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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1994
CUMMINS ENGINE COMPANY, INC.
Incorporated in the State of Indiana I.R.S. Employer Identification
No. 35-0257090
500 Jackson Street, Box 3005, Columbus, Indiana 47202-3005
(Principal Executive Office)
Telephone Number: (812) 377-5000
Securities registered pursuant to Section 12(b) of the Act: Common
Stock, $2.50 par value, which is registered on the New York Stock
Exchange and on the Pacific Stock Exchange.
Securities registered pursuant to Section 12(g) of the Act: None.
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 preceding 12 months (or for such
shorter period that the registrant was required to file such reports)
and (2) has been subject to such filing requirements for the past 90
days. Yes [x] No [ ]
Indicate by check mark if disclosures of delinquent filers pursuant to
Item 405 of Regulation S-K are not contained herein and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. [x]
The aggregate market value of the voting stock held by non-affiliates
was approximately $1.7 billion at January 29, 1995.
As of January 29, 1995, there were outstanding 41,543,008 shares of
the only class of common stock.
Documents Incorporated by Reference
Portions of the registrant's definitive Proxy Statement dated March 3,
1995 and filed with the Securities and Exchange Commission pursuant to
Regulation 14A are incorporated by reference in Part III of this Form
10-K.
TABLE OF CONTENTS
_________________
Part Item Description Page
____ ____ _________________________________________________ ____
I 1 Business 2
2 Properties 13
3 Legal Proceedings 13
4 Submission of Matters to Vote of Security Holders 14
II 5 Market for the Registrant's Common Equity and
Related Stockholder Matters 14
6 Selected Financial Data 15
7 Management's Discussion & Analysis of Results
of Operations and Financial Condition 16
8 Financial Statements & Supplemental Data 21
9 Disagreements on Accounting & Financial
Disclosure 21
III 10 Directors & Executive Officers of the Registrant 21
11 Executive Compensation 23
12 Security Ownership of Certain Beneficial Owners
and Management 23
13 Certain Relationships & Related Transactions 23
IV 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K 23
Index to Financial Statements & Schedules 24
Signatures 42
Exhibit Index 44
PART I
______
ITEM 1. BUSINESS
_______ ________
OVERVIEW
________
Cummins Engine Company, Inc. ("Cummins" or "the Company") is a leading
worldwide designer and manufacturer of fuel-efficient diesel engines
and related products. Engines ranging from 76 to 2,000 horsepower
serve a wide variety of equipment in Cummins' key markets: heavy-duty
truck, midrange truck, power generation, bus and light commercial
vehicles, industrial products, marine and government. In addition,
the Company offers a natural gas-powered engine product line for
certain of its markets. Cummins produces strategic components and
subsystems critical to the engine, including filters, turbochargers
and electronic control systems.
Cummins sells its products to original equipment manufacturers
("OEMs"), distributors and other customers worldwide and conducts
manufacturing, sales, distribution and service activities in most
areas of the world. Sales of products to major international firms
outside North America are transacted by exports directly from the
United States and shipments from foreign facilities (operated through
subsidiaries, affiliates, joint ventures or licensees) which
manufacture and/or assemble Cummins' products.
In 1994, approximately 57 percent of net sales were made in the United
States. Major international markets include Europe (14 percent of net
sales); Asia, the Far East and Australia (13 percent of net sales);
and Mexico and South America (7 percent of net sales).
BUSINESS MARKETS
________________
Heavy-duty Truck
________________
The Company has a complete product line of 8-, 10-, 11- and 14-litre
diesel engines that range from 250 to 500 horsepower serving the heavy-
duty truck market. Cummins' heavy-duty diesel engines are offered as
standard or optional power by most major heavy-duty truck
manufacturers in North America. The seven largest US heavy-duty truck
OEMs produced approximately 98 percent of the heavy-duty trucks sold
in North America in 1994. The loss of certain of these customers
could have an adverse effect on the Company's business. The Company's
largest customer for heavy-duty truck engines in 1994 was Navistar
International Corporation, which represented 6.5 percent of the
Company's net sales. In 1994, the Company accounted for 60.9 percent
of Navistar's heavy-duty engine purchases.
In 1994, factory retail sales of North American heavy-duty trucks grew
by 19 percent from the previous year's level. Factory retail sales
were 207,000 units in 1994, compared to 174,000 in 1993 and 130,000 in
1992. The Company's share of the North American heavy-duty truck
engine market was 34 percent in 1994 based on data published by the
American Automotive Manufacturers' Association. The Company's share
of the North American heavy-duty truck engine market was 35 percent in
1993 and 37 percent in 1992.
In the United Kingdom, the heavy-duty truck market saw significant
improvement in 1994, with production approximately 35 percent above
1993 levels. Based on data published by the Society of Motor
Manufacturers and Traders, the Company's share of engines for trucks
built in the United Kingdom was 15 percent in 1994. Despite
aggressive competition from US suppliers exporting into Mexico,
Cummins remained the leader of the Mexican heavy-duty truck market
with a market share of 68 percent in 1994, based on data published by
the National Association of Truck and Bus Manufacturers.
In the heavy-duty truck market, the Company competes with independent
engine manufacturers as well as truck producers who manufacture diesel
engines for their own products. Certain of these integrated
manufacturers also are customers of the Company. In North America,
the Company's primary competitors in the heavy-duty truck engine
market are Caterpillar, Inc., Detroit Diesel Corporation and Mack
Trucks, Inc. The Company's principal competitors in international
markets vary from country to country, with local manufacturers
generally predominant in each geographic market. Other diesel engine
manufacturers in international markets include Mercedes Benz, AB
Volvo, Renault Vehicles Industriels, Iveco Diesel Engines, Hino
Motors, Ltd., Mitsubishi Heavy Industries, Ltd., Isuzu Motors, Ltd.,
DAF Group N.V. and SAAB-Scania A.B.
Midrange Truck
______________
The Company has a line of diesel engines ranging from 160 to 300
horsepower serving midrange and intercity delivery truck customers
worldwide.
The Company entered the North American midrange diesel engine truck
market in 1990. Based upon data published by R. L. Polk, the
Company's share of the market for diesel-powered medium-duty trucks in
1994 was 34 percent, compared to 31 percent in 1993. A major factor
contributing to the Company's increase in market share has been sales
to Ford Motor Company. In 1993, Ford completed its introduction of
the Company's B and C Series engines as exclusive diesel power in its
medium-duty truck line. Ford was the Company's largest customer for
midrange engines for this market in 1994, representing approximately
4.4 percent of the Company's net sales.
The Company sells its B and C Series engines and engine components
outside North America to midrange truck markets in Asia, Europe and
South America. Cummins and Tata Engineering and Locomotive Company
("TELCO"), India's largest truck manufacturer, formed a joint venture
in 1993 to manufacture B Series engines in India for TELCO vehicles.
Production of these engines will begin at the joint venture's plant in
mid-1995.
In the midrange truck market, the Company competes with independent
engine manufacturers as well as truck producers who manufacture diesel
engines for their own products. Certain of these integrated
manufacturers also are customers of the Company. Primary engine
competitors in the midrange truck market in North America are
Navistar International Corporation and Caterpillar, Inc. The
Company's principal competitors in international markets vary from
country to country, with local manufacturers generally predominant in
each geographic market. Other diesel engine manufacturers in
international markets include Mercedes Benz, AB Volvo, Renault
Vehicles Industriels, Iveco Diesel Engines, Hino Motors Ltd.,
Mitsubishi Heavy Industries, Ltd., Isuzu Motors, Ltd., DAF Group N.V.,
SAAB-Scania A.B., Perkins Engines Ltd. and Nissan.
Power Generation
________________
In 1994, power generation sales exceeded $1 billion, representing 22
percent of the Company's net sales. Products include the complete
line of Cummins' engines, Onan's gasoline engines, generator sets and
switches and Newage alternators. These products serve the stationary
power, mobile and alternator markets. In 1994, the Company acquired
Power Group International ("PGI") from 3i Group and Barclays. PGI,
based in Kent, England, is a developer and manufacturer of a broad
range of power generation equipment sold under the trade names of
Petbow, Auto Diesel and Agreba.
In stationary power, Onan's industrial business and Cummins' G-drive
groups provide electrical and engine power generation products and
services to major markets worldwide. The product line ranges from 5
to 1,500 kilowatts. Providing power generation products for the
utility industry has become an increasingly important market, with
utilities turning to generator sets to manage peak and seasonal
demands in lieu of making capital investments in additional capacity.
Onan also provides load management systems for utility interruptible
and peak-shaving applications. In the mobile business, Onan produces
mobile generator sets, gasoline engines and power electronics for a
wide variety of applications. Onan is a leading supplier of power
generation sets for the recreational vehicle market in the United
States.
Bus and Light Commercial Vehicles
_________________________________
For this market, Cummins has both diesel and natural gas engines for
pickup trucks, school buses, urban transit buses, delivery trucks and
recreational vehicles.
In North America, Chrysler, which offers the Cummins B Series engines
in its Dodge Ram pickup truck, was the Company's largest customer for
midrange engines in this market, representing 6.9 percent of the
Company's net sales in 1994. Chrysler introduced an extended cab
version in 1994 powered by the Cummins B Series engines.
The Company's C Series diesel engines and L10 natural gas engine are
available for the US transit bus market. Cummins' natural gas engine
was the first natural gas fueled heavy-duty engine certified by the
California Air Resources Board. The demand for alternate fueled
products in this market continues to grow. In December 1994, Cummins
introduced its B Series natural gas engine for school buses in the
United States.
In these markets, the Company competes with both independent
manufacturers of diesel engines and vehicle producers who manufacture
diesel engines for their own products. Primary competitors who
manufacture diesel engines for the bus and light commercial truck
markets are Detroit Diesel Corporation, General Motors Corporation,
Navistar International Corporation, Perkins Engines Ltd., MAN, AB
Volvo, Mercedes Benz and SAAB-Scania A.B.
Industrial Products
___________________
Cummins' engines power more than 3,000 models of equipment for the
construction, logging, mining, agricultural, petroleum and rail
markets throughout the world. Worldwide sales of Cummins products to
this market in 1994 exceeded 55,000 engines, an increase of
approximately 30 percent, compared to 1993. The Company introduced in
1993 its B Series engine rated at 200 horsepower that met the 1996
California off-highway emissions standards. The Company now has a
complete line of diesel engines certified to meet these stringent
standards.
In construction markets, the Company's relationship with Komatsu
continued to expand. Cummins and Komatsu formed joint ventures in
1993 to produce Cummins B Series engines in Japan and Komatsu's 30-
litre engine in the United States. Production at both joint venture
sites is expected to commence in 1996. Coupled with Cummins'
relationship with Komatsu Dresser in North America, this alliance
provides a strong base in the Company's construction markets.
The Company will introduce in 1995 its new K engine family using
Cummins' high pressure injection fuel system. The Company also will
offer a broad line of engines to meet emissions standards for European
industrial markets.
Marine
______
Marine product applications span 76 to 1,400 horsepower for
recreational, commercial and military markets. In 1994, marine sales
were approximately 15 percent higher than in 1993. Cummins B and C
Series engines are the only products in their horsepower range to have
passed the stringent US Navy testing requirements.
Government
__________
Cummins sells engines for a variety of military and civilian
applications. Government sales continued to decline in 1994 from a
peak of $236 million in 1991. With the US military budget not
expected to increase significantly in the near future, the Company
anticipates that this trend will continue.
Fleetguard, Holset and Cummins Electronics
__________________________________________
Sales of filters, turbochargers and electronic systems represent
approximately 11 percent of the Company's net sales.
Fleetguard is a leading manufacturer of products for the North
American heavy-duty filter industry. Its products also are produced
and sold in international markets, including Europe, Mexico, India,
Australia and the Far East.
Holset's products are sold worldwide. In 1994, Holset introduced a
variable geometry turbocharger design for truck powertrains and, in
North America, Holset introduced its new QE air compressor. In 1994,
Holset and TELCO entered into a joint venture to produce turbochargers
in India.
Cummins Electronics provides controls for Cummins engines and on-board
business information and specialized electronics systems for Cummins'
customers and a select group of non-Cummins' customers.
BUSINESS OPERATIONS
___________________
International
_____________
The Company has manufacturing facilities worldwide, including major
operations in the United Kingdom, Europe, India, Mexico and Brazil.
Cummins has entered into license agreements that provide for the
manufacture and sale of the Company's products in Turkey, China,
Pakistan, South Korea and other countries.
