Cummins Inc. Reports Full-Year Earnings of $1.89 Diluted Earnings Per Share
COLUMBUS, Ind.--Jan. 29, 2003--Cummins Inc.
--Cash Flow of $122 Million Exceeds Company's Projections--
--Engine Business Dramatically Improves Results--
--Filtration Business Delivers Q4 EBIT Margins of 11.5 Percent--
--International Distributor Business Unit Delivers Q4 EBIT Margins of
7.8 Percent in First Year--
--Earnings Reflect One-Time Positive Income Tax Adjustment of
$57 Million --
-- Company Identifies $30 Million to $40 Million Non-Cash Accounts
Payable Adjustment --
Cummins Inc. today reported earnings for the year ended December 31, 2002, of $73 million or $1.89 diluted earnings per share on sales of $5.85 billion, compared to a loss of $102 million or ($2.66) diluted earnings per share on sales of $5.68 billion for the prior year. These earnings are before the impact, if any, of the non-cash accounts payable adjustment discussed below. Cummins delivered a profit for the full year, with three of Cummins four business units performing at or above expectations. The fourth business unit, Power Generation, did not meet the Company's expectations due to a significant slowdown in most of its markets.
Net earnings in the fourth quarter of 2002 were $47 million, or $1.12 diluted earnings per share, compared to $3 million, or $.08 per share, in the fourth quarter of 2001. Again, these earnings are before the impact, if any, of the non-cash accounts payable adjustment discussed below.
For the full year, Cummins recorded sales of $5.85 billion, compared to sales of $5.68 billion in 2001, an increase of 3 percent. For the fourth quarter, Cummins recorded sales of $1.41 billion, reflecting decreased sales in most North American automotive markets and the Power Generation Business, partially offset by higher sales in the Dodge Ram business.
Included in the full-year and fourth-quarter earnings is a one-time positive income tax adjustment of $57 million or $1.47 diluted earnings per share for the year.
Free cash flow for the year totaled $122 million, far exceeding the Company's projections. This was accomplished as the Company significantly reduced its capital expenditures in 2002, and continued to make progress in further reducing working capital.
"We have delivered solid and improving results, and because of our ongoing cost reduction efforts, we are positioned for the upturn in our markets when it happens," said Tim Solso, Cummins Chairman and CEO.
Engine Business
The Engine Business Unit dramatically improved its results during 2002, going from a $91 million loss before interest and taxes in 2001 to a profit of $28 million before interest and taxes on a sales increase of $314 million. The Engine Business recorded a loss for the quarter due to the significant drop in demand in many markets following the October 1 emission standards change in the United States. However, sales to DaimlerChrysler for the award-winning 2003 model Dodge Ram pick-up truck were very strong during the period.
In addition, the Engine Business delivered on its commitment to meet the Environmental Protection Agency's (EPA) October 1 deadline for new diesel emission standards. Cummins was the first diesel manufacturer to have an engine certified to the new standards. Three engines - the 6-liter ISB, 11-liter ISM and 15-liter ISX - were certified before the EPA deadline.
"Our ISX engines have been receiving high marks for reliability, performance and power," said Joe Loughrey, Engine Business President. "We see these good customer reviews, coupled with the number of aging fleets on the highways and shrinking used-truck inventories, as positive signs for increased future orders."
Filtration and Other
The Filtration and Other Business Unit delivered a profit of $88 million before interest and taxes for the year and experienced solid sales gains and increased profitability in a difficult global economy. During the past year, the Filtration Business aggressively pursued cost-cutting initiatives to enhance its competitive position and launched a new business, Emission Solutions.
Sales for the quarter were $244 million and profits before interest and taxes were $28 million. Compared to the previous year, sales increased 3 percent and profits were up an impressive 22 percent. Sales improvement came from market share gains in North America, Europe and the Middle East in both original equipment manufacturers and aftermarket segments, as well as key international markets in Asia and the Pacific Rim.
International Distributor
For the full year, the International Distributor Business delivered a profit of $33 million before interest and taxes on slightly higher sales and despite a significant foreign exchange loss in the first quarter due to the economic instability in Argentina.
Fourth quarter sales were $153 million and profits before interest and taxes were $12 million. Compared to the fourth quarter of 2001, sales were up 2 percent and profits were up 50 percent. The International Distributor Business saw strong financial performance from distributors located in all regions of the world, including those in China, Singapore, India, Dubai, South Africa, Belgium, Brazil and Chile.
