of long-term debt 46 39
Accounts payable 406 380
Other current liabilities 624 509
______ ______
1,114 1,021
______ ______
Long-term debt 468 283
______ ______
Other liabilities 752 753
______ ______
Shareholders' investment:
Common stock, $2.50 par value, 47.8 and 43.9
shares issued 119 110
Additional contributed capital 1,100 929
Retained earnings 607 535
Common stock in treasury, at cost, 5.8 and 4.5
shares (227) (169)
Common stock held in trust for employee benefit
plans, 3.7 shares (178) -
Unearned compensation (ESOP) ( 42) ( 46)
Cumulative translation adjustments ( 56) ( 47)
______ ______
1,323 1,312
______ ______
Total liabilities and shareholders' investment $3,657 $3,369
______ ______
______ ______
<PAGE>
CUMMINS ENGINE COMPANY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited
____________________________________
First Half Ended
_____________________
Millions 6/29/97 6/30/96
________ _______ _______
Cash flows from operating activities:
Net earnings $ 94 $ 93
____ ____
Adjustments to reconcile net earnings
to net cash from operating activities:
Depreciation and amortization 80 76
Restructuring actions ( 10) ( 23)
Accounts receivable (140) (111)
Inventories ( 49) ( 64)
Accounts payable and accrued expenses 74 62
Income taxes payable 10 21
Other 8 ( 2)
____ _____
Total adjustments ( 27) ( 41)
____ ____
Net cash provided by operating activities 67 52
____ ____
Cash flows from investing activities:
Property, plant and equipment:
Additions (205) (84)
Disposals 8 18
Investments in joint ventures and alliances 2 40
Disposition of business activities 80 11
Other ( 3) 7
_____ _____
Net cash used in investing activities (118) ( 8)
_____ _____
Net cash flows (used for) provided from
operating and investing activities ( 51) 44
_____ ___
Cash flows from financing activities:
Proceeds from borrowings 201 160
Payments on borrowings ( 10) ( 8)
Net borrowings under credit agreements ( 52) (44)
Repurchase of common stock ( 58) (21)
Dividend payments ( 22) (20)
Other ( 4) ( 2)
_____ ____
Net cash provided from financing activities 55 65
____ ___
Effect of exchange rate changes on cash ( 1) -
_____ ___
Net change in cash and cash equivalents 3 109
Cash & cash equivalents at beginning of year 108 60
____ ____
Cash & cash equivalents at end of first half $111 $169
____ ____
____ ____
<PAGE>
CUMMINS ENGINE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
__________________________________________
Note 1. Accounting Policies: The Consolidated Financial Statements for
the interim periods ended June 29, 1997 and June 30, 1996 have been
prepared in accordance with the accounting policies described in the
Company's Annual Report to Shareholders and Form 10-K. Management
believes the statements include all adjustments of a normal recurring
nature necessary to present fairly the results of operations for the
interim periods. Inventory values at interim reporting dates are based
upon estimates of the annual adjustments for taking physical inventory
and for the change in cost of LIFO inventories.
Note 2. Income Taxes: Income tax expense is reported during the
interim reporting periods on the basis of the estimated annual
effective tax rate for the taxable jurisdictions in which the Company
operates.
Note 3. Long-term Debt: In February 1997, the Company issued $120
million of 6.75 percent debentures that mature in 2027. Net proceeds
were used principally to repay commercial paper indebtedness incurred
to repurchase shares of common stock. Holders of the debentures have a
1-time option in 2007 to redeem the debentures. The Company also has a
recall right after ten years.
In July 1997, the Company filed a Shelf Registration Statement with the
Securities and Exchange Commission in the amount of $250 million to
issue from time to time debt securities, preferred stock, preference
stock, common stock or warrants at prices and on terms to be determined
at the time of sale.
Note 4. Common Stock: In January 1997, the Company issued 3.75 million
shares of its common stock to an employee benefits trust to fund
obligations of employee benefit and compensation plans, principally
retirement savings plans. Shares of the common stock held by this
trust are not used in the calculation of the Company's earnings per
share until distributed from the trust and allocated to a benefit plan.