In addition, the Company has entered into alliances with business
partners in various areas of the world. Cummins and Scania of Sweden
have a joint venture to develop a fuel system for heavy-duty diesel
engines. Cummins has a joint venture with TELCO of India to
manufacture the Cummins B Series engines in India for TELCO trucks.
Cummins and Komatsu Ltd. of Japan have formed joint ventures to
manufacture the B Series engines in Japan and high-horsepower Komatsu-
designed engines in the United States. Recently, the Company entered
into a joint venture with China National Heavy Duty Truck Corporation,
previously a Cummins' licensee, to manufacture a broad line of diesel
engines in China. The Company also agreed with Wartsila Diesel
International of Finland to form a joint venture to manufacture both
diesel and natural gas engines above 2,500 horsepower. Several of the
Company's subsidiaries have similar ventures throughout the world.
Because of the Company's increasingly global business, its operations
are subject to risks, such as currency controls and fluctuations,
import restrictions and changes in national governments and policies.
Generally, Cummins expects to benefit from the North American Free
Trade Agreement and the General Agreement on Tariffs and Trade.
However, recent economic conditions in Mexico and the devaluation of
the Mexican peso have adversely affected the Company's operations in
Mexico and are expected to continue to do so in 1995.
Research and Development
________________________
Cummins conducts an extensive research and engineering program to
achieve product improvements, innovations and cost reductions for its
customers, as well as to satisfy legislated emissions requirements.
The Company offers a natural gas-powered engine product line for
certain of its markets. As disclosed in Note 1 to the Consolidated
Financial Statements, research and development expenditures
approximated $198 million in 1994, $158 million in 1993 and $129
million in 1992.
Sales and Distribution
______________________
While the Company has supply agreements with some customers, including
Ford, Chrysler and Komatsu Dresser Corporation, for Cummins engines in
both on- and off-highway markets, most of the Company's business is
done on open purchase orders. These purchase orders usually may be
canceled on reasonable notice without cancellation charges.
Therefore, while incoming orders generally are indicative of
anticipated future demand, the actual demand for the Company's
products may change at any time. While the Company typically does not
measure backlog, customers do have information about future demand,
which is used by the Company for production planning. Lead-times for
the Company's engines are dependent upon the customer, market and
application.
Historically, during the third quarter of the year, the Company has
experienced modest seasonal declines in production, which have had an
effect on the demand for Cummins' products during that quarter of each
year.
The Company's products compete on a number of factors, including
performance, price, delivery, quality and customer support. Cummins
believes that its continued focus on cost, quality and delivery, its
extensive technical investment, its full product line and customer-led
support programs are key elements of its competitive position.
Cummins warrants its engines, subject to proper use and maintenance,
against defects in factory workmanship or materials for either a
specified time period or mileage or hours of use. Warranty periods
vary by engine family and market segment.
There are approximately 5,800 locations in North America, primarily
owned and operated by OEMs or their dealers, at which Cummins-trained
service personnel and parts are available to maintain and repair
Cummins engines. The Company's parts distribution centers are located
strategically throughout the world.
Cummins also sells engines, parts and related products through
distributorships worldwide. The Company believes its distribution
system is an important part of its marketing strategy and competitive
position. Most of its North American distributors are independently
owned and operated. The Company has agreements with each of these
distributors, which typically are for a term of three years, subject
to certain termination provisions. Upon termination or expiration of
the agreement, the Company is obligated to purchase various assets of
the distributorship. The purchase obligation of the Company relates
primarily to inventory of the Company's products, which can be resold
by the Company over a reasonable period of time. In the event the
Company had been required to fulfill its obligations to purchase
assets from all distributors simultaneously at December 31, 1994, the
aggregate cost would have been approximately $200 million. Management
believes it is unlikely that a significant number of distributors
would terminate their agreements at the same time, requiring the
Company to fulfill its purchase obligation.
Supply
______
The Company machines many of the components used in its engines,
including blocks, heads, rods, turbochargers, crankshafts and fuel
systems. Cummins has adequate sources of supply of raw materials and
components required for its operations. The Company has arrangements
with certain suppliers who are the sole sources for specific products.
While the Company believes it has adequate assurances of continued
supply, the inability of a supplier to deliver could have an adverse
effect on production at certain of the Company's manufacturing
locations.
Employment
__________
At December 31, 1994, Cummins employed 25,600 persons worldwide,
approximately 10,500 of whom are represented by various unions. The
Company has labor agreements covering employees in North America,
South America and the United Kingdom. In January 1995, members of the
Diesel Workers Union at the Company's midrange engine plant in
Southern Indiana ratified a 5-year contract. The contract with
members of this union at Cummins Electronics in Southern Indiana
expires in 1995. In 1993, members of the Diesel Workers Union at
other plants in Southern Indiana approved an 11-year contract. Office
and technical workers in Southern Indiana ratified a 3-year contract
in 1993.
ENVIRONMENTAL COMPLIANCE
________________________
Product Environmental Compliance
________________________________
Cummins engines are subject to extensive statutory and regulatory
requirements that directly or indirectly impose standards with respect
to emissions and noise. Cummins' products comply with emissions
standards that the US Environmental Protection Agency ("EPA") and
California Air Resources Board ("CARB") have established for emissions
for on-highway diesel engines produced through 1995. Cummins' ability
to comply with these and future emissions standards is an essential
element in maintaining its leadership position in the North American
heavy-duty truck and other automotive markets, as well as in supplying
other markets. The Company will make significant capital and research
expenditures to comply with these standards. Failure to comply could
result in adverse effects on future financial results.
Cummins has completed successfully the certification of its 1995 on-
highway products, which include both midrange and heavy-duty engines.
All of these products underwent extensive laboratory and field testing
prior to their release.
Emissions Averaging, Banking and Trading regulations were promulgated
by the EPA in July 1990. By selling 1991, 1992 and 1993 model year
engines with emissions levels below applicable standards and by
introducing several of the Company's 1994 configurations early,
Cummins generated substantial nitric oxide and particulate matter
credits. These credits expire on December 31, 1996 if not used before
that date. While a portion of the Company's 1995 products will use
some of these credits as part of an effort to achieve cost-effective
compliance, the Company does not believe that the cost of compliance
without relying on these credits would be material. The Company
closely manages credit generation and use and believes that engines
currently using credits will be brought into compliance during the
course of normal engineering improvements or will be replaced by
engines meeting future emissions standards without any material
financial effect.
The next major change in emissions requirements for heavy-duty diesel
engines occurs in 1998, when the nitric oxide standard is lowered from
5.0 to 4.0 g/bhp-hr. In 1996, the particulate matter standard for
engines used in urban buses changes from 0.07 to 0.05 g/bhp-hr.
Design and development activity toward meeting these standards are
well underway.
Contained in the environmental regulations are several means for the
EPA to ensure and verify compliance with emissions standards. Two of
the principal means are tests of new engines as they come off the
assembly line, referred to as selective enforcement audits ("SEA"),
and tests of field engines, commonly called in-use compliance tests.
The SEA provisions have been used by the EPA to verify the compliance
of heavy-duty engines for several years. In 1994, three such audit
tests were performed on Cummins engines, all of which were passed.
The failure of an SEA could result in cessation of production of the
noncompliant engines and the recall of engines produced prior to the
audit. In the product development process, Cummins anticipates SEA
requirements when it sets emissions design targets.
No Cummins engines were chosen for in-use compliance testing in 1994.
It is anticipated that the EPA will increase the in-use test rate in
future years, raising the probability that one or more of the
Company's engines will be selected. As with SEA testing, if an in-use
test is failed, an engine recall may be necessary.
CARB redefined their medium-duty vehicle class in a way that affects
the Company's products used in certain California vehicles from 8,500
to 14,000 pounds gross vehicle weight. CARB promulgated new standards
for this category which began phasing in the first of 1995. A new
configuration of Cummins B Series engines has been developed to meet
the requirements for this regulatory category. In 1998, the standards
become more stringent. Activity is well underway to develop products
which will meet these future mandates.
In 1988, CARB promulgated a rule that necessitates the reporting of
failures of emissions-related components when the failure rate reaches
a specified level (25 component failures or one percent of build,
whichever is greater). At somewhat higher failure rates (50
components or four percent of build), a recall may be required. The
Company continues to monitor such failures. In 1994, there were no
emissions-related failures which reached a level that required a
report.
In January 1992, CARB promulgated a regulation for mobile off-highway
applications that use engines rated at or above 175 horsepower. The
effective date of the first tier of regulations is January 1, 1996.
Mid-1994, the EPA also promulgated regulations for this category. The
EPA regulation covers engines rated at or above 50 horsepower. In all
other material respects these two regulations are the same. The
Company expects that its products will be brought into compliance with
these regulations.
More stringent emissions standards also are being adopted in
international markets, including Europe and Japan. Given the
Company's experience in meeting US emissions standards, it believes
that it is well positioned to take advantage of opportunities in these
markets as the need for emissions-control capability grows.
There are several federal and state regulations which encourage and,
in some cases, mandate the use of alternate fueled heavy-duty engines.
The Company currently offers natural gas fueled versions of its L10
and B5.9 engines and has several development programs underway to
expand its alternate fueled product offering.
Vehicles and certain industrial equipment in which diesel engines are
installed must meet federal noise standards. The Company believes
that applications in which its engines are now installed meet those
noise standards and that future installations also will be in
compliance.
Other Environmental Statutes and Regulations
____________________________________________
With respect to environmental statutes and regulations applicable to
the plants and operations of the Company and its subsidiaries, Cummins
believes it is in compliance in all material respects with applicable
laws and regulations. During the past five years, expenditures for
environmental control activities and environmental remediation
projects at the Company's operating facilities in the United States
have not been a major portion of annual capital outlays and are not
expected to be material in 1995.
Pursuant to notices received from federal and state agencies and/or
defendant parties in site environmental contribution actions, the
Company and its subsidiaries have been identified as potentially
responsible parties ("PRPs") under the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended, or
similar state laws, at a number of waste disposal sites. Under such
laws, PRPs typically are jointly and severally liable for any
investigation and remediation costs incurred with respect to the
sites. Therefore, the Company's ultimate responsibility for such
costs could be a percentage greater than the percentage of waste
actually contributed to the site by the Company.
The sites at which the Company or its subsidiaries are currently named
as a PRP are the following: Old City Landfill, Columbus, Indiana;
Purity Oil Site, Fresno, California; Oak Grove Sanitary Landfill,
Anoka County, Minnesota; Waste Disposal Engineering Landfill, Andover,
Minnesota; White House Waste Oil Pits, Jacksonville, Florida; Seaboard
Chemical, Jamestown, North Carolina; Double Eagle Refinery, Oklahoma
City, Oklahoma; Wastex Research, East St. Louis, Illinois; North
Hollywood Dump, Memphis, Tennessee; Commercial Oil, Oregon, Ohio;
Berliner & Ferro, Swartz Creek, Michigan; Snitzer Iron & Metal, St.
Paul, Minnesota; Combustion Inc., Denham Springs, Louisiana; Four
County Landfill, Culver, Indiana; Schumann Site, South Bend, Indiana;
Great Lakes Asphalt, Zionsville, Indiana; Third Site, Zionsville,
Indiana; Auto-Ion, Kalamazoo, Michigan; ENRX, Buffalo, New York;
Dubose, Contonement, Florida; Uniontown Landfill, Uniontown, Indiana;
Sand Springs, Sand Springs, Oklahoma; and United Steel Drum, East St.
Louis, Illinois. The Company presently is contesting its status as a
PRP at several of these sites. At some of these sites, the Company
will be released from liability at the site as a de minimis PRP for a
nominal amount.
While the Company is unable at this time to determine the aggregate
cost of remediation at these sites, it has attempted to analyze its
proportionate and actual liability by analyzing the amounts of waste
contributed to the sites by the Company, the estimated costs for total
remediation at the sites, the number and identities of other PRPs and
the level of insurance coverage. The results of that analysis are
described below.
The Company and its subsidiaries have entered into administrative
agreements at certain of these sites to perform remedial actions. At
the Old City Landfill, the Company and two other PRPs have entered
into a Consent Order with the Indiana Department of Environmental
Management to implement the Record of Decision issued by EPA in 1992.
The cost to implement the Consent Order is estimated to be
approximately $300,000, of which the Company will pay 50 percent.
