Cummins Inc. Reports Third Quarter Earnings of $1 Per Share; $39 Million Profit Reflects Improved Cost Structure, Strong Engine Sales
COLUMBUS, Ind.--Oct. 17, 2002--Today Cummins Inc. reported third quarter earnings of $1.00 per fully diluted share or $39 million profit after taxes, on sales of $1.65 billion. This compares to earnings of 8 cents per share for the third quarter of 2001, or $3 million profit after taxes on sales of $1.41 billion."Results from our Engine Business reflected increased demand for heavy-duty engines in advance of the October 1 deadline for new diesel emission standards, as well as the significant progress that we have made with our ongoing cost reduction efforts," said Tim Solso, Chairman and Chief Executive Officer. "In addition, our partnership with DaimlerChrysler on the new Dodge Ram pickup truck continues to be a great success, resulting in a 21 percent increase in light-duty engine shipments compared to the third quarter of 2001.
"Even though the majority of our end markets continue to be at very weak levels, we delivered a dollar a share," Solso added. "This demonstrates the earnings potential we have as our markets improve."
Results from Cummins four business units were as follows:
Engine Business
Total third-quarter sales for the Engine Business were $1.03 billion, a 35 percent increase over the same period last year. Revenues for the heavy-duty truck segment were up 70 percent. Medium-duty truck and bus revenues increased 41 percent, compared to the third quarter of 2001. Dodge Ram sales and a significant increase in engines for recreational vehicles boosted revenues in the light-duty automotive and RV business by 43 percent this quarter compared to a year ago. Engine sales to industrial markets in total were down 7 percent from the previous year.
Power Generation
Sales in the Power Generation Business for the third quarter were $315 million, down 15 percent from the third quarter of 2001. In North America, revenues were down compared to the same period last year, with continued weak demand in commercial genset markets. This decrease was partially offset by an increase in consumer business revenues, spurred by greater demand for recreational vehicles.
Filtration and Other
Revenues for the Filtration and Other segment were $236 million for the quarter, a 12 percent increase over the third quarter of 2001. Filtration business revenue was up in North America, with improvement in both demand and market penetration. Revenues at the Holset Turbocharger business also increased from a year ago, with continued strong business in China.
International Distributor
Third-quarter sales for the International Distributor Business were $152 million, an increase of 12 percent, compared to sales of $136 million for the same period last year. The increase reflects improvement across most regions and significant increases in Australia.
Guidance
The Company forecasts lower sales in the fourth quarter based on the projected fall-off of the North American heavy-duty truck market and a continuation of the depressed demand in the Power Generation Business. However, continued improvement is expected in the Filtration and International Distributor Businesses.
"The fourth quarter will be challenging, but we're taking specific actions to address it. We are focused on cost reduction and tightly managing all expenses to drive earnings to the bottom line," Solso said. "As a result, we expect to have full year profits for 2002 of $0.40 to $0.50 per share."
In addition, the Company expects to generate over $100 million in free cash flow in 2002.
For 2003, the Company expects top line growth of 5 percent to 10 percent from 2002 levels. Earnings expectation for 2003 is in the range of $2.10 to $2.30 per share. Cash flow for the year is expected to be in the range of $70 million to $80 million and capital expenditures are expected to be around $135 million.
Liquidity
At the end of the third quarter, Cummins had over $700 million available and unused liquidity. The Company has a revolving credit facility and $125 million in bonds maturing in the first quarter of 2003. Cummins is in the final stages of completing a new 3-year revolving credit facility that we expect to close on by the end of the month.
"With our new revolver in place, existing credit facilities and strong cash flow in the fourth quarter, we will have more than adequate liquidity to retire the maturing bonds and meet the financing needs of the Company," said Solso.
"In addition, we are also considering other financing options to further enhance the Company's liquidity position," he continued.
Pension Plans Funding
Prior to this year, Cummins had adopted a strategy to provide additional funding into our pension plans over a several year period. The stock market performance in 2002 will increase that level of funding by around $30 million next year. Cummins will also take a more conservative view of asset performance going forward by reducing return assumptions in the U.S. from 10 percent to 8.5 percent. This change will impact earnings next year, and has been factored into guidance for 2003.
At the end of 2002, the Company expects to take a charge to equity related to the under-funded status of its pension plans. Based on interest rates and market values on September 30, 2002, the charge would be approximately $300 million.