The Company also repurchased 1.3 million shares of its common stock
from Ford Motor Company in January 1997 and was authorized by the Board
of Directors to repurchase an additional 1.7 million shares from time
to time in the open market.
In April 1997, the Company announced an increase in its quarterly
common stock dividend from 25 cents per share to 27.5 cents, effective
with the dividend payment in June 1997.
NOTE 5. 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 excludes shares of stock held by the employee
benefits trust until distributed and allocated to a benefit plan, was
38.4 million in the second quarter and first half of 1997. The
weighted-average number of shares was 40.1 million in the second
quarter of 1996 and 40.2 million shares in the first half of 1996. The
Financial Accounting Standards Board has released a new accounting rule
on the calculation of earnings per share that is effective at year-end
1997. This rule, which does not permit early adoption, is not expected
to have a material effect on the Company's reported earnings per share.
<PAGE>
CUMMINS ENGINE COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS, CASH FLOW AND FINANCIAL CONDITION
________________________________________________________
OVERVIEW
________
Record sales of $1.4 billion in the second quarter of 1997 were 6
percent higher than the second quarter of 1996. The increase was
primarily due to record quarterly sales to industrial markets and
improvements in the heavy-duty truck market. For the first half, the
Company's sales were $2.7 billion, 3 percent higher than the first half
of 1996.
The Company shipped 174,500 engines in the first half of 1997, the same
as the first half of 1996. Increased shipments for industrial, power
generation and bus markets in the first half of 1997 offset declines
for truck markets as the Company's broader market and geographical
revenue base continued to pay off.
Second Quarter First Half
_______________ ________________
Engine Shipments 1997 1996 1997 1996
________________ ______ ______ _______ _______
Midrange 62,800 61,100 125,800 123,600
Heavy-duty 23,000 21,900 43,800 46,400
High-horsepower 2,600 2,400 4,900 4,500
______ ______ _______ _______
Total 88,400 85,400 174,500 174,500
______ ______ _______ _______
______ ______ _______ _______
Net earnings were $53 million, or $1.39 per share, in the second
quarter of 1997, compared to $44 million, or $1.10 per share, in the
second quarter of 1996. This was the first time since the second
quarter of 1995 that net earnings exceeded the year-ago quarter. For
the first half of 1997, net earnings were $94 million, or $2.45 per
share, compared to $93 million, or $2.31 per share, in the first half
of 1996.
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 1997 1996 1997 1996
____________________ _____ _____ _____ _____
Net sales 100.0 100.0 100.0 100.0
Cost of goods sold 76.8 77.2 77.4 76.6
_____ _____ _____ _____
Gross profit 23.2 22.8 22.6 23.4
Selling and administrative expenses 13.3 13.7 13.5 13.7
Research and engineering expenses 4.6 5.0 4.6 4.9
Net (income) expense from joint
ventures and alliances (.1) .2 (.3) .2
Interest expense .5 .3 .4 .3
Other (income) expense, net (.4) (1.1) (.4) (.8)
______ ______ _____ _____
Earnings before income taxes 5.3 4.7 4.8 5.1
Provision for income taxes 1.5 1.4 1.3 1.6
_____ _____ _____ _____
Net earnings 3.8 3.3 3.5 3.5
_____ _____ _____ _____
_____ _____ _____ _____
Net Sales
_________
Sales for each of the Company's markets for the comparative reporting
periods were:
Second Quarter First Half
______________ ______________
Dollars in Millions 1997 1996 1997 1996
___________________ ______ ______ ______ ______
Automotive:
Heavy-duty truck $ 331 $ 310 $ 626 $ 674
Midrange truck 143 154 275 315
Bus and light commercial vehicles 152 151 323 310
Power generation 302 308 577 560
Industrial 263 209 520 411
Filtration and other 205 184 379 362
______ ______ ______ ______
Net sales $1,396 $1,316 $2,700 $2,632
______ ______ ______ ______
______ ______ ______ ______
Automotive
__________
Sales of $331 million to the heavy-duty truck market in the second
quarter of 1997 were 7 percent higher than a year ago, due to increased
engine shipments in international markets. International engine
shipments were almost 60 percent higher than the second quarter of
1996, due to stronger demand in Mexico. In North America, engine
shipments were 3 percent lower than the second quarter of 1996 due to a
smaller market size. Compared to the first half of 1996, sales of $626
million to the heavy-duty truck market were 7 percent lower in 1997,
due to the lower market size in North America. However, order intake
rates for the North American market have been trending upward, and
engine shipments in the second quarter were 13 percent higher than the
first quarter of 1997.
