TABLE OF CONTENTS
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Page No.
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PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
Consolidated Statement of Earnings for the First 2
Quarter Ended April 3, 1994 and April 4, 1993
Consolidated Statement of Financial Position at 3
April 3, 1994 and December 31, 1993
Consolidated Statement of Cash Flows for the First 4
Quarter Ended April 3, 1994 and April 4, 1993
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Results of 6
Operations and Financial Condition
PART II. OTHER INFORMATION
~~~~~~~~~~~~~~~~~~~~~~~~~~~
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 14
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CUMMINS ENGINE COMPANY, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
Unaudited
(Millions, Except per Share Amounts)
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
First Quarter Ended
4/3/94 4/4/93
~~~~~~~~ ~~~~~~~~
NET SALES $1,099.2 $1,048.4
Cost of goods sold 828.6 797.4
~~~~~~~~ ~~~~~~~~
GROSS PROFIT 270.6 251.0
Selling & administrative expenses 148.6 140.6
Research & engineering expenses 54.0 49.6
Interest expense 4.5 9.6
Other expense - 3.4
~~~~~~~~ ~~~~~~~~
Earnings before income taxes 63.5 47.8
Provision for income taxes 8.9 6.7
~~~~~~~~ ~~~~~~~~
NET EARNINGS 54.6 41.1
Preference stock dividends - 2.1
~~~~~~~~ ~~~~~~~~
EARNINGS AVAILABLE FOR COMMON SHARES $ 54.6 $ 39.0
~~~~~~~~ ~~~~~~~~
~~~~~~~~ ~~~~~~~~
Primary earnings per common share $ 1.35 $ 1.12
Fully diluted earnings per common share 1.35 1.07
Cash dividends declared per common share .125 .025
(page)
CUMMINS ENGINE COMPANY, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Unaudited
(Millions, Except per Share Amounts)
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
4/3/94 12/31/93
~~~~~~~~ ~~~~~~~~
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 94.9 $ 77.3
Receivables less allowances of $10.0 & $9.5 472.7 426.3
Inventories 485.6 440.2
Other current assets 131.6 127.9
~~~~~~~~ ~~~~~~~~
1,184.8 1,071.7
INVESTMENTS AND OTHER ASSETS 200.9 190.7
PROPERTY, PLANT & EQUIPMENT less accumulated
depreciation of $1,250.1 & $1,222.3 962.6 958.2
INTANGIBLES, DEFERRED TAXES & DEFERRED CHARGES 169.7 170.0
~~~~~~~~ ~~~~~~~~
TOTAL ASSETS $2,518.0 $2,390.6
~~~~~~~~ ~~~~~~~~
~~~~~~~~ ~~~~~~~~
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Loans payable $ 37.4 $ 13.4
Current maturities of long-term debt 32.6 32.6
Accounts payable 284.9 267.5
Other current liabilities 417.7 386.8
~~~~~~~~ ~~~~~~~~
772.6 700.3
~~~~~~~~ ~~~~~~~~
LONG-TERM DEBT 188.3 189.6
~~~~~~~~ ~~~~~~~~
OTHER LIABILITIES 684.1 679.6
~~~~~~~~ ~~~~~~~~
SHAREHOLDERS' INVESTMENT:
Convertible preference stock, no par value,
.2 shares outstanding - 112.2
Common stock, $2.50 par value, 43.7 & 40.6
shares issued 109.1 101.5
Additional contributed capital 922.4 822.8
Retained earnings 53.5 4.1
Common stock in treasury, at cost, 2.1 shares (67.3) (67.3)
Unearned ESOP compensation (55.0) (59.3)
Cumulative translation adjustments (89.7) (92.9)
~~~~~~~~~ ~~~~~~~~~
873.0 821.1
~~~~~~~~ ~~~~~~~~
TOTAL LIABILITIES & SHAREHOLDERS' INVESTMENT $2,518.0 $2,390.6
~~~~~~~~ ~~~~~~~~
~~~~~~~~ ~~~~~~~~
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CUMMINS ENGINE COMPANY, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited (Millions)
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
First Quarter Ended
4/3/94 4/4/93
~~~~~~~~ ~~~~~~~~
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 54.6 $ 41.1
~~~~~~ ~~~~~~
Adjustments to reconcile net earnings