At the Purity Oil Site, a subsidiary of the Company has been
identified as a PRP and is one of several PRPs who have been issued an
order by EPA to undertake remedial action at the site. The Company's
subsidiary has contributed $250,000 toward the first phase of the
remedial action at the site. While the subsidiary's liability for
future expenditures has not been determined, the Company estimates
that its percentage contribution of hazardous waste to the site was
less than one percent. Because all records relating to the site are
unavailable, the PRPs at this site have implemented an Alternative
Dispute Resolution procedure involving a neutral third party who will
recommend an allocation scheme for the PRPs. While waste-in
quantities will be important to this determination, ultimate
resolution of the allocation may vary from the waste-in amount. The
Company believes it has adequate reserves to cover its share of future
expenses at the site.
Onan Corporation, a subsidiary of the Company, has entered into an
administrative agreement to participate in remediation of the Waste
Disposal Engineering Landfill. The cost of remediation at this site
is estimated to range from $10 million to $15 million, of which Onan
expects to contribute approximately $600,000, which has been reserved
fully. The parties to the remediation agreement are in the process of
seeking contributions from third parties, which may affect Onan's
proportionate share of the remediation costs. Onan also has entered
into an administrative agreement for the Oak Grove Sanitary Landfill.
The estimated cost to remediate this site is approximately $6 million.
Onan has agreed to contribute $127,000 to cover its share of the cost
of remediation. Onan is in the process of seeking insurance
reimbursement on both sites (which is being contested by the
insurers). In addition, the Steering Committees for both sites have
submitted each site for reimbursement under the Minnesota Landfill
Cleanup Program, a legislative initiative that would reimburse parties
for remediating hazardous waste landfills. Both sites have been
qualified initially for the program by the Minnesota Pollution Control
Agency. Reimbursement under the program could commence in 1996 and
would extend over ten years.
With respect to other sites at which the Company or its subsidiaries
have been named as PRPs, the Company cannot accurately estimate the
future remediation costs. At several sites, the remedial action to be
implemented has not been determined for the site. In other cases, the
Company or its subsidiary has only recently been named as a PRP and is
collecting information on the site. Finally, in some cases, the
Company believes it has no liability at the site and is actively
contesting designation as a PRP.
Based upon the Company's prior experiences at similar sites, however,
the aggregate future cost to all PRPs to remediate these sites is
likely to be significant. In each of these cases, the Company
believes that it has good defenses at several of the sites, that its
percentage contribution at other sites is likely to be de minimis, or
other PRPs will bear most of the future remediation costs. However,
the environmental laws impose joint and several liability and,
consequently, the Company's ultimate responsibility may be based on
many factors outside the Company's control and could be material in
the event that the Company becomes obligated to pay a significant
portion of these expenses. Based upon information presently
available, the Company believes that such an outcome is unlikely and
that its actual and proportionate costs of participating in the
remediation of these sites will not be material.
In 1994, the Company and Onan Corporation received notices from a
private claimant under California's Proposition 65 law relating to the
adequacy of warnings on certain of the Company's and Onan's products.
The Company and Onan have agreed to a settlement of these claims with
payments approximating $140,000.
ITEM 2. PROPERTIES
_______ __________
Cummins' worldwide manufacturing facilities occupy approximately 14
million square feet, including approximately 5 million square feet
outside the United States. Principal manufacturing facilities in the
United States include the Company's plants in Southern Indiana,
Jamestown, New York, Lake Mills, Iowa, Cookeville, Tennessee, and
Fridley, Minnesota, as well as an engine plant in Rocky Mount, North
Carolina, which is operated in partnership with J I Case.
Countries of manufacture outside of the United States include England,
Scotland, Brazil, Mexico, France, Spain, Australia and Germany. In
addition, engines and engine components are manufactured by joint
ventures or independent licensees at plants in China, India, Japan,
Pakistan, South Korea and Turkey.
Cummins believes that all of its plants have been maintained
adequately, are in good operating condition and are suitable for its
current needs through productive utilization of the facilities.
ITEM 3. LEGAL PROCEEDINGS
_______ _________________
The information appearing in Note 13 to the Consolidated Financial
Statements is incorporated herein by reference.
On April 5, 1990, Raphael Warkel and Alan J. Stransky filed a
complaint in the US District Court for the Southern District of
Indiana against the Company, all of its then-current directors and one
past director. The complaint purported to be brought as a class
action on behalf of persons who purchased the Company's common stock
between May 1, 1989 and September 21, 1989. The complaint alleged
that the Company and the other defendants violated Section 10(b) and
Section 20 of the Securities Exchange Act of 1934 by failing to
disclose material financial information concerning the Company in an
effort to "artificially inflate" the market price of the Company's
common stock. The complaint sought compensatory damages of
unspecified amount, costs and attorneys' fees. All defendants
answered denying the substantive allegations of the complaint. The
plaintiffs moved for class certification, which motion was opposed by
the defendants. On November 30, 1992, the court granted defendants'
motion for judgment on the pleadings and dismissed the complaint. The
court held that the complaint failed to state a claim for relief under
the federal securities laws. The court gave the plaintiffs 30 days to
file an amended complaint. On December 29, 1992, plaintiffs filed an
amended complaint against the same defendants. The amended complaint,
which alleges the Company and other defendants violated Section 10(b)
and Section 20 of the Securities Exchange Act by failing to disclose
material financial information concerning the Company in an effort to
"artificially inflate" the market price of the Company's common stock,
is also brought as a class action and seeks compensatory damages of
unspecified amount, costs and attorneys' fees. On March 3, 1993,
defendants moved to dismiss the amended complaint. On September 13,
1993, the court dismissed the claims of plaintiff Stransky with
prejudice. The court also dismissed the claims of plaintiff Warkel
except for a claim based on an allegedly false and misleading press
release issued by the Company in July 1989. Plaintiff Stransky has
appealed the dismissal of his claim to the US Court of Appeals for the
Seventh Circuit. The matter has been fully briefed and argued and the
parties are awaiting a decision. Defendants believe the remaining
allegations in the amended complaint are without merit and intend to
defend the action vigorously.
The material in Item 1 "Other Environmental Statutes and Regulations"
is incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
_______ _________________________________________________
None.
PART II
_______
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
_______ _____________________________________________________
The Company's common stock is listed on the New York Stock Exchange
and the Pacific Stock Exchange under the symbol "CUM". The following
table sets forth, for the calendar quarters shown, the range of high
and low composite prices of the common stock and the cash dividends
declared on the common stock.
High Low Dividends Declared
________ _______ __________________
1994
____
First quarter $57 5/8 $44 1/2 $.125
Second quarter 53 1/8 40 1/8 .125
Third quarter 45 7/8 35 7/8 .125
Fourth quarter 46 1/4 38 5/8 .25
1993
____
First quarter $48 3/4 $37 3/8 $.025
Second quarter 49 5/16 38 1/2 .025
Third quarter 45 39 .025
Fourth quarter 54 3/8 38 7/8 .125
The Board of Directors in the fourth quarter of 1994 authorized
repurchase by the Company of up to 2.5 million shares of its common
stock. At the Company's discretion, repurchases of the stock will be
made from time to time in the open market and through privately
negotiated transactions. Through December 31, 1994, the Company had
repurchased on the open market .1 million shares of common stock at an
aggregate purchase price of $4.3 million, or average price of $42.47
per share. All of the acquired shares are held as common stock in
treasury.
In the fourth quarter of 1994, the Board of Directors increased the
Company's quarterly common stock dividend from 12.5 cents per share to
25 cents per share. In 1993, the Board of Directors of the Company
increased the quarterly common stock dividend from 2.5 cents per share
to 12.5 cents per share. The declaration and payment of future
dividends by the Board of Directors of the Company will be dependent
upon the Company's earnings and financial condition, economic and
market conditions and other factors deemed relevant by the Board of
Directors.
At December 31, 1994, the approximate number of holders of record of
the Company's common stock was 4,800.
Certain of the Company's loan indentures and agreements contain
provisions which permit the holders to require the Company to
repurchase the obligations upon a change of control of the Company, as
defined in the applicable debt instruments.
As more fully described in Note 12 to the Consolidated Financial
Statements, which information is incorporated herein by reference, the
Company has a Shareholders' Rights Plan.
The Company's bylaws provide that Cummins is not subject to the
provisions of the Indiana Control Share Act. However, Cummins is
governed by certain other laws of the State of Indiana applicable to
transactions involving a potential change of control of the Company.
ITEM 6. SELECTED FINANCIAL DATA
(Dollars in Millions, Except Per Share Amounts)
_______ _______________________________________________
1994 1993 1992 1991 1990
________ ________ ________ ________ ________
Net sales $4,737.2 $4,247.9 $3,749.2 $3,405.5 $3,461.8
Net earnings (loss) 252.9 177.1 (189.5) (14.1) (137.7)
Net earnings (loss)
per share:
Primary 6.11 4.79 ( 6.01) ( .75) (6.13)
Fully diluted 6.11 4.63 ( 6.01) ( .75) (6.13)
Cash dividends per
share .625 .20 .10 .35 1.10
Total assets 2,706.3 2,390.6 2,230.5 2,041.2 2,086.3
Long-term debt 154.9 189.6 412.4 443.2 411.4
In December 1993, the Company sold 2.6 million shares of its common
stock in a public offering and used a portion of the proceeds to
redeem $77.2 in principal amount of the Company's outstanding 9-3/4
percent sinking fund debentures. This early extinguishment of debt
resulted in an extraordinary charge of $5.5.
In 1992, the Company's results included a charge of $251.1 for the
cumulative effect of changes in accounting as prescribed by SFAS Nos.
106, 109 and 112 related to accounting for retirees' health care and
life insurance benefits, income taxes and postemployment benefits. In
1992, the Company sold 4.6 million shares of its common stock in a
public offering and used a portion of the proceeds to extinguish $71.1
of debt of Consolidated Diesel Company, an unconsolidated, 50-percent
owned partnership, $8.2 of the Company's 8-7/8 percent sinking fund
debentures and $11.4 of a 15-percent note payable to an insurance
company. These early extinguishments of debt resulted in an
extraordinary charge of $5.5.
The Company's results for 1991 included a credit of $51.5 for the
cumulative effect of changes in accounting to include in inventory
certain production-related costs previously charged directly to
expense and to adopt a modified units-of-production depreciation
method for substantially all engine production equipment.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION (Dollars in Millions, Unless
Otherwise Stated)
_______ _____________________________________________________________
OVERVIEW
________
Cummins had record sales and earnings in 1994, its 75th anniversary
year. Net sales of $4.7 billion in 1994 were 12 percent higher than
1993's record sales and 26 percent higher than 1992 sales. The
increase in sales during 1994 was due to continued strong demand for
the Company's products in all of its key markets.
The Company's financial results improved in 1994, with net earnings of
$252.9, or $6.11 per share, due to the increase in sales, continued
cost-improvement measures and operating efficiencies, and the
utilization of tax benefit carryforwards. In 1993, net earnings were
$177.1, or $4.79 per share. In 1992, the Company adopted three new
accounting rules, which resulted in a one-time, non-cash, after-tax
charge of $251.1 and a net loss of $189.5, or $6.01 per share. In
both 1993 and 1992, the Company recorded extraordinary charges of $5.5
related to early retirements of debt.
RESULTS OF OPERATIONS
_____________________
The percentage relationship between net sales and other elements of
the Company's Consolidated Statement of Operations for each of the
last three years was:
Percent of Net Sales 1994 1993 1992
____________________ _____ _____ _____
Net sales 100.0 100.0 100.0
Cost of goods sold 75.0 75.6 77.5
_____ _____ _____
Gross profit 25.0 24.4 22.5
Selling & administrative expenses 13.5 13.6 14.2
Research & engineering expenses 5.0 4.9 4.8
Interest expense .4 .9 1.1
Other (income) expense, net (.1) .2 .4
_____ ____ _____
Earnings before income taxes 6.2 4.8 2.0
Provision for income taxes .9 .5 .2
____ ____ ____
Earnings before extraordinary items and
cumulative effect of accounting changes 5.3 4.3 1.8
Extraordinary items - (.1) ( .1)
Cumulative effect of accounting changes - - (6.7)
____ ____ _____
Net earnings (loss) 5.3 4.2 (5.0)
____ ____ _____
Sales by Market
_______________
The Company's sales for each of its key markets during the last three years
were:
1994 1993 1992
________________ ________________ ________________
Net Sales by Markets Dollars Percent Dollars Percent Dollars Percent
____________________ _______ _______ _______ _______ _______ _______
Heavy-duty truck 1,410 30 1,230 29 1,081 29
Midrange truck 513 11 482 11 221 6
Power generation 1,039 22 963 23 914 24
Bus & light commercial
vehicles 592 12 498 12 423 11
Industrial products 526 11 438 10 425 11
Marine 78 2 68 1 64 2
Government 67 1 109 3 173 5
Fleetguard, Holset and
Cummins Electronics (a) 512 11 460 11 448 12
_____ ___ _____ ___ _____ ___
Net sales 4,737 100 4,248 100 3,749 100
_____ ___ _____ ___ _____ ___
(a) Included sales of McCord prior to the third quarter of 1993.