"Given the current stock market situation, many large companies are facing under-funded pensions. While the additional funding and expense in 2003 is not insignificant, it is very manageable for Cummins," said Solso. " We have absorbed all funding and expense assumptions in our 2003 earnings forecast and are well positioned to meet the pension needs of our retirees and meet the financing needs of the Company."
Corporate Governance
Cummins also announced that it has reviewed its Corporate Governance Policies and Procedures and revised them, where needed, to reflect recent changes in Securities and Exchange Commission guidelines. Revisions to governance policies were reviewed with the Board of Directors at the October meeting and will be posted on our website, www.cummins.com, by the end of October. In addition, the Board authorized Cummins to expense the cost of all stock options the company grants, beginning with options granted in the first quarter 2003.
At the October meeting, the Board also declared the quarterly dividend of $0.30 to be paid in December to shareholders of record on November 29, 2002.
A global power leader, Cummins Inc., is a corporation of complementary business units that design, manufacture, distribute and service electrical power generation systems, engines and related technologies, including fuel systems, controls, air handling, filtration and emission solutions. Headquartered in Columbus, Indiana, (USA) Cummins serves its customers through more than 500 company-owned and independent distributor locations in 131 countries and territories. With 24,900 employees worldwide, Cummins reported sales of $5.7 billion in 2001. Press releases by fax can be requested by calling News On Demand (toll free) at 888-329-2305. The Cummins home page can be found at www.cummins.com.
Information provided and statements 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 Inc.
(Millions, except per share amounts)
(Unaudited)
For The Third Quarter Ended Sept. 29, Sept. 23,
2002 2001
Net Sales $ 1,648 $ 1,408
Earnings before interest and taxes $ 78 $ 30
Net earnings 39 3
Basic earnings per share $ 1.03 $ .08
Diluted earnings per share 1.00 .08
Weighted-average number of shares for EPS:
Basic 38.6 38.2
Diluted 45.0 38.5
For The Nine Months Ended Sept. 29, Sept. 23,
2002 2001
Net Sales $ 4,439 $ 4,218
Before special charges
Earnings before interest and taxes $ 108 $ 55
Net earnings (loss) 22 (21)
Basic earnings (loss) per share $ .59 $ (.54)
Diluted earnings (loss) per share .58 (.54)
As reported
Earnings (loss) before interest and taxes $ 109 $ (70)
Net earnings (loss) 23 (105)
Basic earnings (loss) per share $ .61 $ (2.74)
Diluted earnings (loss) per share .60 (2.74)
Weighted-average number of shares for EPS:
Basic 38.5 38.2
Diluted 38.7 38.2
Cummins Inc.
Consolidated Statement of Earnings
For the Third Quarter And Nine Months
Ended September 29, 2002 And September 23, 2001
Unaudited
Second
Millions, except per Third Quarter Nine Months Quarter
share amounts 2002 2001 2002 2001 2002
Net sales $1,648 $1,408 $4,439 $4,218 $1,458
Cost of goods sold 1,338 1,153 3,629 3,462 1,184
Gross margin 310 255 810 756 274
Selling and administrative
expenses 192 177 564 543 186
Research and engineering
expenses 53 53 164 164 55
Joint ventures and
alliances income (9) (2) (16) (7) (7)
Interest expense 15 15 46 61 17
Other (income) expense, net (4) (3) (10) 1 (5)
Restructuring, asset impairment
and other non-recurring charges - - (1) 125 (1)
Earnings (loss) before
income taxes 63 15 63 (131) 29
Provision (benefit) for
income taxes 15 2 12 (44) 6
Minority interest 4 4 12 12 5
Dividends on preferred
securities
of subsidiary trust 5 6 16 6 5
Net earnings (loss) $ 39 $ 3 $ 23 $ (105) $ 13
Basic earnings (loss)
per share $ 1.03 $ .08 $ .61 $ (2.74) $ .33
Diluted earnings (loss)
per share 1.00 .08 .60 (2.74) .33
Average number of shares:
Basic EPS 38.6 38.2 38.5 38.2 38.5
Diluted EPS 45.0 38.5 38.7 38.2 39.0
Cash dividends declared
per share $ .30 $ .30 $ .90 $ .90 $ .30
Cummins Inc.