to net cash from operating activities:
Depreciation and amortization 29.0 31.7
Accounts receivable (44.8) (65.8)
Inventories (43.5) (22.3)
Accounts payable and accrued expenses 51.3 31.9
Other 6.8 7.4
~~~~~~~ ~~~~~~~
Total adjustments (1.2) (17.1)
~~~~~~~ ~~~~~~~
Net cash provided by operating activities 53.4 24.0
~~~~~~~ ~~~~~~~
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment:
Additions (34.4) (27.3)
Disposals 2.7 .3
Investments in and advances to affiliates
and unconsolidated companies (16.2) 21.6
Acquisitions of new business activities - 3.4
Net cash proceeds from the disposition of
certain business activities - 1.3
~~~~~~~ ~~~~~~~
Net cash used in investing activities (47.9) ( .7)
~~~~~~~ ~~~~~~~
NET CASH FLOWS FROM OPERATING & INVESTING
ACTIVITIES 5.5 23.3
~~~~~~ ~~~~~~
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings - 48.6
Payments on borrowings ( 1.9) (69.8)
Net borrowings under credit agreements 24.1 21.5
Payments of dividends ( 5.2) ( 2.9)
Other ( 5.0) ( 5.6)
~~~~~~~ ~~~~~~~
Net cash provided by (used for)
financing activities 12.0 ( 8.2)
~~~~~~ ~~~~~~~
EFFECT OF EXCHANGE RATE CHANGES ON CASH .1 ( .3)
~~~~~~ ~~~~~~~
NET CHANGE IN CASH & CASH EQUIVALENTS 17.6 14.8
Cash & cash equivalents at beginning of year 77.3 54.2
~~~~~~ ~~~~~~
CASH & CASH EQUIVALENTS AT END OF QUARTER $ 94.9 $ 69.0
~~~~~~ ~~~~~~
~~~~~~ ~~~~~~
(page)
CUMMINS ENGINE COMPANY, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
(Dollars in Millions, Unless Otherwise Stated)
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
NOTE 1. ACCOUNTING POLICIES: The CONSOLIDATED FINANCIAL STATEMENTS
for the interim periods ended April 3, 1994 and April 4, 1993 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 1994 and 1993, the Company
recognized approximately $11 and $10, respectively, related to a
reduction in its valuation allowance for tax loss carryforwards.
NOTE 3. Preference Stock Redemption: On January 24, 1994, the Company
called for redemption, at a price of $51.05 per depositary share, plus
accrued dividends, of its outstanding Convertible Exchangeable
Preference Stock, which had a face value of $112.2 at December 31,
1993. Holders elected to convert their shares into 2.9 million shares
of common stock prior to the redemption date. Had the stock conversion
occurred on January 1, 1994, pro forma net earnings per share would
have approximated $1.31 in the first quarter of 1994.
NOTE 4. EARNINGS PER SHARE: Primary earnings per share of common
stock are computed by subtracting preference stock dividend
requirements from net earnings and dividing that amount 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 1994 and 34.8 million in the first quarter of 1993.
Fully diluted earnings per share are computed by dividing net earnings
by the weighted average number of shares assuming the exercise of stock
options and conversion of debt and preference stock to common stock.
(page)
CUMMINS ENGINE COMPANY, INC., AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
(Dollars In Millions, Unless Otherwise Stated)
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
OVERVIEW
~~~~~~~~
Cummins continued to benefit from strong business conditions in most of
its markets in the first quarter of 1994. Net sales were $1,099.2,
compared to $1,048.4 in the first quarter of 1993. Net earnings were
$54.6, or $1.35 per share, in the first quarter of 1994, compared to
$4.1, or $1.12 per share, in the first quarter of 1993. The North
American heavy-duty truck market remained at high levels of production.