Sales to the heavy-duty truck market in 1994 were 15 percent higher
than in 1993 and 30 percent higher than the 1992 level. The increase
in sales during the last three years has been due to a high level of
demand for engines for the North American heavy-duty truck market. In
1994, the Company's heavy-duty engine shipments for this market were
approximately 14 percent higher than in 1993 and more than 40 percent
higher than in 1992. In 1994, factory retail sales of heavy-duty
trucks in North America were 19 percent higher than the previous
year's level. Cummins continued to lead this market with more than a
34-percent share in 1994. The Company's market share was 35 percent
in 1993 and 37 percent in 1992.
In 1994, international engine shipments for heavy-duty trucks were 27
percent higher than in 1993 and approximately 11 percent higher than
in 1992. In the United Kingdom, the heavy-duty truck market improved
significantly in 1994, with production approximately 35 percent higher
than the 1993 level. The Australian economy also enjoyed its
strongest performance in several years, with engine shipments in 1994
for the South Pacific region approximately 34 percent higher than in
1993. The Company's operations in Brazil were essentially break-even
in 1994, despite the uncertainties in the Brazilian economy. In
Mexico, the Company's operations were profitable in 1994, with engine
shipments approximately 18 percent higher than in 1993. However,
recent economic conditions in Mexico and the devaluation of the peso
have adversely affected the Company's operations in Mexico. This will
result in a lower level of engine shipments in 1995 and will likely
result in losses at the Company's operations in Mexico, which would
not be material to the Company's consolidated results.
Sales of engines for the midrange truck market in 1994 were 6 percent
higher than in 1993 and more than double the 1992 level. Engine
shipments for the North American market were 2 percent higher than in
1993 when some customers made advance purchases of midrange engines
late in the year. International markets for midrange truck engines in
1994 were 23 percent higher than in 1993, due primarily to
improvements in Europe and Asia.
Sales to the power generation market in 1994 exceeded $1 billion,
approximately 8 percent higher than in 1993 and 14 percent higher than
in 1992. Sales to this, the Company's second largest market,
represented 22 percent of net sales in 1994. The increase in sales in
1994 was primarily in international markets, which were 9 percent
higher than in 1993 despite intense pricing competition. In China,
sales were double the 1992 level, with genset demand continuing to
grow but at slower rates. Power generation sales in 1994 also
benefited from the acquisition of Power Group International in the
fourth quarter.
In the bus and light commercial vehicle market, the Company's sales
were approximately 19 percent higher than in 1993 and 40 percent
higher than in 1992. The increase in sales in 1994 was due to the
high level of engine shipments to Chrysler, which were 34 percent
higher than in 1993 when Chrysler's model changeover occurred. In
general, bus markets were relatively flat worldwide. The Company's
international shipments for the bus market in 1994 were approximately
38 percent higher than in 1993. In North America, shipments for the
bus market were 27 percent lower than in 1993, with the decline due in
part to advance purchases of engines at the end of 1993.
Sales to industrial markets were at record levels in 1994, a 20-
percent increase over 1993 and 24 percent higher than in 1992,
primarily due to improvements in both construction and agricultural
markets worldwide.
Other markets for the Company's engines represented approximately 3
percent of the Company's net sales in 1994. Sales of $78 for the
marine business in 1994 were 15 percent higher than in 1993 and 22
percent higher than in 1992. The increase in sales in 1994 was due to
higher engine shipments in both North American and international
markets. Government sales in 1994 continued to be lower than in prior
years, due primarily to the reduction in US government expenditures.
Sales have declined from the 1991 peak of 7 percent of the Company's
net sales to 1 percent of the Company's net sales in 1994. The
Company does not anticipate that this market will improve in 1995.
Engine shipments for all markets in 1994 were 304,300, compared to
263,000 in 1993 and 222,000 in 1992. Shipments by engine family for
the comparative periods were:
Engine Shipments 1994 1993 1992
________________ _______ _______ _______
Midrange engines 195,600 167,900 139,800
Heavy-duty engines 99,900 86,500 73,900
High-horsepower engines 8,800 8,600 8,300
_______ _______ _______
Total engine shipments 304,300 263,000 222,000
_______ _______ _______
Sales of filters, turbochargers and electronic systems continued to
represent approximately 11 percent of the Company's net sales in 1994.
Sales of these products in 1994 increased from the 1993 level and were
approximately 14 percent higher than in 1992. These businesses have
benefited from an increase in sales for both the midrange and heavy-
duty engine markets in North America. In addition, international
markets for filters and turbochargers, particularly in Europe, began
to show signs of improvement from the depressed levels of prior years.
Prior to the third quarter of 1993, sales of McCord Heat Transfer Co.,
were reported in this business market. Effective at the beginning of
the third quarter of 1993, the Company transferred its 80-percent
interest in McCord to Behr America Holding, Inc., for a 35-percent
interest in Behr America, Inc. The Company's minority interest has
been reported as an unconsolidated company since the transfer.
Gross Profit
____________
The Company's gross profit percentage increased to 25.0 percent of net
sales in 1994 from 24.4 percent in 1993 and 22.5 percent in 1992.
The key factor contributing to the improved margin in 1994 was the
increase in demand for the Company's products, which represented
approximately 70 percent of the increase in gross profit. Other
factors included the effects of cost-improvement measures implemented
since 1991 to improve production systems and throughput and pricing
actions in selective markets subsequent to the first quarter of 1993.
The cost of product coverage programs was 2.3 percent of net sales in
1994, compared to 2.1 percent in 1993, which included adjustments to
reduce the product coverage liability for engines previously placed in
service. The cost of product coverage programs was 2.4 percent of net
sales in 1992.
Members of the Diesel Workers Union in Southern Indiana approved an 11-
year contract in 1993. The contract provided for a team-based work
system designed to increase flexibility, employee involvement and
efficiency in exchange for improved pension and health care benefits
for future retirees. Based upon the composition of age and service of
the labor force, the increased expense associated with prior service
of these employees is being recognized during the early years of the
contract. In 1994, employee benefit expense was approximately $37
higher than in 1993, net of a credit related to the Company's long-
term disability program.
As disclosed in Note 13 to the Consolidated Financial Statements, the
Company has entered into commodity swap contracts that have the effect
of fixing the cost of certain material purchases.
Operating Expenses
__________________
Selling and administrative expenses were $641.3 (13.5 percent of net
sales) in 1994, compared to $579.2 (13.6 percent of net sales) in 1993
and $532.5 (14.2 percent of net sales) in 1992. Research and
engineering expenses were $237.7 in 1994, compared to $209.6 in 1993
and $179.5 in 1992. The 32-percent increase since 1992 has been
related to expenditures for the development of fuel systems,
electronics and future products.
Other Income and Expenses
_________________________
Interest expense of $17.5 in 1994 was $18.8 lower than in 1993 and
$23.5 lower than in 1992 due to the Company's early retirement and
redemption of debt obligations during 1993 and 1992. Other income and
expense includes a variety of items such as translation, interest
income, earnings of unconsolidated companies and royalty income.
Income of $3.5 in 1994 was primarily due to a higher level of earnings
of unconsolidated companies.
As disclosed in Note 13 to the Consolidated Financial Statements, the
Company enters into forward exchange contracts that serve to hedge the
effects of fluctuating currency rates on certain assets and
liabilities that are denominated in other than the functional
currencies of international entities.
Provision for Income Taxes
__________________________
As described in Note 7 to the Consolidated Financial Statements, the
Company reduced its valuation allowance for tax benefit carryforwards
during each of the reporting years. The tax provision also included a
one-time credit of $4.4 in 1993 as a result of the Omnibus Budget
Reconciliation Act of 1993.
Extraordinary Items
___________________
As disclosed in Note 5 to the Consolidated Financial Statements, the
Company extinguished certain indebtedness in 1993 and 1992 that
resulted in an extraordinary charge of $5.5 in each year.
Accounting Changes
__________________
As disclosed more fully in Note 1 to the Consolidated Financial
Statements, in 1992, the Company changed its method of accounting for
retirees' health care and life insurance benefits, postemployment
benefits and income taxes, all of which were required by new
accounting rules released by the Financial Accounting Standards Board.
CASH FLOW AND FINANCIAL CONDITION
_________________________________
Key elements of the Consolidated Statement of Cash Flows were:
Net Change in Cash & Cash Equivalents 1994 1993 1992
______________________________________ ______ ______ ______
Net cash provided by operating
activities $375.7 $285.6 $197.7
Net cash used for investing activities (261.1) (148.8) (296.5)
Net cash flows from operating and ______ ______ _______
investing activities 114.6 136.8 ( 98.8)
Net cash (used for) provided by
financing activities ( 49.6) (113.5) 104.9)
Effect of exchange rate changes on cash 4.6 ( .2) ( 3.4)
______ ______ ______
Net change in cash & cash equivalents $ 69.6 $ 23.1 $ 2.7
______ ______ ______
Net cash flows from operating and investing activities totaled $114.6
in 1994, compared to $136.8 in 1993 and a net cash outflow of $98.8 in
1992. The cash outflow in 1992 included $65.1 to acquire the
remaining 36-percent interest in Onan Corporation and a capital
contribution of $71.1 to Consolidated Diesel Company to retire
indebtedness. Capital expenditures during 1994 increased to $237.7,
compared to $174.2 in 1993 and $139.3 in 1992. The increase in 1994
was related to investments for new product introductions and fuel
systems. The Company expects that capital expenditures will continue
to increase in 1995 to fund investments in new products, fuel systems
and electronics. The Company also expects to make investments during
1995 in previously announced joint ventures, including the joint
ventures with TELCO to produce midrange engines in India for TELCO
vehicles, with Komatsu to produce midrange engines in Japan and high-
horsepower engines in the United States and with Wartsila to
manufacture both diesel and natural gas engines above 2,500
horsepower.
At December 31, 1994, the Company had no borrowings outstanding on its
$300 revolving credit agreement. In 1994, the term of this credit
facility was extended to 1999. The Company's debt-to-capital ratio
was 17.8 percent at December 31, 1994, compared to 22.3 percent at
December 31, 1993 and 49.3 percent at December 31, 1992. The
Company's cash reserves increased $69.6 in 1994 to $146.9.
As disclosed in Note 9 to the Consolidated Financial Statements, the
Company called for redemption of its preference stock in 1994. In
lieu of accepting the cash redemption price, most holders elected to
convert their shares of preference stock into common stock of the
Company.
As disclosed in Note 10 to the Consolidated Financial Statements, the
Board of Directors in the fourth quarter of 1994 authorized repurchase
by the Company of up to 2.5 million shares of common stock.
Concurrently, the Board of Directors increased the Company's quarterly
common stock dividend from 12.5 cents per share to 25 cents per share.
In 1993, the Board of Directors of the Company increased the quarterly
common stock dividend from 2.5 cents per share to 12.5 cents per
share.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
_______ __________________________________________
See index to Financial Statements and Schedules on page 24.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
_______ ____________________________________________________
None.
PART III
________
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
________ __________________________________________________
The information appearing under the caption "Election of Directors" of
the Company's definitive Proxy Statement, dated March 3, 1995, for the
Annual Meeting of the Shareholders to be held on April 4, 1995 ("the
Proxy Statement") is incorporated by reference in partial answer to
this item. Except as otherwise specifically incorporated by
reference, the Proxy Statement is not to be deemed filed as part of
this report.
The executive officers of the Company at December 31, 1994 are set
forth below. The Chairman of the Board and President are elected
annually by the Board of Directors at the Board's first meeting
following the Annual Meeting of the Shareholders. Other officers are
appointed by the Chairman and ratified by the Board of Directors and
hold office for such period as the Board of Directors or Chairman of
the Board may prescribe.
