Cummins Reports Earnings for the Fourth Quarter; Cost Reduction and Restructuring Activities Continue
COLUMBUS, Ind.--Jan. 26, 2001--Consistent with its announcement on December 19, 2000, Cummins Inc. today reported that it lost 45 cents per share in the fourth quarter of 2000, or a loss of $17 million, on sales of $1.61 billion, exclusive of a pre-tax charge of $160 million for costs associated with certain restructuring actions.Including the charge, Cummins posted a loss of $120 million or a loss of $3.16 per share. In the fourth quarter of 1999, the company reported net earnings of $25 million, or 65 cents per share, on sales of $1.84 billion, including a pre-tax charge of $60 million for costs associated with the dissolution of its Wartsila joint venture.
For the full year 2000, Cummins reported net earnings of $111 million or $2.91 per share, on revenues of $6.6 billion, excluding the charge. For the full year 1999, excluding a charge, Cummins reported net earnings of $205 million or $5.29 per share, on revenues of 6.6 billion.
The company said that the significant drop in demand in a number of North American end markets affected the financial results for the fourth quarter of 2000. In the heavy-duty truck market, shipments of engines for the quarter were down more than 52 percent from last year's levels. Shipments of engines for the Dodge Ram pickup truck were down 15 percent from the year-ago quarter due to DaimlerChrysler's decision in the fourth quarter to reduce production of all its vehicles. In the medium-duty truck market, engine shipments for the quarter were 39 percent lower, and construction market shipments were down 21 percent.
The drop in the North American truck market affected original equipment exhaust systems demand within the Filtration business. Sales to consumer-oriented markets in both Filtration and Power Generation were also down. For example, compared to the fourth quarter of 1999, generator set sales to the RV market were down 15 percent, and exhaust system sales to small engine markets were down 21 percent.
Cost Reductions and Restructuring Continues
`We continue to focus on reducing costs as we work through the challenges in the market and are completing the restructuring actions we announced this past December," said Cummins Chairman and Chief Executive Officer Tim Solso. "These actions, which are primarily focused in our Engine business, include the termination of over 350 salaried employees, layoffs and reduced work hours for hourly employees, the cancellation or delay of a number of new product programs and information technology projects. We continue to align staffing levels to address the drop in demand for engines in North America; since May of 2000, we have reduced the number of full-time-equivalent people in our Engine business by over 1000. We are also working on a number of longer-term restructuring activities throughout the company, including closing, consolidating, or exiting nine businesses and facilities. We expect that these actions, when fully implemented, will save the company approximately $55 million per year."
Solso continued, "We are also working hard to fundamentally change how Cummins participates in the North American heavy-duty truck engine business, with the goal of further driving out cost while maintaining the quality and reliability our customers demand and have come to expect from Cummins. Our strategy, which we expect to announce in the first quarter of this year, will likely include additional cost reduction actions, and may include an additional restructuring charge."
Outlook
The company said that it expected that first quarter 2001 revenues would be approximately 10 percent lower than the fourth quarter, citing the continued deterioration of North American truck markets, further reductions in the buildrate by DaimlerChrysler for the Dodge Ram pickup truck, and the slowdown in the RV and other consumer-oriented markets. For the full year of 2001, the company said that it anticipated earnings to be approximately half the level reported for the year 2000.
"While we expect challenges in 2001 for the Engine business, both our Power Generation and Filtration and Other businesses will remain strong and profitable," said Solso. "We expect sales in Power Generation to grow 10 to 15 percent this year, with increased sales from new technologies, growth in the internet and telecommunications sectors, and a shift towards services. In our Filtration business, we anticipate growth of 5 to 8 percent for the year; we will also see additional growth in our company-owned distributors overseas. Revenues in our Engine business will likely be down 10 percent for the year. Over the longer term, I am confident that the strategy we are considering for our Engine business will restore it to profitability."
Engine Business
Fourth quarter revenues for the Engine business were $936 million, down 15 percent from the fourth quarter of 1999. Sales of $322 million to the worldwide heavy-duty truck market were down 28 percent compared to the fourth quarter of 1999, with a 44 percent decrease in unit shipments. In the medium-duty truck market, sales of $113 million were down 12 percent compared to a year ago, primarily due to unscheduled shutdowns at OEM customers. Sales of $222 million to the bus and light commercial vehicle market were 12 percent lower than fourth-quarter 1999, reflecting the drop in shipments of engines to DaimlerChrysler for the Dodge Ram pickup truck. Sales of $279 million to agriculture, construction, mining, marine, and other industrial markets were up 4 percent compared to the fourth quarter of 1999, with increased sales to railroad and agricultural customers offset by the drop in the North American construction markets. Excluding special charges, the Engine business reported a net loss before interest and taxes of $52 million, compared to net profit of $51 million for the same period a year ago.