Sales of midrange engines were higher than in the first quarter of
1993. However, in the first quarter of 1994, midrange engine sales in
North America were reduced because of advance purchases made by some
truck and bus customers at the end of 1993 to avoid price increases.
Power generation sales benefited from improvements in the market for
power units in recreational vehicles. Sales to industrial markets also
increased, particularly for construction and agricultural applications.
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 1994 1993
~~~~~~~~~~~~~~~~~~~~ ~~~~~ ~~~~~
Net sales 100.0 100.0
Cost of goods sold 75.4 76.1
~~~~~ ~~~~~
Gross profit 24.6 23.9
Selling and administrative expenses 13.5 13.4
Research and engineering expenses 4.9 4.7
Interest expense .4 .9
Other expense - .3
~~~~~ ~~~~~
Earnings before income taxes 5.8 4.6
Provision for income taxes .8 .7
~~~~~ ~~~~~
Net earnings 5.0 3.9
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~~~~~ ~~~~~
Sales by Market
~~~~~~~~~~~~~~~
Sales for each of the Company's markets for the comparative reporting
periods were:
First Quarter 1994 First Quarter 1993
Dollars Percent Dollars Percent
~~~~~~~ ~~~~~~~ ~~~~~~~ ~~~~~~~
Heavy-duty truck 335 31 324 31
Midrange truck 100 9 86 8
Power generation 230 21 213 20
Bus & light commercial vehicles 156 14 147 14
Industrial products 124 11 118 11
Government 15 1 28 3
Marine 17 2 17 2
Fleetguard, Holset and
Cummins Electronics (a) 122 11 115 11
~~~~~ ~~~ ~~~~~ ~~~
Net sales 1,099 100 1,048 100
~~~~~ ~~~ ~~~~~ ~~~
~~~~~ ~~~ ~~~~~ ~~~
(a) Included sales of McCord in the first quarter of 1993.
Sales of $335 to the heavy-duty market in the first quarter of 1994
were 3 percent higher than in the first quarter of 1993. This increase
was attributable to the strong North American heavy-duty market. In
the first quarter of 1994, the Company's heavy-duty engine shipments in
North America increased 9 percent over the first-quarter 1993 level.
The Company continues to lead this market with a 34-percent market
share. In general, shipments of the Company's heavy-duty truck engines
for international markets in the first quarter of 1994 were essentially
level with the first quarter of 1993.
Midrange truck engine sales in the first quarter of 1994 were $14
higher than in the first quarter of 1993. The effect of a decrease in
shipments of midrange engines for the North American market was offset
by an increase in shipments to international markets, primarily in the
United Kingdom where there were unusually low shipments in the first
quarter of 1993. The first-quarter 1994 decrease in North American
shipments was due to advance purchases by some midrange engine truck
customers at the end of 1993 to avoid price increases. Shipments of
these engines are projected to increase in the second quarter of 1994.
Power generation sales in the first quarter of 1994 were $230, compared
to $213 in the first quarter of 1993. The 8-percent increase was due
to a strengthening of the market for power units in recreational
vehicles and the continued increase in demand for alternators. Power
generation sales also continued to benefit from demand for industrial
generator sets in international markets.
In the bus and light commercial vehicle market, the Company's sales
were $156 in the first quarter of 1994, compared to $147 in the first
quarter of 1993. The 6-percent increase in sales was due primarily to
pricing actions, with actual engine shipments approximately 9 percent
lower than first-quarter 1993. The lower level of engine shipments was
due primarily to advance purchases of midrange engines for the North
American bus market at the end of 1993.
Sales to industrial markets increased 5 percent in the first quarter of
1994, compared to the first quarter of 1993. This increase in sales
was due primarily to improvements in both North American and
international construction markets. Shipments for the agricultural
market in North America also showed modest gains in the first quarter
of 1994.