Present Position & Business Experience During
Name Age Last 5 Years
_______________ ___ ______________________________________________
Mark E. Chesnut 47 Vice President - Quality & Organizational
Effectiveness (1992 to present), Vice President-
Human Resources & Organizational Effectiveness
(1989-1992)
C. Roberto Cordaro 44 Group Vice President - Marketing (1990 to
present)
John K. Edwards 50 Vice President - International (1989 to present)
Robert L. Fealy 43 Vice President - Treasurer (1988 to present)
Peter B. Hamilton 48 Vice President & Chief Financial Officer
(1988 to present)
James A. Henderson 60 President & Chief Executive Officer
(1994 to present), President and Chief
Operating Officer (1977-1994)
M. David Jones 47 Vice President - Aftermarket Group
(1989 to present)
F. Joe Loughrey 45 Group Vice President - Worldwide Operations
(1990 to present)
John McLachlan 62 Vice President - Corporate Controller (1991
to present), Vice President - Engine Business
Controller (1989-1991)
Henry B. Schacht 60 Chairman of the Board of Directors (1994 to
present), Chairman of the Board of Directors
and Chief Executive Officer (1977 to 1994)
Theodore M. Solso 47 Executive Vice President and Chief Operating
Officer (1994 to present), Executive Vice
President - Operations (1992 to 1994),
Vice President & General Manager Engine
Business (1988 to 1992)
Richard B. Stoner-Jr. 48 Vice President - Cummins Power Generation Group
and President - Onan Corporation (1992 to
present), Managing Director - Holset (1986-1992)
Steven L. Zeller 38 Vice President - Law & External Affairs &
Corporate Secretary (1992 to present), Vice
President - General Counsel & Secretary (1990
to 1992)
ITEM 11. EXECUTIVE COMPENSATION
________ ______________________
The information appearing under the following captions in the
Company's Proxy Statement is hereby incorporated by reference: "The
Board of Directors and Its Committees", "Executive Compensation --
Compensation Tables and Other Information" (including the tables and
information contained at pages 15 to 18 of the Proxy Statement),
"Executive Compensation -- Change of Control Arrangements" and
"Executive Compensation -- Compensation Committee Interlocks and
Insider Participation".
The Company has adopted various benefit and compensation plans
covering officers and other key employees under which certain benefits
become payable upon a change of control of the Company. Cummins also
has adopted an employee retention program covering approximately 350
employees of the Company and its subsidiaries, which provides for the
payment of severance benefits in the event of termination of
employment following a change of control of Cummins. The Company and
its subsidiaries also have severance programs for other exempt
employees of the Company whose employment is terminated following a
change of control of the Company. Certain of the pension plans
covering employees of the Company provide, upon a change of control of
Cummins, that excess plan assets become dedicated solely to fund
benefits for plan participants.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
________ ______________________________________________________________
A discussion of the security ownership of certain beneficial owners
and management appearing under the captions "Principal Security
Ownership", "Election of Directors" and "Executive Compensation --
Security Ownership of Management" in the Proxy Statement is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
________ ______________________________________________
The information appearing under the captions "The Board of Directors
and Its Committees", "Executive Compensation - Compensation Committee
Interlocks and Insider Participation" and "Other Transactions and
Agreements with Directors, Officers and Certain Shareholders" in the
Proxy Statement is incorporated herein by reference.
PART IV
_______
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
________ _______________________________________________________________
Documents filed as a part of this report:
1. See Index to Financial Statements and Schedule on page 24
for a list of the financial statements and schedule filed
as a part of this report.
2. See Exhibit Index on page 44 for a list of the exhibits filed
or incorporated herein as a part of this report.
No reports on Form 8-K were filed during the fourth quarter of 1994.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
__________________________________________
Page
____
Management's Responsibility for Financial Statements 24
Report of the Independent Public Accountants 24
Consolidated Statement of Operations 25
Consolidated Statement of Financial Position 26
Consolidated Statement of Cash Flows 27
Consolidated Statement of Shareholders' Investment 29
Notes to Consolidated Financial Statements 30
Quarterly Financial Data 41
Valuation and Qualifying Accounts 41
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
____________________________________________________
Management is responsible for the preparation of the Company's
consolidated financial statements and all related information
appearing in this Form 10-K. The statements and notes have been
prepared in conformity with generally accepted accounting principles
and include some amounts which are estimates based upon currently
available information and management's judgment of current conditions
and circumstances. The Company engaged Arthur Andersen LLP,
independent public accountants, to examine the consolidated financial
statements. Their report appears on page 24.
To provide reasonable assurance that assets are safeguarded against
loss from unauthorized use or disposition and that accounting records
are reliable for preparing financial statements, management maintains
a system of accounting and controls, including an internal audit
program. The system of accounting and controls is improved and
modified in response to changes in business conditions and operations
and recommendations made by the independent public accountants and the
internal auditors.
The Board of Directors has an Audit Committee whose members are not
employees of the Company. The committee met three times in 1994 with
management, internal auditors and representatives of the Company's
independent public accountants to review the Company's program of
internal controls, audit plans and results, and the recommendations of
the internal and external auditors and management's responses to those
recommendations.
REPORT OF THE INDEPENDENT PUBLIC ACCOUNTANTS
____________________________________________
To the Shareholders and Board of Directors of Cummins Engine Company,
Inc.:
We have audited the accompanying consolidated statement of financial
position of Cummins Engine Company, Inc., (an Indiana corporation) and
subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of operations, cash flows and shareholders'
investment for each of the three years in the period ended December
31, 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Cummins
Engine Company, Inc., and subsidiaries as of December 31, 1994 and
1993, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1994, in
conformity with generally accepted accounting principles.
As explained in Note 1 to the financial statements, effective January
1, 1992, the Company changed its method of accounting for the cost of
retirees' health care and life insurance benefits, postemployment
benefits and income taxes.
Our audits were made for the purpose of forming an opinion on the
consolidated statements taken as a whole. The schedule listed under
Item 14 is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic consolidated financial
statements. The schedule has been subjected to the auditing
procedures applied to the audit of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the
basic consolidated financial statements taken as a whole.
Arthur Andersen LLP
Chicago, Illinois,
January 24, 1995
CUMMINS ENGINE COMPANY, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Millions, Except Per Share Amounts)
____________________________________
1994 1993 1992
________ ________ ________
Net sales $4,737.2 $4,247.9 $3,749.2
Cost of goods sold 3,550.7 3,211.0 2,906.7
________ ________ ________
Gross profit 1,186.5 1,036.9 842.5
Selling & administrative expenses 641.3 579.2 532.5
Research & engineering expenses 237.7 209.6 179.5
Interest expense 17.5 36.3 41.0
Other (income) expense, net (3.5) 6.8 13.1
_________ _______ ________
Earnings before income taxes 293.5 205.0 76.4
Provision for income taxes 40.5 22.3 8.9
Minority interest .1 .1 .4
________ _______ ________
Earnings before extraordinary items and
cumulative effect of accounting changes 252.9 182.6 67.1
Extraordinary items (Note 5) - (5.5) (5.5)
Cumulative effect of accounting changes
(Note 1) - - (251.1)
________ _______ _______
Net earnings (loss) 252.9 177.1 (189.5)
Preference stock dividends - 8.0 8.0
________ ________ ________
Earnings (loss) available for common
shares $ 252.9 $ 169.1 $ (197.5)
________ ________ ________
Primary earnings (loss) per common share:
Before extraordinary items and
cumulative effect of accounting changes $ 6.11 $ 4.95 $ 1.77
Net $ 6.11 4.79 (6.01)
Fully diluted earnings (loss) per
common share:
Before extraordinary items and
cumulative effect of accounting changes $ 6.11 $ 4.77 $ 1.77
Net $ 6.11 4.63 (6.01)
The accompanying notes are an integral part of this statement.
CUMMINS ENGINE COMPANY, INC.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Millions, Except Per Share Amounts)
____________________________________________
December 31,
1994 1993
________ ________
Assets
Current assets:
Cash and cash equivalents $ 146.9 $ 77.3
Receivables less allowances of $10.3 and $9.5 504.3 426.3
Inventories 514.4 440.2
Other current assets 132.2 127.9
________ ________
1,297.8 1,071.7
________ ________
Investments and other assets:
Investments in and advances to unconsolidated
companies 100.1 101.9
Other assets 90.2 88.8
________ ________
190.3 190.7
Property, plant and equipment: ________ ________
Land and buildings 385.9 357.9
Machinery, equipment and fixtures 1,779.1 1,689.9
Construction in progress 204.1 132.7
________ ________
2,369.1 2,180.5
Less accumulated depreciation 1,279.2 1,222.3
________ ________
1,089.9 958.2
________ ________
Intangibles, deferred taxes & deferred charges 128.3 170.0
________ ________
Total assets $2,706.3 $2,390.6
________ ________
Liabilities and shareholders' investment
Current liabilities:
Loans payable $ 40.9 $ 13.4
Current maturities of long-term debt 36.9 32.6
Accounts payable 321.9 267.5
Accrued salaries and wages 87.2 78.1
Accrued product coverage & marketing expenses 130.9 123.5
Income taxes payable 27.4 21.2
Other accrued expenses 194.8 164.0
________ ________
840.0 700.3
________ ________
Long-term debt 154.9 189.6
________ ________
Other liabilities 638.8 679.6
________ ________
Shareholders' investment:
Convertible preference stock, no par value,
.2 shares outstanding - 112.2
Common stock, $2.50 par value, 43.8 and 40.6
shares issued 109.4 101.5
Additional contributed capital 927.2 822.8
Retained earnings 232.2 4.1
Common stock in treasury,at cost,2.2 & 2.1 shares (71.6) ( 67.3)
Unearned ESOP compensation (55.0) ( 59.3)
Cumulative translation adjustments (69.6) ( 92.9)
________ ________
1,072.6 821.1
________ ________
Total liabilities & shareholders' investment $2,706.3 $2,390.6
________ ________
The accompanying notes are an integral part of this statement.
CUMMINS ENGINE COMPANY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Millions)
____________________________________
1994 1993 1992
________ ________ ________
Cash flows from operating activities:
Net earnings (loss) $ 252.9 $ 177.1 $(189.5)
________ ________ ________
Adjustments to reconcile net earnings (loss)
to net cash from operating activities:
Depreciation and amortization 127.7 125.1 122.5
Extraordinary items & cumulative effect
of accounting changes - 5.5 256.6
Accounts receivable ( 37.0) ( 59.4) ( 30.9)
Inventories ( 45.8) .9 ( 18.8)
Accounts payable and accrued expenses 62.1 6.6 14.1
Other 15.8 29.8 43.7
________ ________ ________
Total adjustments 122.8 108.5 387.2
________ ________ ________
Net cash provided by operating activities 375.7 285.6 197.7
________ ________ ________
Cash flows from investing activities:
Property, plant and equipment:
Additions (237.7) $(174.2) $(139.3)
Disposals 5.3 12.0 22.9
Acquisition of new businesses, net of cash
acquired ( 20.7) 3.4 ( 66.8)
Investments in and advances to affiliates
and unconsolidated companies ( 8.0) 10.0 (115.2)
Other - - 1.9
________ ________ _______
Net cash used for investing activities (261.1) (148.8) (296.5)
________ ________ _______
Net cash flows from operating and investing
activities 114.6 136.8 ( 98.8)
________ ________ ________
Cash flows from financing activities:
Proceeds from borrowings - 56.5 112.3
Payments on borrowings ( 33.5) (247.5) (128.3)
Net borrowings under credit agreements 16.9 ( 25.5) 16.2
Net proceeds from common stock issuances - 124.5 126.1
Repurchase of common stock ( 4.3) - -
Dividend payments ( 26.0) ( 15.0) ( 11.3)
Other ( 2.7) ( 6.5) ( 10.1)
________ ________ ________
Net cash (used for) provided by financing
activities ( 49.6) (113.5) 104.9
________ ________ ________
Effect of exchange rate changes on cash 4.6 ( .2) ( 3.4)
________ ________ ________
Net change in cash and cash equivalents 69.6 23.1 2.7
Cash & cash equivalents at beginning of year 77.3 54.2 51.5
_______ _______ _______
Cash & cash equivalents at end of year $ 146.9 $ 77.3 $ 54.2
_______ _______ _______
Cash payments during the year for:
Interest $ 18.9 $ 39.5 $ 41.5
Income taxes 42.5 18.1 20.6
The accompanying notes are an integral part of this statement.
