CUMMINS INC - 10-Q Quarterly Report

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 o No T

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes T No o

As of March 28, 2004, there were 43.1 million shares of $2.50 par value per share common stock outstanding.

$ Millions, except per share amounts, (unaudited)	2004	2003

Net sales (includes related party sales of $186 and $189, respectively)	$ 1,771	$ 1,387
Cost of goods sold (includes related party purchases of $151 and $120, respectively)	1,426	1,169
Gross margin	345	218
Expenses and other income:
Selling and administrative expenses	223	195
Research and engineering expenses	56	47
Equity, royalty and other income from investees (Note 4)	(18)	(7)
Interest expense	27	20
Other (income) expense, net (Note 9)	6	(7)

Earnings (loss) before income taxes, minority interests and dividends on preferred securities	51	(30)
Provision (benefit) for income taxes	14	(9)
Minority interests in earnings of consolidated entities	4	4
Dividends on preferred securities of subsidiary trust	-	6

Net earnings (loss)	$ 33	$ (31)


Earnings (loss) per share (Note 11):
Basic	$ 0.81	$ (0.79)
Diluted	0.76	(0.79)

Weighted average shares outstanding (millions):
Basic	40.5	38.9
Diluted	47.3	38.9

Cash dividends declared per share	$ 0.30	$ 0.30

The accompanying notes are an integral part of the consolidated financial statements.

$ Millions	Unaudited March 28, 2004	December 31, 2003*
ASSETS
Current assets:
Cash and cash equivalents	$ 131	$ 108
Marketable securities	83	87
Receivables, net	996	772
Receivables from related parties	87	157
Inventories (Note 3)	863	733
Other current assets	295	273

Total current assets	2,455	2,130
Long term assets:
Property, plant and equipment, net of accumulated depreciation ($2,094 and $1,774)	1,544	1,347
Investments in and advances to equity investees (Note 4)	265	339
Goodwill	356	344
Other intangible assets, net	92	92
Deferred income taxes	663	663
Other assets	213	211

Total assets	$ 5,588	$ 5,126

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Loans payable	$ 41	$ 28
Current maturities of long-term debt	254	21
Accounts payable	765	557
Accrued product coverage and marketing expenses (Note 5)	281	246
Other accrued expenses	544	539

Total current liabilities	1,885	1,391
Long-term liabilities:
Long-term debt (Note 6)	1,231	1,380
Pensions (Note 7)	447	446
Postretirement benefits other than pensions (Note 7)	565	577
Other long-term liabilities	263	260
Total liabilities	4,391	4,054
Commitments and contingencies (Note 8)
Minority interests	187	123
Shareholders' equity:
Common stock, $2.50 par value, 150 million shares authorized, 48.2 and 48.3 million shares issued	121	121
Additional contributed capital	1,118	1,113
Retained earnings	588	569
Accumulated other comprehensive loss (Note 10)
Minimum pension liability	(435)	(434)
Other components, net	(49)	(58)
Common stock in treasury, at cost, 5.1and 5.6 million shares	(202)	(225)
Common stock held in trust for employee benefit plans, 2.3 and 2.3 million shares	(110)	(113)
Unearned compensation	(21)	(24)

Total shareholders' equity	1,010	949

Total liabilities and shareholders' equity	$ 5,588	$ 5,126

The accompanying notes are an integral part of the consolidated financial statements.

$ Millions (unaudited)	March 28, 2004	March 30, 2003
Cash flows from operating activities
Net earnings (loss)	$ 33	$ (31)
Adjustments to reconcile net earnings (loss) to net cash flows provided by (used in) operating activities:
Depreciation and amortization.	60	55
Earnings of equity investees, net of dividends	(12)	(7)
Minority interests in earnings of consolidated entities	4	4
Noncash compensation expense	12	-
Amortization of gain on terminated interest rate swaps	(2)	-
Translation and hedging activities	(13)	(2)
Changes in assets and liabilities:
Receivables	(119)	(59)
Inventories	(83)	(53)
Accounts payable and accrued expenses	165	11
Other	11	4

Net cash provided by (used in) operating activities	56	(78)


Cash flows from investing activities
Capital expenditures	(9)	(16)
Investments in internal use software	(8)	(6)
Proceeds from disposals of property, plant and equipment	1	3
Investments in and advances to equity investees	(18)	(6)
Purchases of marketable securities	(29)	(29)
Sales of marketable securities	34	28

Net cash used in investing activities	(29)	(26)



Cash flows from financing activities
Proceeds from borrowings	6	1
Payments on borrowings and capital leases	(19)	(117)
Net borrowings under short-term credit agreements	1	75
Dividend payments on common stock	(13)	(12)
Proceeds from issuance of common stock	22	-
Other	-	(2)

Net cash used in financing activities	(3)	(55)

Effect of exchange rate changes on cash and cash equivalents	(1)	1
Net change in cash and cash equivalents	23	(158)

Cash and cash equivalents at beginning of year	108	224

Cash and cash equivalents at end of quarter	$ 131	$ 66

Cash payments during the quarter for:

Indiana (State of Incorporation)		35-0257090 (IRS Employer Identification No.)
500 Jackson Street Box 3005 Columbus, Indiana 47202-3005 (Address of principal executive offices)
Telephone (812) 377-5000

Title of each class		Name of each exchange on which registered
Common Stock, $2.50 par value		New York Stock Exchange Pacific Stock Exchange

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	PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

	Consolidated Statements of Earnings for the three months ended March 28, 2004 and March 30, 2003	3

	Consolidated Balance Sheets at March 28, 2004 and December 31, 2003	4

	Consolidated Statements of Cash Flows for the three months ended March 28, 2004 and March 30, 2003	5

	Notes to the Consolidated Financial Statements	6

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	16

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31

Item 4.	Controls and Procedures	32

	PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	32

Item 2	Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities	33

Item 4.	Submission of Matters to a Vote of Security Holders	33

Item 6.	Exhibits and Reports on Form 8-K	33

	Signatures	34