Engine shipments for all markets in the first quarter of 1994 were
69,900, compared to 67,900 in the first quarter of 1993. Shipments by
engine family for the comparative periods were:
First Quarter
1994 1995
~~~~~~ ~~~~~~
Midrange engines 45,000 44,300
Heavy-duty engines 23,000 21,600
High-horsepower engines 1,900 2,000
~~~~~~ ~~~~~~
Total engine shipments 69,900 67,900
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~~~~~~ ~~~~~~
Gross Profit
~~~~~~~~~~~~~
The Company's gross profit percentage was 24.6 percent in the first
quarter of 1994, compared to 23.9 percent in the first quarter of 1993.
The key factors contributing to the improved margin in the first
quarter of 1994 were the increase in demand for the Company's products
and the full-year effect of price increases subsequent to the first
quarter of 1993. This was partially offset by an increase in costs
associated with product coverage programs. The cost of these programs,
which includes both warranty and extended coverage, was 2.7 percent of
net sales in the first quarter of 1994, compared to 2.2 percent of net
sales in the first quarter of 1993. This increase was attributable to
higher product coverage provisions for new product introductions.
Operating Expense
~~~~~~~~~~~~~~~~~
Selling and administrative expenses were $148.6, or 13.5 percent of net
sales, in the first quarter of 1994, compared to $140.6, or 13.4
percent of net sales, in the first quarter of 1993. The increase in
expenditures in the first quarter of 1994 was primarily attributable to
the increase in demand for the Company's products. The increase of
$4.4 in research and engineering expenses in the first quarter of 1994,
compared to the first quarter of 1993, was due to increased
expenditures for fuel systems and for ongoing product development.
Interest Expense
~~~~~~~~~~~~~~~~
Interest expense was $4.5 in the first quarter of 1994, compared to
$9.6 in the first quarter of 1993. The decrease in interest expense in
the first quarter of 1994 was due to the Company's early retirement and
redemption of debt obligations during 1993.
Provision For Income Taxes
~~~~~~~~~~~~~~~~~~~~~~~~~~
As disclosed in NOTE 2 to the CONSOLIDATED FINANCIAL STATEMENTS, the
Company reduced its valuation allowance for tax loss carryforwards
approximately $11 in the first quarter of 1994 and $10 in the first
quarter of 1993.
FINANCIAL CONDITION AND CASH FLOW
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Key elements of the CONSOLIDATED STATEMENT OF CASH FLOWS were:
1994 1993
~~~~~~ ~~~~~~
Net cash provided by operating activities $53.4 $24.0
Net cash used for investing activities (47.9) ( .7)
~~~~~~ ~~~~~~
Net cash flows from operating and investing
activities 5.5 23.3
Net cash provided by (used for) financing activities 12.0 (8.2)
Effect of exchange rate changes on cash .1 ( .3)
~~~~~ ~~~~~~
Net change in cash and cash equivalents $17.6 $14.8
~~~~~ ~~~~~
~~~~~ ~~~~~
During the first quarter of 1994, the Company generated cash flows from
operating activities of $53.4, compared to $24.0 in the first quarter
of 1993, due to improved earnings and a reduction in net working
capital requirements. Investing activities required net cash resources
of $47.9 for capital expenditures and investments in and advances to
affiliates and unconsolidated companies. Cash reserves increased $17.6
during the quarter to $94.9.
On January 24, 1994, the Company called for redemption, at a price of
$51.05 per depositary share, plus accrued dividends, its outstanding
Convertible Exchangeable Preference Stock, which had a face value of
$112.2 at December 31, 1993. In lieu of accepting the cash redemption
price, virtually all of the holders elected to convert their preference
stock into common stock of the Company. As a result, the Company
issued 2.9 million shares of common stock to the holders.
Total indebtedness (including the guaranteed notes of the ESOP Trust)
was $258.3 at the end of the first quarter of 1994, compared to $235.6
at December 31, 1993. The Company's debt-to-capital ratio was 22.8
percent at the end of the first quarter and 22.3 percent at
December 31, 1993.
On January 25, 1994, Moody's Investors Service upgraded the ratings of
the senior debt of the Company to investment grade (from Ba1 to Baa2).
Moody's stated that the action reflected the favorable intermediate-
term outlook for the Company's sales and operating performance as a
result of the Company's stronger and more diversified customer base,
the expansion of its international presence and better cost controls.