Power Generation
The Power Generation Business Unit's financial results for 2002 suffered from the effects of a severe drop in its principal markets. As a result, Power Generation's profits fell from $81 million in 2001 to a loss of $27 million in 2002. The Power Generation Business is undergoing a wide-ranging and aggressive cost-reduction effort to drive improvement in its results, even in the midst of a downturn in its markets.
Liquidity
As noted above, the Company generated significant free cash flow in 2002 and expects to generate significant positive cash flow in 2003. During the fourth quarter of 2002, the Company completed two major financings. The Company finalized a new three-year revolving credit facility for $385 million with its bank groups. The Company also issued $250 million in senior notes. With these financing arrangements in place, the Company has substantial liquidity to fund its operating needs, including a reasonable cushion for unforeseen circumstances.
Guidance
Due to the continued weakness in Power Generation markets, the Company is setting its guidance for 2003 at $1.80 to $2.00 per share. The Company still expects revenue growth of 5 to 10 percent above 2002 levels, assuming modest economic recovery in the second half of the year. Free cash flow for the year is expected to be in the range of $70 million to $80 million, after capital expenditures of approximately $130 million.
As reported previously, Cummins has adopted a strategy to provide additional funding into our pension plans over a several-year period, including approximately $30 million in incremental funding in 2003. Cummins has also taken a more conservative view of asset performance going forward by reducing return assumptions in the U.S. from 10 percent to 8.5 percent. These changes, which have been factored into our guidance for 2003, were reported in the third quarter of 2002 and have not been revised.
Non-Cash Accounts Payable Adjustment
The Company also announced that it believes that it will need to make a non-cash adjustment concerning an understatement of accounts payable from 1998 through 2002 of $30 million to $40 million. This was primarily related to the implementation of a new enterprise resource planning system in one of its plants. This adjustment does not affect the Company's operations going forward. The Company has advised the Securities and Exchange Commission (SEC) of this matter, and will work closely with the SEC and the Company's auditors, PricewaterhouseCoopers LLP, to determine the appropriate accounting treatment and any potential impact on the Company's historical financial statements for the affected years. PricewaterhouseCoopers replaced Arthur Andersen as Cummins auditors in April 2002.
Cummins Inc., a global power leader, is a corporation of complementary business units that design, manufacture, distribute and service engines and related technologies, including fuel systems, controls, air handling, filtration, emission solutions and electrical power generation systems. 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 $5.9 billion in 2002. 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 FOURTH QUARTER ENDED December 31, December 31,
2002 2001
Net sales $1,414 $1,463
Before special charges(a)
Earnings before interest and taxes $14 -
Net loss (13) -
Basic loss per share $(.34) -
Diluted loss per share (.34) -
As reported
Earnings before interest and taxes $19 $28
Net earnings 47 3
Basic earnings per share $1.21 $.08
Diluted earnings per share 1.12 .08
Weighted-average number of shares
outstanding for EPS:
Basic 38.9 38.4
Diluted 45.2 38.5
FOR THE YEAR ENDED December 31, December 31,
2002 2001
Net Sales $5,853 $5,681
Before special charges and cumulative effect(a)
Earnings before interest and taxes $122 $83
Net earnings (loss) 9 (18)
Basic earnings (loss) per share $.24 $(.47)
Diluted earnings (loss) per share .24 (.47)
As reported
Earnings (loss) before interest and taxes $128 $(42)
Net earnings (loss) before cumulative
effect 70 (102)
Net earnings (loss) 73 (102)
Basic earnings (loss) per share before
cumulative effect $1.82 $(2.66)
Basic earnings (loss) per share 1.90 (2.66)
Diluted earnings (loss) per share before
cumulative effect $1.82 (2.66)
Diluted earnings (loss) per share 1.89 (2.66)
Weighted-average number of shares
outstanding for EPS:
Basic 38.6 38.3
Diluted 38.8 38.3
(a) Special charges includes restructuring, loss on early
extinguishment of debt and $57 million of favorable one-time tax
adjustments
Cummins Inc.