CUMMINS ENGINE COMPANY, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' INVESTMENT
(Millions, Except Per Share Amounts)
__________________________________________________
1994 1993 1992
______ ______ ______
Convertible preference stock, no par value,
1.0 shares authorized:
Beginning balance (.2 shares) $112.2 $114.9 $114.9
Converted to common stock or redeemed
(.2 shares) (112.2) ( 2.7) -
______ _______ ______
Ending balance - 112.2 114.9
______ ______ ______
Common stock, $2.50 par value, 150.0 shares
authorized:
Beginning balance (40.6, 36.5 & 31.8 shares) 101.5 91.3 79.4
Retired (.1, .2 and .2 shares) ( .2) ( .6) ( .6)
Issued in public offerings (2.6 & 4.6 shares) - 6.6 11.5
Conversion of preference stock & LYONs
(2.9 & 1.1 shares) 7.2 2.8 -
Other (.4, .6 and .3 shares) .9 1.4 1.0
______ ______ ______
Ending balance (43.8, 40.6 & 36.5 shares) 109.4 101.5 91.3
______ ______ ______
Additional contributed capital:
Beginning balance 822.8 654.4 537.5
Retired ( 4.7) ( 9.9) ( 7.3)
Issued in public offerings - 117.9 114.6
Conversion of preference stock and LYONs 104.3 48.0 -
Other 4.8 12.4 9.6
______ ______ ______
Ending balance 927.2 822.8 654.4
______ ______ ______
Retained earnings (deficit):
Beginning balance 4.1 (146.1) 48.0
Net earnings (loss) for the year 252.9 177.1 (189.5)
Cash dividends declared:
Convertible preference stock - ( 8.0) ( 8.0)
Common stock (26.0) ( 7.0) ( 3.3)
Additional minimum liability for pensions 1.2 (11.9) 6.7
_______ _______ _______
Ending balance 232.2 4.1 (146.1)
_______ _______ _______
Common stock in treasury:
Beginning balance (2.1 shares) (67.3) (67.3) (67.3)
Stock repurchased (.1 shares) ( 4.3) - -
_______ _______ _______
Ending balance (2.2 and 2.1 shares) (71.6) (67.3) (67.3)
_______ _______ _______
Unearned ESOP compensation:
Beginning balance (59.3) (63.5) (67.9)
Shares allocated to participants 4.3 4.2 4.4
_______ _______ _______
Ending balance (55.0) (59.3) (63.5)
_______ _______ _______
Cumulative translation adjustments:
Beginning balance (92.9) (82.6) (20.8)
Adjustments 23.3 (10.3) (61.8)
_______ _______ _______
Ending balance (69.6) (92.9) (82.6)
________ _______ _______
Shareholders' investment $1072.6 $821.1 $501.1
________ _______ _______
The accompanying notes are an integral part of this statement.
CUMMINS ENGINE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions, Unless Otherwise Stated)
______________________________________________
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation: The consolidated financial statements
include the accounts of Cummins Engine Company, Inc., and its majority-
owned subsidiaries. Affiliated companies in which Cummins does not
have a controlling interest or in which control is expected to be
temporary are accounted for using the equity method.
Revenue Recognition: The Company recognizes revenues on the sale of
its products, net of the estimated costs of returns, allowances and
sales incentives, when the products are shipped to customers.
Product Coverage Programs: Estimated costs of warranty and extended
coverage are charged to earnings at the time the Company sells its
products.
Foreign Currency: The Company uses the local currency as the
functional currency for its manufacturing operations outside the
United States, except those in Brazil and Mexico for which it uses the
US dollar. At operations which use the local currency as the
functional currency, results are translated into US dollars using
average exchange rates for the year, while assets and liabilities are
translated into US dollars using year-end exchange rates. The
resulting translation adjustments are recorded in a separate component
of shareholders' investment. Gains and losses from foreign currency
transactions are included in net earnings. At the Company's
operations in Brazil and Mexico, cash and certain other monetary
assets and liabilities, such as receivables and payables, and revenues
and expenses are translated into US dollars using current exchange
rates. Inventories and nonmonetary assets, such as fixed assets, are
translated into US dollars using historical exchange rates. The
resulting translation adjustments and gains and losses from foreign
currency transactions are reflected in net earnings.
Technical Investment: Expenditures for research and development of
new products, as well as engineering expenditures during early
production and ongoing efforts to improve existing products, are
charged to earnings as incurred, net of contract reimbursements:
Technical Investment 1994 1993 1992
____________________ ______ ______ ______
Research & engineering $237.7 $209.6 $179.5
Reimbursements 30.7 28.8 36.9
Other 43.1 38.1 31.0
______ ______ ______
Total $311.5 $276.5 $247.4
______ ______ ______
Included above in research and engineering are research and
development costs approximating $198 in 1994, $158 in 1993 and $129 in
1992.
Retirement and Postemployment Benefits: The Company charges the cost
of retirement benefits to earnings during employees' active service as
a form of deferred compensation. The cost of postemployment benefits
is charged to earnings at the time employees leave active service.
The cumulative effect of changes in accounting from a cash basis for
certain of these benefits, effective January 1, 1992, resulted in an
after-tax charge of $251.1.
Income Tax Accounting: The Company determines its provision for
income taxes using an asset and liability approach. Under this
method, deferred tax assets and liabilities are recognized for the
future tax effects of temporary differences between the financial
statement basis and the tax basis of assets and liabilities. Future
tax benefits of tax loss and credit carryforwards also are recognized
as deferred tax assets. Deferred tax assets are offset by a valuation
allowance to the extent the Company concludes there is uncertainty as
to their ultimate realization.
Cash Equivalents: Cash equivalents are investments that are readily
convertible to known amounts of cash and have original maturities of
three months or less.
Inventories: The Company accounts for approximately 30 percent of its
inventories using the last-in, first-out (LIFO) cost method. These
LIFO inventories include substantially all of the Company's US heavy-
duty and high-horsepower engine and engine parts inventories. All
other inventories are valued at the lower of first-in, first-out
(FIFO) cost or net realizable value.
Inventories 1994 1993
___________ ______ ______
Finished products $291.6 $272.6
Work-in-process & raw materials 277.0 217.4
_____ ______
Inventories at FIFO cost 568.6 490.0
Excess of FIFO over LIFO (54.2) (49.8)
_____ ______
Inventories $514.4 $440.2
______ ______
Property, Plant and Equipment: Property, plant and equipment are
recorded at cost. The Company depreciates substantially all engine
production equipment using a modified units-of-production method,
which is based upon units produced subject to a minimum level.
Depreciation of all other equipment is computed using the straight-
line method for financial reporting purposes. The estimated service
lives to compute depreciation range from 20 to 40 years for buildings
and 3 to 20 years for machinery, equipment and fixtures. Where
appropriate, the Company uses accelerated depreciation methods for tax
purposes. Maintenance and repair costs are charged to earnings as
incurred.
Earnings Per Common 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 each year. Fully diluted
earnings per share are computed by dividing net earnings by the
weighted-average number of shares outstanding, assuming the exercise
of stock options and the conversion of debt and preference stock to
common stock.
NOTE 2. OPERATING LEASES: Certain of the Company's manufacturing
plants, warehouses and offices are leased facilities. The Company
also leases automobiles and manufacturing and office equipment. Most
of these leases require fixed rental payments, expire over the next
ten years and can be renewed or replaced with similar leases. Rental
expense under these leases in 1994, 1993 and 1992 was $52.3, $50.8 and
$45.3, respectively. Future minimum payments for operating leases
with original terms of more than one year are $29.4 in 1995, $23.4 in
1996, $19.6 in 1997, $16.1 in 1998, $18.4 in 1999 and $100.3
thereafter.
NOTE 3. INVESTMENTS IN UNCONSOLIDATED COMPANIES:
December 31,
1994 1993
____ ____
Consolidated Diesel Company $ 33.1 $ 50.9
Kirloskar Cummins Limited 22.3 16.9
Behr America, Inc. 11.7 12.1
Other 33.0 22.0
______ _____
Carrying value $100.1 $101.9
______ ______
Included above in other investments at December 31, 1994 and 1993 were
$17.7 and $18.5, respectively, related to temporarily owned
distributorships. Cummins' sales to these distributorships
approximated $40 in 1994 and $50 in both 1993 and 1992.
Summary financial information for 50-percent or less owned companies:
Earnings Data 1994 1993 1992
_____________ ______ ______ ______
Net sales $913.6 $746.4 $695.9
Earnings before extraordinary item 14.8 3.4 14.4
Earnings 14.8 3.4 6.4
Cummins' share 5.6 .4 3.4
December 31,
Balance Sheet Data 1994 1993
__________________ ______ ______
Current assets $199.4 $151.4
Noncurrent assets 186.0 207.0
Current liabilities (146.3) (127.0)
Noncurrent liabilities ( 41.8) ( 38.2)
______ ______
Net assets $197.3 $193.2
______ ______
Cummins' share $ 81.4 $ 82.7
______ ______
NOTE 4. SALE OF RECEIVABLES: The Company has an agreement to sell,
without recourse, up to $110.0 of eligible trade receivables. The
amount of receivables outstanding was $110.0 under this agreement at
December 31, 1994 and $108.0 at December 31, 1993. As collections
reduce previously sold receivables, new receivables customarily are
sold up to the $110.0 level.
NOTE 5. LONG-TERM DEBT:
December 31,
Long-term Debt 1994 1993
______________ ______ ______
9.74%-10.65% medium-term notes, through 1998 $102.2 $126.2
8.76% guaranteed notes of ESOP Trust, due 1998 69.5 70.7
Other 20.1 25.3
______ ______
Total indebtedness 191.8 222.2
Less current maturities 36.9 32.6
______ ______
Long-term debt $154.9 $189.6
______ ______
Aggregate maturities of long-term debt for the five years subsequent
to December 31, 1994 are $36.9, $42.1, $24.4, $80.0 and $1.1. At
December 31, 1994 and 1993, the weighted-average interest rate on
loans payable and current maturities of long-term debt was 7 percent
and 6 percent, respectively.
In December 1993, the Company sold 2.6 million shares of its common
stock in a public offering for $49 per share. A portion of the
proceeds was used to redeem $77.2 in principal amount of outstanding 9-
3/4 percent sinking fund debentures. This early extinguishment of
debt resulted in an extraordinary charge of $5.5. The Company also
called for redemption of all the then outstanding Liquid Yield Option
Notes ("LYONs"). Holders submitted 112,808 LYONs with an accreted
value of $48.5 for conversion into 1.0 million shares of common stock,
and the remaining LYONs were redeemed for $.2. Had the stock
issuance, debt repayments and conversion of LYONs occurred as of
January 1, 1993, pro forma earnings per share would have approximated
$4.65 in 1993.
In April 1992, the Company sold 4.6 million shares of its common stock
in a public offering for $28.50 per share. A portion of the net
proceeds was used at the time of the issuance to repay borrowings
under the revolving credit agreement. During the fourth quarter of
1992, the Company extinguished $71.1 of debt of Consolidated Diesel
Company, $8.2 of the Company's 8-7/8 percent sinking fund debentures
and $11.4 of a 15-percent note payable to an insurance company. These
early extinguishments of debt resulted in an extraordinary charge of
$5.5. Had the stock issuance and debt repayments occurred as of
January 1, 1992, the pro forma loss per share would have approximated
$5.80 in 1992.
The Company maintains a $300 revolving credit agreement, under which
there were no outstanding borrowings at December 31, 1994 or 1993. In
1994, the agreement was amended, lowering fees and interest costs and
extending the term to 1999. The Company also maintains other domestic
and international credit lines with approximately $200 available at
December 31, 1994.
The Company has guaranteed the outstanding borrowings of its ESOP
Trust. The ESOP was established for certain of the Company's salaried
employees who participate in the qualified benefit savings plans.
Cash contributions to the ESOP Trust, together with the dividends
accumulated on the common stock held by the Trust, are used to pay
interest and principal due on the notes. Cash contributions and
dividends to the ESOP Trust to fund principal and interest payments
approximated $7 in both 1994 and 1993. The Company's compensation
expense was $8.9 in 1994, $10.0 in 1993 and $10.3 in 1992. The
unearned compensation, which is reflected as a reduction to
shareholders' investment, represents the historical cost of the ESOP
Trust's shares of common stock that have not yet been allocated to
participants.