(page)
PART II. OTHER INFORMATION
~~~~~~~~~~~~~~~~~~~~~~~~~~~
Item 4. Submission of Matters to a Vote of Security Holders
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
The Company held its annual meeting of security holders on April 5,
1994 at which security holders: (a) elected 14 directors of the
Company for the ensuing year, (b) ratified the appointment of Arthur
Andersen & Co., as auditors for the year 1994, (c) approved the Cummins
Engine Company, Inc., Restricted Stock Plan for Non-Employee Directors,
and (d) amended the Company's Restated Articles of Incorporation to
increase the number of authorized shares of Common Stock from
50,000,000 to 150,000,000 shares.
Results of the voting in connection with each of the items were as
follows:
Voting on Directors:
~~~~~~~~~~~~~~~~~~~~
For Withheld
~~~~~~~~~~ ~~~~~~~~
H. Brown 34,542,776 226,628
R. Darnall 34,557,124 212,280
J. D. Donaldson 34,430,683 338,721
W. Y. Elisha 34,559,371 210,033
H. H. Gray 34,548,706 220,698
J. A. Henderson 34,573,197 196,207
D. G. Mead 34,428,226 341,178
J. I. Miller 34,558,903 210,501
W. I. Miller 34,571,279 198,125
D. S. Perkins 34,559,081 210,323
W. D. Ruckelshaus 34,563,696 205,708
H. B. Schacht 34,568,560 200,844
F. A. Thomas 34,560,531 208,873
J. L. Wilson 34,558,981 210,423
Ratification of Accountants:
~~~~~~~~~~~~~~~~~~~~~~~~~~~~
For Against Abstain
~~~~~~~~~~ ~~~~~~~ ~~~~~~~
34,601,673 89,088 78,643
Restricted Stock Plan:
~~~~~~~~~~~~~~~~~~~~~~
For Against Abstain
~~~~~~~~~~ ~~~~~~~ ~~~~~~~
34,168,688 421,624 179,092
Restated Articles of Incorporation:
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
For Against Abstain
~~~~~~~~~~ ~~~~~~~~~ ~~~~~~~
29,998,915 4,551,308 219,181
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 all proposals
(except the election of directors) were counted as present for purposes
of determining the existence of a quorum regarding the item on which
the abstention was voted. Since the amendment of the Restated Articles
of Incorporation required the approval of a majority of the outstanding
shares, abstentions had the effect of a negative vote. Abstentions on
the adoption of the Restricted Stock Plan had the same effect because
it required the affirmative vote of a majority of shares present in
person or by proxy and entitled to vote. Under the rules of the New
York Stock Exchange, brokers who held shares in street name 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 and the
amendment to the Restated Articles of Incorporation. With respect to
the Restricted Stock Plan, brokers could not vote shares held for
customers without specific instructions from such customers. Under
applicable Indiana law, a broker non-vote had the same effect as a vote
against the proposed amendment to the Restated Articles of
Incorporation, and had no effect on the outcome of the election of
directors or the approval of the Restricted Stock Plan.
Item 6. Exhibits and Reports on Form 8-K:
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
(a) See the Index to Exhibits on Page 14 for a list of exhibits filed
herewith.
(b) The Company was not required to file a Form 8-K during the first
quarter of 1994.
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 May 5, 1994
~~~~~~~~~~~~~~~~~
John McLachlan
Vice President - Corporate Controller
(Chief Accounting Officer)
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CUMMINS ENGINE COMPANY, INC., AND SUBSIDIARIES
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
INDEX TO EXHIBITS
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Page No.
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3(a) Restated Articles of Incorporation of Cummins
Engine Company, Inc., as amended (filed herewith
and 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 26, 1990). 15
10(s) 1992 Stock Incentive Plan (filed herewith). 16
10(t) Restricted Stock Plan for Non-Employee Directors
(filed herewith). 25
11 Schedule of Computation of Per Share Earnings
for the First Quarter ended April 3, 1994 and
April 4, 1993 (filed herewith). 27