In the second quarter and first half of 1997, sales for the midrange
truck market were 7 percent and 13 percent lower than the comparative
periods of 1996, due primarily to a decrease in demand for medium-duty
trucks in North America. Midrange engines for international markets
were 21 percent higher than the second quarter of 1996 and 16 percent
higher than the first half of 1996. The increase in 1997 was in
Brazil, Southeast Asia and Mexico.
In the bus and light commercial vehicles market, sales of $152 million
in the second quarter were level with the second quarter of 1996. The
Company's sales to Chrysler were negatively impacted in the second
quarter of 1997 because of a 4-week work stoppage at Chrysler.
Engine shipments to Chrysler were 13 percent below the second quarter
of 1996. However, demand for the Company's engines in North American
bus markets remained strong in the second quarter of 1997, with engine
shipments 25 percent higher than the second quarter of 1996 and 11
percent higher than the first half of 1996.
Power Generation
________________
Sales to the power generation market continued to represent over 20
percent of the Company's net sales in the second quarter and first half
of 1997. Sales of $302 million in the second quarter of 1997 were 2
percent below the second quarter of 1996. Power generation sales of
$577 million in the first half of 1997 were 3 percent higher than the
1996 level.
Industrial
__________
Record sales of $263 million to industrial markets were 26 percent
higher than second-quarter 1996, reflecting strong sales for
construction equipment in North America and for international
agricultural markets. Shipments for marine markets were 37 percent
higher than the year-ago quarter.
Filtration and Other
____________________
Sales of $205 million in the second quarter and $379 million in the
first half for filtration and other products were 11 percent and 5
percent higher than the respective periods of 1996. The increase in
1997 was due primarily to higher sales of filtration products and an
improvement in European markets for turbochargers.
Gross Profit
____________
In the second quarter of 1997, the Company's gross profit percentage
was 23.2 percent of net sales compared to 22.8 percent in the second
quarter of 1996. In the second quarter of 1997, the company benefited
from higher volume absorption and lower expenses associated with the
restructuring actions. In the first half of 1997, the Company's gross
profit percentage was 22.6 percent of net sales, compared to 23.4
percent in 1996. Product coverage expense was 2.7 percent of net sales
in the second quarter and first half of 1997, compared to 2.9 percent
in the second quarter and 2.7 percent in the first half of 1996.
Operating Expenses
__________________
Selling and administrative expenses of $186 million in the second
quarter of 1997 and $364 million in the first half were 13.3 percent
and 13.5 percent of net sales, respectively, compared to 13.7 percent
of net sales in the second quarter and first half of 1996. The
increase in absolute dollars in 1997 was primarily due to expenditures
for new product launches, software and systems development, and volume-
related marketing programs. In the second quarter and first half of
1997, research and engineering expenses of $64 million and $125
million, respectively, were slightly lower than the comparative periods
of 1996.
Net income from joint ventures and alliances was $2 million in the
second quarter and $9 million in the first half of 1997. The increase
in income over 1996 was due higher earnings and royalties from KCL and
the joint ventures with Komatsu and Dongfeng and lower start-up losses
at the Company's joint venture with Wartsila.
Interest and Other Income and Expense
_____________________________________
Interest expense of $7 million in the second quarter and $12 million in
first half of 1997 was higher than the comparable periods of 1996 due
to a higher level of debt in 1997. In the second quarter of 1997,
other income was $10 million lower than the year-ago quarter, which
included capital gains associated with various asset disposals.
Provision for Income Taxes
__________________________
The estimated effective tax rate for 1997 is 28 percent. This is lower
than the US statutory tax rate of 35 percent, primarily because of
lower taxes on US export sales and the incremental research tax credit
that expired on May 31, 1997.