NOTE 6. OTHER LIABILITIES:
December 31,
Other Liabilities 1994 1993
_________________ ______ ______
Accrued retirement & post-employment benefits $475.2 $521.8
Accrued product coverage & marketing expenses 91.3 90.5
Deferred taxes 20.7 17.3
Accrued compensation 11.7 5.6
Other 39.9 44.4
______ ______
Other liabilities $638.8 $679.6
______ ______
NOTE 7. INCOME TAXES:
Tax Provision 1994 1993 1992
_____________ _____ _____ _____
Current:
US federal and state $28.8 $ 4.7 $ 1.8
Foreign 19.2 19.1 15.6
____ ____ ____
48.0 23.8 17.4
____ ____ ____
Deferred:
US federal and state (9.4) (12.3) (8.5)
Foreign 1.9 10.8 -
_____ ______ _____
(7.5) ( 1.5) (8.5)
_____ ______ ______
Tax provision $40.5 $22.3 $ 8.9
_____ _____ _____
Significant components of the Company's net deferred tax assets relate
to the following tax effects of differences between financial and tax
reporting:
December 31,
Net Deferred Tax Assets 1994 1993
_______________________ ______ ______
US accrued employee benefits $218.8 $203.9
US accrued product coverage & marketing expenses 65.8 63.4
US plant & equipment (110.7) (114.1)
Other net US differences 9.5 19.3
Net UK taxable differences related primarily to
plant and equipment ( 12.8) ( 10.2)
Other net foreign taxable differences ( .8) ( 1.3)
US federal carryforward benefits:
Tax loss and foreign tax credits - 23.4
General business tax credits, expiring 1996 to 2009 61.5 71.6
Minimum tax credits, no expiration 6.5 7.1
Less valuation allowance ( 68.0) (100.7)
______ ______
Net deferred tax assets $169.8 $162.4
______ ______
Balance Sheet Classification
____________________________
Current assets $ 89.5 $ 89.2
Noncurrent assets 101.0 90.5
Noncurrent liabilities (20.7) (17.3)
______ _____
Net deferred tax assets $169.8 $162.4
______ ______
The Company maintains a valuation allowance against its carryforward
benefits that have not yet been realized because of previous
unprofitable operations. These carryforwards have significant usage
limitations which can be overcome only by generating earnings at
levels considerably higher than have been generated in all but the
most recent years. While the need for this valuation allowance is
subject to periodic review, it is expected that the allowance will be
recorded as a reduction of income tax expense as the carryforwards
actually are realized by future earnings. Reductions in the valuation
allowance and realizations of carryforwards amounted to $41.4 in 1994,
$41.5 in 1993 and $17.4 in 1992.
The Omnibus Budget Reconciliation Act ("OBRA") of 1993 increased the
US federal corporate income tax rate from 34 percent to 35 percent,
effective January 1, 1993. Income tax expense for 1993 was reduced
$4.4 as a result of revaluing the net US deferred tax assets at the
higher rate. OBRA also retroactively extended the research tax credit
from its 1992 expiration date through June 30, 1995. Research tax
credits of $9.0 for 1994, $8.0 for 1993 and $6.1 for 1992 have
increased both the general business credit carryforwards and the
offsetting valuation allowance.
Earnings (loss) before income taxes and differences between the
effective tax rate and US federal income tax rate were:
1994 1993 1992
______ ______ ______
Earnings (loss) before income taxes:
US $180.6 $110.7 $(36.4)
International 112.9 94.3 112.8
______ ______ ______
$293.5 $205.0 $ 76.4
______ ______ ______
Tax at US statutory rate $102.7 $ 71.8 $ 25.9
Change in US tax rate - (4.4) -
Utilization of carryforwards (41.4) (41.5) (17.4)
Foreign dividends ( 8.1) .2 ( .2)
Nontaxable UK foreign exchange gain ( 4.2) - -
Other differences in rates & taxability
of foreign subsidiaries ( 5.6) .7 .2
All other, net ( 2.9) (4.5) .4
______ ______ ______
Tax provision $ 40.5 $ 22.3 $ 8.9
______ ______ ______
NOTE 8. RETIREMENT PLANS: The Company has several contributory and
noncontributory pension plans covering substantially all employees.
Benefits for salaried plans generally are based upon compensation
during the three to five years preceding retirement. Under the hourly
plans, benefits generally are based upon various monthly amounts for
each year of service. Prior service cost associated with plan
amendments is amortized over the average remaining service of
participants.
December 31, 1994 December 31, 1993
__________________________ __________________________
Over- Under- Over- Under-
Funded Status funded funded Combined funded funded Combined
_____________ ______ ______ ________ ______ ______ ________
Benefit obligation:
Vested $(396.7) $(517.2) $( 913.9) $(569.2) $(425.5) $( 994.7)
Accumulated $(459.4) $(615.3) $(1074.7) $(642.3) $(522.8) $(1165.1)
Projected $(533.2) $(661.9) $(1195.1) $(736.0) $(539.8) $(1275.8)
Plan assets 623.1 562.0 1185.1 780.8 401.2 1182.0
_______ ________ _________ _______ ________ _________
Funded status 89.9 ( 99.9) ( 10.0) 44.8 (138.6) ( 93.8)
Unrecognized:
Experience (gain)
loss ( 33.0) ( 40.9) ( 73.9) 17.6 3.1 20.7
Prior service cost 12.8 101.7 114.5 22.7 98.5 121.2
Transition asset ( 21.3) ( 17.5) ( 38.8) ( 36.1) ( 11.5) ( 47.6)
Additional liability - ( 32.3) ( 32.3) - ( 87.7) ( 87.7)
_______ _______ _________ _______ ________ _________
Accrued asset
(liability) $ 48.4 $( 88.9) $( 40.5) $ 49.0 $(136.2) $( 87.2)
_______ ________ _________ _______ ________ _________
In 1994, the projected benefit obligation was determined using
weighted-average discount rates of 8.25 percent for the US plans and
8.5 percent for the international plans and, in 1993, rates of 6.75
percent and 8 percent, respectively. The assumed long-term rates of
compensation increase for salaried plans approximated expected
inflation in both 1994 and 1993. The long-term rates of return on
assets were assumed to be 8.5 percent in 1994 and 9.25 percent in 1993
for the US plans and 8.75 percent in 1994 and 10 percent in 1993 for
the international plans.
It is the Company's policy to make contributions to these plans
sufficient to meet the funding requirements of applicable laws and
regulations, plus such additional amounts as deemed to be appropriate.
Plan assets consist principally of equity securities and corporate and
fixed-income Government obligations.
Pension Cost 1994 1993 1992
____________ ______ ______ ______
Service cost $39.9 $ 30.9 $ 28.7
Interest cost 86.5 80.7 78.1
Asset return:
Actual (26.2) (202.5) (79.6)
Deferred (78.7) 99.5 (26.2)
Transition asset amortization ( 9.3) ( 9.2) ( 9.6)
Other 11.6 2.4 ( 2.2)
_____ ______ _______
Pension cost $23.8 $ 1.8 $(10.8)
_____ ______ _______
The Company has a non-qualified excess benefit plan that provides
certain employees with defined retirement benefits in excess of
qualified plan limits imposed by US tax law. In addition, the Company
has a supplementary life insurance plan that provides officers and
other key employees with term life protection during their active
employment and supplemental retirement benefits upon retirement. The
cost of these plans was $4.8 in 1994, $3.6 in 1993 and $3.2 in 1992.
At December 31, 1994 and 1993, the accrued pension liability for these
plans was $22.0 and $18.7, respectively.
While the Company provides certain health care and life insurance
benefits to eligible retirees and their dependents, it reserves the
right to change benefits covered under these plans. The plans are
contributory, with retirees' contributions adjusted annually, and
contain other cost-sharing features, such as deductibles, coinsurance
and spousal contributions. The general policy is to fund these
benefits as claims and premiums are incurred.
Health Care Cost 1994 1993 1992
________________ _____ _____ _____
Service cost $10.2 $ 5.7 $ 5.2
Interest cost 33.3 29.5 29.7
Other 9.4 ( .1) -
_____ ______ _____
Total $52.9 $35.1 $34.9
_____ _____ _____
December 31,
Accrued Liability 1994 1993
_________________ ______ _____
Accumulated benefit obligation for:
Retirees $226.2 $210.0
Employees eligible to retire 92.0 102.1
Others 147.9 191.7
Unrecognized:
Prior service cost (17.1) (24.5)
Net experience loss ( 6.3) (69.2)
______ ______
Accrued liability $442.7 $410.1
______ ______
The weighted-average discount rate used to determine the accumulated
benefit obligation was 8.25 percent in 1994 and 6.75 percent in 1993.
The trend rate for medical benefits provided prior to Medicare
eligibility is 12.8 percent, grading down to an ultimate rate of 6.0
percent by 2008. For medical benefits provided after Medicare
eligibility, the trend rate is 8.5 percent, grading down to an
ultimate rate of 6.0 percent by 1998. The health care cost trend rate
assumption could have a significant effect on the determination of the
obligation. For example, increasing the rate by one percent would
increase the accumulated benefit obligation by $26 and net cost by $3.
NOTE 9. PREFERENCE STOCK REDEMPTION: In 1994, the Company called for
redemption, at a price of $51.05 per depositary share, plus accrued
dividends, of all its outstanding Convertible Exchangeable Preference
Stock, which had a face value of $112.2 at December 31, 1993. Holders
of the stock elected to convert their shares into 2.9 million shares
of common stock. Had the preference stock transaction occurred on
January 1, 1993, pro forma earnings per share would have approximated
$4.63 in 1993.
NOTE 10. COMMON STOCK REPURCHASE PROGRAM: On October 11, 1994, the
Board of Directors authorized repurchase by the Company of up to 2.5
million shares of its common stock. At the Company's discretion,
repurchases of the stock will be made from time to time in the open
market and through privately negotiated transactions. Through
December 31, 1994, the Company had repurchased on the open market .1
million shares at an aggregate purchase price of $4.3, or average
price of $42.47 per share. All of the acquired shares are held as
common stock in treasury.
NOTE 11. EMPLOYEE STOCK PLANS: Under the 1992 stock incentive plan
(and 1986 stock option plan), officers and other eligible employees of
the Company may be awarded stock options, stock appreciation rights
and restricted stock. Under the provisions of the plan, up to one
percent of the Company's outstanding shares of common stock at the end
of the preceding year is available for issuance under the plan each
year. At December 31, 1994, there were 441,113 shares of common stock
available for grant and 215,720 options exercisable under the plans.
Number of
Options Shares Option Price per Share
________ _________ ______________________
December 31, 1992 195,260 $15.94 to $38.91
Granted 456,150 $37.41 to $52.56
Exercised (123,740) $15.94 to $40.25
Expired ( 2,600) $24.20 to $31.63
_________
December 31, 1993 525,070 $15.94 to $52.56
Granted 349,927 $36.81 to $53.25
Exercised ( 10,200) $20.72 to $37.41
________
December 31, 1994 864,797 $15.94 to $53.25
________
NOTE 12. SHAREHOLDERS' RIGHTS PLAN: The Company has a Shareholders'
Rights Plan which it first adopted in 1986. The Rights Plan provides
that each share of the Company's common stock has associated with it a
stock purchase right. The Rights Plan becomes operative when a person
or entity acquires 15 percent of the Company's common stock or
commences a tender offer to purchase 20 percent or more of the
Company's common stock without the approval of the Board of Directors.
In the event a person or entity acquires 15 percent of the Company's
common stock, each right, except for the acquiring person's rights,
can be exercised to purchase $400 worth of common stock for $200. In
addition, for a period of ten days after such acquisition, the Board
of Directors can exchange such right for a new right which permits the
holders to purchase one share of the Company's common stock for $1 per
share. If a person or entity commences a tender offer to purchase 20
percent or more of the Company's common stock, unless the Board of
Directors redeems the rights within 10 days of the event, each right
can be exercised to purchase one share for $200. The Rights Plan also
allows holders of the rights to purchase shares of the acquiring
person's stock at a discount if the Company is acquired or 50 percent
of the assets or earnings power of the Company is transferred to an
acquiring person.
NOTE 13. GUARANTEES, COMMITMENTS AND OTHER CONTINGENCIES: At
December 31, 1994, loans, leases and accounts receivable that have
been sold with recourse amounted to $33.8. Commitments under
outstanding letters of credit, guarantees and contingencies
approximated $140 at December 31, 1994. Based on borrowing rates
currently available to the Company for bank loans with similar terms
and average maturities, the fair value of total indebtedness of $191.8
at December 31, 1994 approximated $220. The carrying values of all
other receivables and liabilities approximated fair values at December
31, 1994.
The Company enters into forward exchange contracts to hedge the
effects of fluctuating currency rates on certain assets and
liabilities, such as accounts receivable and payable, that are
denominated in other than the functional currencies of entities. The
contracts typically provide for the exchange of different currencies
at specified future dates and rates. The gain or loss due to the
difference between the forward exchange rates of the contracts and
current rates offsets in whole or in part the loss or gain on the
assets or liabilities being hedged. The Company had $72.6 of
contracts outstanding at December 31, 1994, which mature in 1995 and
are denominated in a variety of foreign currencies where the Company
does business.
Commodity swap contracts at December 31, 1994 amounted to $20.5 and
have the effect of fixing the Company's cost of certain material
purchases. These contracts mature through 1998. Gains or losses on
the contracts are reflected in earnings concurrently with the hedged
items. No significant concentration of credit or market risk exists
for the Company.