Consolidated Statement of Financial Position
Unaudited
Millions Sept. 29, Dec. 31,
2002 2001
Assets
Current assets:
Cash and cash equivalents $ 101 $ 92
Receivables, net of allowance of $12 and $9 1,006 656
Inventories 696 688
Other current assets 228 199
2,031 1,635
Investments in and advances to
joint ventures and alliances 236 216
Property, plant and equipment 2,942 3,008
Less accumulated depreciation 1,630 1,603
1,312 1,405
Goodwill 344 343
Other intangibles 96 109
Deferred income taxes 422 422
Other assets 178 205
Total assets $4,619 $4,335
Liabilities and shareholders' investment
Current liabilities:
Loans payable $ 73 $ 21
Current maturities of long-term debt 133 9
Accounts payable 536 366
Other accrued expenses 609 574
1,351 970
Long-term debt 795 915
Other liabilities 1,042 1,051
Minority interest 88 83
Cummins-obligated mandatorily
redeemable convertible preferred
securities of subsidiary trust holding
solely convertible subordinated
debentures of Cummins 291 291
Shareholders' investment:
Common stock, $2.50 par value,
150 million shares
Authorized, 48.5 and 48.6 shares issued 121 121
Additional contributed capital 1,114 1,131
Retained earnings 553 567
Accumulated other comprehensive income (293) (326)
Common stock in treasury, at cost,
7.0 and 7.2 shares (280) (289)
Common stock held in trust for
Employee benefit plans,
2.7 and 2.9 shares (132) (140)
Unearned compensation (31) (39)
1,052 1,025
Total liabilities and shareholders' investment $4,619 $4,335
Cummins Inc.
Consolidated Statement of Cash Flows
Unaudited
Nine Months Ended
Millions Sept. 29, Sept. 23,
2002 2001
Cash flows from operating activities:
Net earnings (loss) $ 23 $ (105)
Adjustments to reconcile net
earnings (loss) to net
cash from operating activities:
Depreciation and amortization 164 175
Restructuring and other
non-recurring actions (14) 68
Equity in losses of joint
ventures and alliances (2) 5
Changes in assets and liabilities:
Receivables (276) 6
Net proceeds (reductions) from
receivables sold (55) (76)
Inventories (10) 8
Accounts payable and accrued expenses 193 13
Income taxes payable (8) (63)
Other 17 26
Total adjustments 9 162
Net cash provided by operating activities 32 57
Cash flows provided by (used in)
investing activities:
Property, plant and equipment:
Additions (54) (158)
Disposals 15 3
Proceeds from sale-leaseback - 137
Investments in and advances to
joint ventures and alliances (26) (22)
Acquisition of businesses (7) -
Disposition of businesses 38 14
Other - 1
Net cash used in investing activities (34) (25)
Net cash provided by (used in)
operating and investing activities (2) 32
Cash flows provided by (used in)
financing activities:
Proceeds from borrowings 7 -
Payments on borrowings (15) (7)
Net payments (borrowings) under
short-term credit agreements 56 (215)
Dividend payments on common stock (37) (37)
Issuance of mandatorily redeemable
preferred securities - 291
Other - (10)
Net cash provided by financing activities 11 22
Effect of exchange rate changes
on cash and cash equivalents - (1)
Net change in cash and cash equivalents 9 53
Cash and cash equivalents
at the beginning of the year 92 62
Cash and cash equivalents
at the end of the nine months $ 101 $ 115
Cummins Inc.