CASH FLOW AND FINANCIAL CONDITION
_________________________________
Key elements of the Consolidated Statement of Cash Flows were:
First Half
________________
Dollars in Millions 1997 1996
___________________ ____ ____
Net cash provided by operating activities $ 67 $ 52
Net cash used for investing activities (118) (8)
_____ _____
Net cash flows (used for) provided from
operating and investing activities ( 51) 44
Net cash provided from financing activities 55 65
Effect of exchange rate changes on cash ( 1) -
_____ ____
Net change in cash and cash equivalents $ 3 $109
_____ _____
_____ _____
During the first half of 1997, the Company generated cash flows from
operating activities of $67 million, compared to $52 million in the
first half of 1996. Investing activities required net cash resources
of $118 million in the first half of 1997. Capital expenditures were
$205 million in the first half of 1997, compared to $84 million in the
first half of 1996. The increased level of expenditures in 1997 was
related to continued investments for new products. At the end of the
second quarter of 1997, the Company sold its vibration attenuation
business to Simpson Industries for approximately $74 million. The sale
of this business, effective June 29, is part of the Company's continuing
restructuring program announced previously and had no net effect on
reported results in the second quarter.
Net cash provided from financing activities was $55 million in the
first half of 1997. As disclosed in Note 3 to the Consolidated
Financial Statements, the Company issued $120 million in debentures
under its shelf registration statement in February 1997.
In January 1997, the Company repurchased 1.3 million shares of its
common stock from Ford Motor Company and was authorized by the Board of
Directors to repurchase an additional 1.7 million shares in the open
market. In January 1997, the Company also issued 3.75 million shares
of its common stock to an employee benefits trust.
In April 1997, the Company announced a 10-percent increase in its
quarterly common stock dividend from 25 cents per share to 27.5 cents,
effective with the dividend payment in June 1997.
FORWARD-LOOKING STATEMENTS
__________________________
The Company has included certain forward-looking statements in this
Management's Discussion and Analysis of Results of Operations, Cash
Flow and Financial Condition. These statements are based on current
expectations, estimates and projections about the industries in which
the Company operates, management's beliefs and various assumptions made
by management which are difficult to predict. Among the factors that
could affect the outcome of the statements are general industry and
market conditions and growth rates. Therefore, actual outcomes and
their impact on the Company may differ materially from what is
expressed or forecasted. The Company undertakes no obligation to
update publicly any forward-looking statements, whether as a result of
new information, future events or otherwise.
PART II. OTHER INFORMATION
___________________________
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 second
quarter of 1997.
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/Rick J. Mills
_________________
Rick J. Mills
Vice President - Corporate Controller
(Chief Accounting Officer) July 21, 1997
<PAGE>
CUMMINS ENGINE COMPANY, INC.
____________________________
INDEX TO EXHIBITS
_________________
11 Schedule of Computation of Per Share Earnings for the Second
Quarter and First Half Ended June 29, 1997 and June 30, 1996
(filed herewith)
27 Financial Data Schedule (filed herewith)
EXHIBIT 11
CUMMINS ENGINE COMPANY, INC.
SCHEDULE OF COMPUTATION OF PER SHARE EARNINGS
FOR THE SECOND QUARTER AND FIRST HALF
ENDED JUNE 29, 1997 & JUNE 30, 1996
_____________________________________________
Second Quarter First Half
_________________ _________________
Weighted Weighted
Average Net Average Net
Millions, Except per Share Amounts Shares Earnings Shares Earnings
__________________________________ _______ ________ _______ ________
1997
____
Net earnings 38.3 $ 53 38.3 $ 94
Options .1 - .1 -
____ ____ ____ ____
Used in the determination of
earnings per share 38.4 $ 53 38.4 $ 94
____ ____ ____ ____
____ ____ ____ ____
Primary and fully diluted
earnings per share $1.39 $2.45
_____ _____
_____ _____
1996
____
Net earnings 40.0 $ 44 40.1 $ 93
Options .1 - .1 -
____ ____ ____ ____
Used in the determination of
earnings per share 40.1 $ 44 40.2 $ 93
____ ____ ____ ____
____ ____ ____ ____
Primary and fully diluted
earnings per share $1.10 $2.31
_____ _____
_____ _____
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0
0
<COMMON> 119
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