Cummins and its subsidiaries are defendants in a number of pending
legal actions, including actions relating to use and performance of
the Company's products. The Company carries product liability
insurance covering significant claims for damages involving personal
injury and property damage. In the event the Company is determined to
be liable for damages in connection with such actions and proceedings,
the unreserved and uninsured portion of such liability is not expected
to be material. The Company also has been identified as a potentially
responsible party at several waste disposal sites under US and related
state environmental statutes and regulations. The Company denies
liability with respect to many of these legal actions and
environmental proceedings and vigorously is defending such actions or
proceedings. The Company has established reserves which it believes
are adequate for its expected future liability in such actions and
proceedings where the nature and extent of such liability can be
estimated reasonably based upon presently available information.
NOTE 14. SEGMENTS OF THE BUSINESS: The Company operates in a single
industry segment -- designing, manufacturing and marketing diesel
engines and related products. Manufacturing, marketing and technical
operations are maintained in major areas of the world.
Summary financial information is listed below for each geographic
area. Earnings (loss) for each area may not be a meaningful
representation of each area's contribution to consolidated operating
results because of significant sales of products between and among the
Company's various domestic and international operations.
All Corp. Items &
1994 US Europe Other Eliminations Combined
____ _____ ______ _____ ____________ ________
Net sales:
To customers in the area $2708 $ 657 $538 $ - $3903
To customers outside area 594 234 6 - 834
Intergeographic transfers 410 159 114 (683) -
_____ _____ ____ ______ _____
Total $3712 $1050 $658 $(683) $4737
Earnings (loss) before
income taxes $ 177 $ 87 $ 44 $( 14) $ 294
Identifiable assets $1618 $ 499 $412 $ 177 $2706
1993
____
Net sales:
To customers in the area $2374 $ 590 $439 $ - $3403
To customers outside area 589 251 5 - 845
Intergeographic transfers 317 149 84 (550) -
_____ _____ ____ ______ _____
Total $3280 $ 990 $528 $(550) $4248
Earnings (loss) before
income taxes $ 140 $ 89 $ 19 $( 43) $ 205
Identifiable assets $1487 $ 407 $340 $ 157 $2391
1992
____
Net sales:
To customers in the area $1996 $ 616 $418 $ - $3030
To customers outside area 508 209 2 - 719
Intergeographic transfers 273 129 69 (471) -
_____ _____ ____ ______ _____
Total $2777 $ 954 $489 $(471) $3749
Earnings (loss) before
income taxes $ 32 $ 93 $ 5 $( 54) $ 76
Identifiable assets $1432 $ 404 $322 $ 72 $2230
Total sales for each geographic area are classified by manufacturing
source and include sales to customers within and outside the area and
intergeographic transfers. Transfer prices for sales between the
Company's various operating units generally are at arm's length, based
upon business conditions, distribution costs and other costs which are
expected to be incurred in producing and marketing products.
Corporate items include interest and other income and expense.
Identifiable assets are those resources associated with the operations
in each area. Corporate assets are principally cash and investments.
The Company generally sells its products on open account under credit
terms customary to the region of distribution. The Company performs
ongoing credit evaluations of its customers and generally does not
require collateral to secure its customers' receivables.
Net sales by marketing territory:
Net Sales 1994 1993 1992
_________ ______ ______ ______
United States $2,712 $2,389 $2,016
Europe 671 600 629
Asia, Far East & Australia 626 559 455
Canada 330 257 187
Mexico & South America 318 330 355
Africa & Middle East 80 113 107
______ ______ ______
Net sales $4,737 $4,248 $3,749
______ ______ ______
NOTE 15. QUARTERLY FINANCIAL DATA (unaudited):
First Second Third Fourth Full
1994 Quarter Quarter Quarter Quarter Year
____ ________ ________ ________ ________ ________
Net sales $1,099.2 $1,204.9 $1,155.5 $1,277.6 $4,737.2
Gross profit 270.6 297.7 294.1 324.1 1,186.5
Net earnings 54.6 66.2 61.9 70.2 252.9
Primary and fully
diluted earnings
per share $ 1.35 $ 1.58 $ 1.48 $ 1.68 $ 6.11
1993
____
Net sales $1,048.4 $1,093.4 $ 988.3 $1,117.8 $4,247.9
Gross profit 251.0 260.6 239.4 285.9 1,036.9
Earnings before
extraordinary item 41.1 48.2 40.7 52.6 182.6
Net earnings 41.1 48.2 40.7 47.1 177.1
Primary earnings per
share:
Before extraordinary
item $ 1.12 $ 1.32 $ 1.11 $ 1.42 $ 4.95
Net 1.12 1.32 1.11 1.26 4.79
Fully diluted earnings
per share:
Before extraordinary
item 1.07 1.25 1.06 1.36 4.77
Net 1.07 1.25 1.06 1.22 4.63
Net earnings in the fourth quarter of 1994 included a credit of $15
for long-term disability benefits. In the third quarter of 1993, net
earnings included a one-time tax credit of $4.4 resulting from the
OBRA. Net earnings in the fourth quarter of 1993 included an
extraordinary charge of $5.5 related to an early extinguishment of
debt.
CUMMINS ENGINE COMPANY, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in Millions)
_________________________________
1994 1993 1992
______ ______ ______
Allowance for Doubtful Accounts:
________________________________
Balance beginning of period $ 9.5 $ 11.8 $ 14.4
Additions:
Provisions 2.3 4.9 1.8
Recoveries and translation adjustments (.1) .1 (.1)
Deductions:
Write-offs 1.4 7.3 4.3
______ ______ ______
Balance end of period $ 10.3 $ 9.5 $ 11.8
______ ______ ______
Tax Valuation Allowance:
________________________
Balance beginning of period $100.7 $124.4
Additions to offset increases in deferred
tax assets related to:
Tax benefit carryforwards recognized as
assets upon the initial adoption of SFAS
No. 109 - - $139.9
Additional general business tax credits
for research tax credits generated 9.0 14.1 -
Increase in the value of net operating
loss carryforwards as a result of the
OBRA tax rate increase - 1.7 -
Reduction in the utilization of net
operating loss carryforwards due to
extraordinary charges for early
extinguishment of debt - 1.9 1.9
Deductions to reflect reductions in
deferred tax assets related to actual
utilization of tax benefit carryforwards (41.4) (41.5) (17.4)
Other ( .3) .1 -
______ ______ ______
Balance end of period $ 68.0 $100.7 $124.4
______ ______ ______
SIGNATURES
__________
Pursuant to the requirements of Section 13 or 15(d) 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/Peter B. Hamilton By /s/John McLachlan
____________________ _________________
Peter B. Hamilton John McLachlan
Vice President & Chief Vice President - Corporate
Financial Officer Controller (Principal
(Principal Financial Accounting Officer)
Officer)
Date: March 10, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
Signatures Title Date
__________ _____ ____
Director & Chairman of the Board 3/10/95
* of Directors & Chief Executive
_____________________ Officer (Principal Executive Officer)
(J. A. Henderson)
* Director and President & Chief 3/10/95
_____________________ Operating Officer
(T. M. Solso)
* 2/25/95
_____________________ Director
(H. Brown)
*
_____________________ Director 3/10/95
(K. R. Dabrowski)
*
_____________________ Director 3/10/95
(R. J. Darnall)
*
_____________________ Director 2/23/95
(W. Y. Elisha)
*
_____________________ Director 3/10/95
(H. H. Gray)
*
_____________________ Director 3/10/95
(D. G. Mead)
*
_____________________ Director 3/10/95
(J. I. Miller)
*
_____________________ Director 3/10/95
(W. I. Miller)
*
_____________________ Director 3/10/95
(D. S. Perkins)
*
_____________________ Director 3/10/95
(W. D. Ruckelshaus)
*
_____________________ Director 3/10/95
(H. B. Schacht)
*
_____________________ Director 2/22/95
(F. A. Thomas)
*
_____________________ Director 3/10/95
(J. L. Wilson)
By /s/Mark R. Gerstle
__________________
Mark R. Gerstle
Attorney-in-fact
CUMMINS ENGINE COMPANY, INC.
EXHIBIT INDEX
____________________________
3(a) Restated Articles of Incorporation of Cummins Engine Company,
Inc., as amended (incorporated by reference to Quarterly
Report on Form 10-Q for the quarter ended April 3, 1994, 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).
3(b) By-laws of Cummins Engine Company, Inc., as amended and
restated effective as of August 12, 1994 (incorporated
by reference to Quarterly Report on Form 10-Q for the quarter
ended October 2, 1994).
4(b) Amended and Restated Credit Agreement (incorporated by
reference to Quarterly Report on Form 10-Q for the quarter
ended October 2, 1994).
4(c) Rights Agreement, as amended (incorporated by reference to
Annual Report on Form 10-K for the year ended December 31,
1989, by reference to Form 8-K, dated July 26, 1990, by
reference to Form 8, dated November 6, 1990, by reference to
Form 8-A12B/A, dated November 1, 1993, and by reference to
Form 8-A12B/A, dated January 12, 1994).
10(a) Target Bonus Plan (incorporated by reference to Quarterly
Report on Form 10-Q for the quarter ended July 3, 1994).
10(b) Deferred Compensation Plan (filed herewith).
10(c) Key Employee Stock Investment Plan, as amended (incorporated
by reference to Quarterly Report on Form 10-Q for the quarter
ended July 3, 1994).
10(d) Supplemental Life Insurance and Deferred Income Plan
(incorporated by reference to Quarterly Report on Form 10-Q
for the quarter ended October 2, 1994).
10(e) Financial Counseling Program, (incorporated by reference to
Quarterly Report on Form 10-Q for the quarter ended
July 3, 1994).
10(f) 1986 Stock Option Plan (incorporated by reference to Quarterly
Report on Form 10-Q for the quarter ended March 30, 1986).
10(g) Deferred Compensation Plan for Non-Employee Directors, as
amended, effective as of April 15, 1994 (filed herewith).
10(h) Key Executive Compensation Protection Plan (incorporated by
reference to Quarterly Report on Form 10-Q for the quarter
ended October 2, 1994).
10(i) Excess Benefit Retirement Plan, (incorporated by reference to
Quarterly Report on Form 10-Q for the quarter ended October 2,
1994).
10(j) Performance Share Plan, as amended (incorporated by reference
to Annual Report on Form 10-K for the year ended December 31,
1988).
10(k) Restated Sponsors Agreement between Case Corporation and
Cummins Engine Company, Inc., dated December 7, 1990, together
with the Restated Partnership Agreement between Case Engine
Holding Company, Inc., and Cummins Engine Holding Company,
Inc., dated December 7, 1990 (incorporated by reference to
Annual Report on Form 10-K for the year ended December 31,
1990).
10(l) Retirement Plan for Non-Employee Directors of Cummins Engine
Company, Inc., (incorporated by reference to Annual Report on
Form 10-K for the year ended December 31, 1989).
10(m) Stock Unit Appreciation Plan (incorporated by reference to
Annual Report on Form 10-K for the year ended December 31,
1990).
10(n) Investment Agreement between Ford Motor Company and Cummins
Engine Company, Inc., dated July 16, 1990 (incorporated by
reference to Form 8-K, dated July 26, 1990).
10(o) Investment Agreement between Tenneco Inc., and Cummins Engine
Company, Inc., dated July 16, 1990 (incorporated by reference
to Form 8-K, dated July 26, 1990).
10(p) Investment Agreement between Kubota Corporation and Cummins
Engine Company, Inc., dated July 16, 1990 (incorporated by
reference to Form 8-K, dated July 26, 1990).
10(q) Three Year Performance Plan (incorporated by reference to
Annual Report on Form 10-K for the year ended December 31,
1992).
10(r) Consulting Arrangement with Harold Brown (incorporated by
reference to the description thereof provided in the Company's
definitive Proxy Statement, dated March 3, 1995).
10(s) 1992 Stock Incentive Plan (incorporated by reference to
Quarterly Report on Form 10-Q for the quarter ended April 3,
1994).
10(t) Restricted Stock Plan for Non-Employee Directors (incorporated
by reference to Quarterly Report on Form 10-Q for the quarter
ended April 3, 1994).
11 Schedule of Computation of Per Share Earnings for each of the
three years ended December 31, 1994 (filed herewith).
21 Subsidiaries of the Registrant (filed herewith).
23 Consent of Arthur Andersen & Co. (filed herewith).
24 Powers of Attorney (filed herewith).