Power Generation Business
Power generation sales of $364 million were down 19 percent from the year-ago quarter. In the fourth quarter of last year, the company launched its rental business, and there was increased demand for generators related to the Year 2000 issue. This quarter also reflects a reduction in demand for small gensets used primarily in recreational vehicles and mobile markets. Excluding special charges, earnings before interest and taxes for the fourth quarter were $25 million, or 6.9 percent of sales, slightly higher than the $24 million, or 5.4 percent of sales, reported in the fourth quarter a year ago.
Filtration Business and Other
Sales of filtration and other products of $308 million were up 6 percent from the fourth quarter of 1999, primarily due to increased sales by company-owned distributors. Excluding special charges, earnings before interest and taxes for the quarter were $27 million, or 8.8 percent of sales, compared to the fourth quarter of 1999, when the group reported earnings before interest and taxes of $32 million, or 11 percent of sales.
The company's conference call to discuss the earnings report will be webcast at 11 a.m. EST today. The webcast can be accessed through Cummins' website at www.cummins.com. Access the investor home page and connect to the link to the conference call.
Cummins, headquartered in Columbus, Ind., is the world's largest producer of diesel engines above 50 horsepower. The company provides products and services for customers in markets worldwide for engines, power generation, and filtration. In 2000, Cummins reported sales of $6.6 billion. Press releases by fax may be requested by calling News on Demand at 888-329-2305.
Information provided and statements made on the webcast and in this release that are not purely historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding the company's expectations, hopes, beliefs and intentions on strategies regarding the future. It is important to note that the company's actual future results could differ materially from those projected in such forward-looking statements because of a number of factors, including but not limited to general economic, business and financing conditions, labor relations, governmental action, competitor pricing activity, expense volatility, and other risks detailed from time to time in Cummins' Securities and Exchange Commission filings.
CUMMINS ENGINE COMPANY, INC.
(Millions, except per share amounts)
FOR THE FOURTH QUARTER ENDED Dec. 31, 2000 Dec. 31, 1999
---------------------------- ------------- -------------
Net Sales $ 1,608 $ 1,836
Before special charges
Earnings before interest and taxes $ 0 $ 107
Net earnings (loss) (17) 70
Basic earnings (loss) per share $ (.45) $ 1.83
Diluted earnings (loss) per share (.45) 1.82
As reported
Earnings (loss) before interest and taxes $ (160) $ 47
Net earnings (loss) (120) 25
Basic earnings (loss) per share $ (3.16) $ .65
Diluted earnings (loss) per share (3.16) .65
Weighted-average number of shares for EPS:
Basic 38.3 38.1
Diluted 38.3 38.4
FOR THE YEAR ENDED Dec. 31, 2000 Dec. 31, 1999
------------------ ------------- -------------
Net Sales $ 6,597 $ 6,639
Before special charges
Earnings before interest and taxes $ 249 $ 356
Net earnings 111 205
Basic earnings per share $ 2.91 $ 5.33
Diluted earnings per share 2.91 5.29
As reported
Earnings before interest and taxes $ 89 $ 296
Net earnings 8 160
Basic earnings per share $ .20 $ 4.16
Diluted earnings per share .20 4.13
Weighted-average number of shares for EPS:
Basic 38.2 38.3
Diluted 38.2 38.6
CUMMINS ENGINE COMPANY, INC
---------------------------
CONSOLIDATED STATEMENT OF EARNINGS
----------------------------------
Unaudited
---------
Millions, except
per share amounts Fourth Quarter Year Ended Third Quarter
------------------ -------------- ------------- -------------
2000 1999 2000 1999 2000
---- ---- ---- ---- ----
Net sales $ 1,608 $ 1,836 $ 6,597 $ 6,639 $ 1,572
Cost of goods sold 1,345 1,451 5,338 5,221 1,262
Gross profit 263 385 1,259 1,418 310
Selling and
administrative expenses 197 211 776 781 195
Research and
engineering expenses 64 64 244 245 62
Net (income) expense
from joint ventures
and alliances (2) 8 (9) 28 (3)
Interest expense 24 19 86 75 22
Other expense (income),
net 4 (5) (1) 8 (5)
Restructuring, asset
impairment and other
non-recurring charges 160 60 160 60 -
Earnings (loss) before
income taxes (184) 28 3 221 39
Provision (benefit) for
income taxes (67) 1 (19) 55 9
Minority interest 3 2 14 6 5
Net earnings (loss) $ (120) $ 25 $ 8 $ 160 $ 25
Basic earnings (loss)
per share $ (3.16) $ .65 $ .20 $ 4.16 $ .66
Diluted earnings (loss)
per share $ (3.16) $ .65 $ .20 $ 4.13 $ .66
Average number of shares:
Basic EPS 38.3 38.1 38.2 38.3 38.2
Diluted EPS 38.3 38.4 38.2 38.6 38.2
Cash dividends declared
per share $ .30 $ .30 $ 1.20 $ 1.125 $ .30
CUMMINS ENGINE COMPANY, INC.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
December 31,
Millions, except per share amounts 2000 1999
---------------------------------- ---- ----
Assets
Current assets:
Cash and cash equivalents $ 62 $ 74
Receivables, net of allowance of $8 and $9 724 1,026
Inventories 770 787
Other current assets 274 293
1,830 2,180
Investments and other assets:
Investments in joint ventures and alliances 201 131
Other assets 137 143
338 274
Property, plant and equipment:
Land and buildings 590 577
Machinery, equipment and fixtures 2,417 2,375
Construction in process 189 168
3,196 3,120
Less accumulated depreciation 1,598 1,490
1,598 1,630
Goodwill, net of amortization of $42 and $28 354 364
Other intangibles, deferred taxes and deferred charges 380 249
Total assets $4,500 $4,697
Liabilities and shareholders' investment
Current liabilities:
Loans payable $ 156 $ 113
Current maturities of long-term debt 8 10
Accounts payable 388 411
Accrued salaries and wages 71 88
Accrued product coverage and marketing expenses 280 246
Income taxes payable 11 40
Other accrued expenses 309 406
1,223 1,314
Long-term debt 1,032 1,092
Other liabilities 837 788
Minority interest 72 74
Shareholders' investment:
Common stock, $2.50 par value,
48.6 and 48.3 shares issued 122 121
Additional contributed capital 1,137 1,129
Retained earnings 718 760
Accumulated other comprehensive income (167) (109)
Common stock in treasury, at cost, 7.2 and 6.8 shares (290) (274)
Common stock held in trust for employee benefit plans,
3.1 and 3.4 shares (151) (163)
Unearned compensation (33) (35)
1,336 1,429
Total liabilities and shareholders' investment $4,500 $4,697
CUMMINS ENGINE COMPANY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Millions 2000 1999 1998
-------- ---- ---- ----
Cash flows from operating activities:
Net earnings (loss) $ 8 $ 160 $ (21)
Adjustments to reconcile net earnings
(loss) to net cash from operating
activities:
Depreciation and amortization 240 233 199
Restructuring and other
non-recurring actions 132 38 110
Equity in (earnings) losses of
joint ventures and alliances 9 35 38
Receivables 54 (200) (10)
Inventories 9 (60) (26)
Accounts payable and accrued
expenses (241) 162 56
Deferred income taxes 2 (31) (65)
Other (44) (30) (10)
Total adjustments 161 147 292
169 307 271
Cash flows from investing activities:
Property, plant and equipment:
Additions (228) (215) (271)
Disposals 11 22 7
Investments in joint ventures and
alliances (53) (36) (22)
Acquisitions and dispositions of
business activities (42) 57 (468)
Other - 6 2
(312) (166) (752)
Net cash (used in) provided by
operating and investing activities (143) 141 (481)
Cash flows from financing activities:
Proceeds from borrowings 1 28 711
Payments on borrowings (65) (90) (161)
Net borrowings (payments) under
short-term credit agreements 49 49 (30)
Proceeds from sale of receivables 219 - -
Repurchases of common stock (16) (34) (14)
Dividend payments (50) (47) (46)
Other (5) (11) 11
133 (105) 471
Effect of exchange rate changes on cash (2) - (1)
Net change in cash and cash equivalents (12) 36 (11)
Cash and cash equivalents at
beginning of year 74 38 49
Cash and cash equivalents at end of
year $ 62 $ 74 $ 38
Cash payments during the year for:
Interest $ 88 $ 82 $ 56
Income taxes 73 56 73
CUMMINS ENGINE COMPANY, INC.
SEGMENT INFORMATION
Unaudited
Operating segment information is as follows:
Power Filtration
Millions Engine Generation And Other Total
-------- ------ ---------- --------- -----
Fourth Quarter Ended
December 31, 2000
-----------------
Net sales $ 936 $ 364 $ 308 $1,608
Earnings (loss) before
interest, income taxes
and special charges (52) 25 27 -
Special charges 131 19 10 160
Earnings (loss) before
interest and income taxes (183) 6 17 (160)
Net assets 1,148 543 899 2,590
Fourth Quarter Ended
December 31, 1999
-----------------
Net sales $1,098 $ 448 $ 250 $1,836
Earnings before interest,
income taxes and
special charges 51 24 32 107
Special charges 18 42 - 60
Earnings (loss) before
interest and income taxes 33 (18) 32 47
Net assets 1,015 553 868 2,436
Year Ended December 31, 2000
----------------------------
Net sales $4,050 $1,395 $1,152 $6,597
Earnings before interest,
income taxes and
special charges 24 103 122 249
Special charges 131 19 10 160
Earnings before interest
and income taxes (107) 84 112 89
Year Ended December 31, 1999
----------------------------
Net sales $4,225 $1,356 $1,058 $6,639
Earnings before interest,
income taxes and
special charges 182 52 122 356
Special charges 18 42 - 60
Earnings before interest
and income taxes 164 10 122 296