Segment Information
Unaudited
Power Filtration
Millions Engine Generation And Other
Third Quarter Ended Sept. 29, 2002
Net sales $1,033 $315 $236
Earnings (loss) before
interest and income taxes 50 (1) 19
Net assets 771 310 631
Third Quarter Ended Sept. 23, 2001
Net sales $767 $371 $211
Earnings (loss) before
interest and income taxes (18) 29 11
Net assets 952 418 644
Nine Months Ended Sept. 29, 2002
Net sales $2,659 $902 $707
Earnings (loss) before
interest, income
taxes and special charges 45 (18) 60
Special charges (6) 1 --
Earnings (loss) before
interest and income taxes 51 (19) 60
Nine Months Ended Sept. 23, 2001
Net sales $2,321 $1,064 $651
Earnings (loss) before
interest, income
taxes and special charges (76) 69 43
Special charges 118 5 1
Earnings (loss) before
interest and income taxes (194) 64 42
International
Millions Distributor Eliminations Total
Third Quarter Ended Sept. 29, 2002
Net sales $152 $(88) $1,648
Earnings (loss) before
interest and income taxes 10 78
Net assets 170 1,882
Third Quarter Ended Sept. 23, 2001
Net sales $136 $(77) $1,408
Earnings (loss) before
interest and income taxes 8 30
Net assets 187 2,201
Nine Months Ended Sept. 29, 2002
Net sales $421 $(250) $4,439
Earnings (loss) before
interest, income
taxes and special charges 21 108
Special charges 4 (1)
Earnings (loss) before
interest and income taxes 17 109
Nine Months Ended Sept. 23, 2001
Net sales $412 $(230) $4,218
Earnings (loss) before
interest, income
taxes and special charges 19 55
Special charges 1 125
Earnings (loss) before
interest and income taxes 18 (70)
Product Revenues as Percent of Total
------------------------------------
% of Consolidated Sales Q1 Q2 Q3 Q4 YTD
----------------------------------------------------------------------
2002:
----------------------------------------------------------------------
Engines 44 46 51 47
----------------------------------------------------------------------
Non-Engine Products 56 54 49 53
----------------------------------------------------------------------
2001:
----------------------------------------------------------------------
Engines
47 44 45 43 45
----------------------------------------------------------------------
Non-Engine Products 53 56 55 57 55
----------------------------------------------------------------------
Sales
-----
$Millions Q1 Q2 Q3 Q4 YTD
----------------------------------------------------------------------
2002:
----------------------------------------------------------------------
Engine Business
----------------------------------------------------------------------
Heavy-Duty Truck 219 265 378 862
----------------------------------------------------------------------
Medium Duty Truck+Bus 138 157 191 486
----------------------------------------------------------------------
Light Duty Auto+RV 157 179 236 572
----------------------------------------------------------------------
Industrial 262 249 228 739
----------------------------------------------------------------------
TOTAL ENGINE BUSINESS 776 850 1,033 2,659
----------------------------------------------------------------------
Power Generation 283 304 315 902
----------------------------------------------------------------------
Int'l. Distributors 124 145 152 421
----------------------------------------------------------------------
Filtration / Other 228 243 236 707
----------------------------------------------------------------------
Eliminations (78) (84) (88) (250)
----------------------------------------------------------------------
TOTAL 1,333 1,458 1,648 4,439
----------------------------------------------------------------------
2001:
----------------------------------------------------------------------
Engine Business
----------------------------------------------------------------------
Heavy-Duty Truck
236 235 222 247 940
----------------------------------------------------------------------
Medium Duty Truck+Bus 144 147 135 151 577
----------------------------------------------------------------------
Light Duty Auto+RV 121 151 165 139 576
----------------------------------------------------------------------
Industrial 267 253 245 263 1,028
----------------------------------------------------------------------
TOTAL ENGINE BUSINESS 768 786 767 800 3,121
----------------------------------------------------------------------
Power Generation 309 384 371 358 1,422
----------------------------------------------------------------------
Int'l. Distributors 133 143 136 150 562
----------------------------------------------------------------------
Filtration / Other 215 225 211 238 889
----------------------------------------------------------------------
Eliminations (76) (77) (77) (83) (313)
----------------------------------------------------------------------
TOTAL 1,349 1,461 1,408 1,463 5,681
----------------------------------------------------------------------
Engine Shipments
----------------
Units Q1 Q2 Q3 Q4 YTD
----------------------------------------------------------------------
2002:
----------------------------------------------------------------------
Midrange 60,500 67,000 71,800 199,300
----------------------------------------------------------------------
Heavy-duty 11,200 14,700 22,700 48,600
----------------------------------------------------------------------
High Horsepower 2,100 2,100 2,200 6,400
----------------------------------------------------------------------
TOTAL 73,800 83,800 96,700 254,300
----------------------------------------------------------------------
2001:
----------------------------------------------------------------------
Midrange 58,300 66,500 61,500 57,200 243,500
----------------------------------------------------------------------
Heavy-duty 14,600 14,400 14,000 14,400 57,400
----------------------------------------------------------------------
High Horsepower 2,800 2,800 2,800 2,600 11,000
----------------------------------------------------------------------
TOTAL 75,700 83,700 78,300 74,200 311,900
----------------------------------------------------------------------