Consolidated Statement Of Earnings
Unaudited
Third
Fourth Quarter Year Ended Quarter
Millions, except per share
amounts 2002 2001 2002 2001 2002
Net sales $1,414 $1,463 $5,853 $5,681 $1,648
Cost of goods sold 1,195 1,198 4,824 4,660 1,338
Gross profit 219 265 1,029 1,021 310
Selling and administrative
expenses 169 185 733 728 192
Research and engineering
expenses 38 56 202 220 53
Net income from joint ventures
and alliances (6) (3) (22) (10) (9)
Interest expense 17 15 63 76 15
Other (income) expense, net 4 (1) (6) - (4)
Loss on early extinguishment
of debt 8 - 8 - -
Restructuring, asset
impairment
and other charges (13) - (14) 125 -
Earnings (loss) before income
taxes and cumulative effect
of change in accounting
principle 2 13 65 (118) 63
Provision (benefit) for income
taxes (55) 2 (43) (42) 15
Minority interest 5 3 17 15 4
Dividends on preferred
securities
of subsidiary trust 5 5 21 11 5
Net earnings (loss) before
cumulative effect of
change in accounting
principle 47 3 70 (102) 39
Cumulative effect of change in
accounting principle,
net of tax - - 3 - -
Net earnings (loss) $47 $3 $73 $(102) $39
Earnings Per Share
Basic
Net earnings (loss)
before cumulative
effect of change in
accounting principle $ 1.21 $ .08 $ 1.82 $(2.66) $ 1.03
Cumulative effect of
change in accounting
principle, net of tax - - .08 - -
Net earnings (loss) 1.21 .08 1.90 (2.66) 1.03
Diluted
Net earnings (loss)
before cumulative effect
of change in accounting
principle 1.12 .08 1.82 (2.66) .96
Cumulative effect of
change in accounting
principle, net of tax - - .07 - -
Net earnings (loss) 1.12 .08 1.89 (2.66) .96
Average number of shares
outstanding:
Basic EPS 38.9 38.4 38.6 38.3 38.6
Diluted EPS 45.2 38.5 38.8 38.3 45.0
Cash dividends declared per
share $.30 $.30 $1.20 $1.20 $.30
Cummins Inc.
Consolidated Statement Of Financial Position
Unaudited
Millions, except per share amounts Dec. 31, Dec. 31,
2002 2001
Assets
Current assets:
Cash and cash equivalents $311 $92
Receivables, net of allowance of $13 and $9 812 656
Inventories 642 688
Other current assets 223 199
1,988 1,635
Investments and other assets 265 216
Property, plant and equipment less accumulated
depreciation of $1,643 and $1,603 1,305 1,405
Goodwill, net of amortization of $51 and $51 344 343
Other intangibles, deferred taxes and
deferred charges 933 736
Total assets $4,835 $4,335
Liabilities and Shareholders' investment
Current liabilities:
Loans payable $19 $21
Current maturities of long-term debt 119 9
Accounts payable 420 366
Other current liabilities 708 574
1,266 970
Long-term debt 999 915
Other liabilities 1,325 1,051
Minority interest 91 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,
48.6 shares issued 121 121
Additional contributed capital 1,115 1,131
Retained earnings 592 567
Accumulated other comprehensive income (528) (326)
Common stock in treasury, at cost,
7.0 and 7.2 shares (280) (289)
Common stock held in trust for employee
benefit plans, 2.6 and 2.9 shares (128) (140)
Unearned compensation (ESOP) (29) (39)
863 1,025
Total liabilities and shareholders'
investment $4,835 $4,335
Cummins Inc.
Consolidated Statement Of Cash Flows
Unaudited
Year Ended
Millions Dec. 31, Dec. 31,
2002 2001
Cash flows from operating activities:
Net earnings (loss) $73 $(102)
Adjustments to reconcile net earnings to
net cash from operating activities:
Cumulative effect of change in
accounting principle (3) -
Loss on early extinguishment of debt 8 -
Depreciation and amortization 220 231
Restructuring, asset impairment and
other charges (30) 49
Equity in (earnings) losses of joint
ventures and alliances (9) 8
Minority interest 17 14
Translation and hedging activities 2 9
Changes in assets and liabilities:
Receivables (74) 202
Repayments from sale of receivables (55) (164)
Inventories 51 67
Accounts payable 43 (10)
Accrued expenses (15) (92)
Income taxes payable (55) (68)
Deferred income taxes - 2
Other 17 (2)
Total adjustments 117 246
Net cash provided by operating activities 190 144
Cash flows from investing activities:
Property, plant and equipment:
Additions (90) (206)
Disposals 22 20
Proceeds from sale-leasebacks - 143
Investments in and advances to joint ventures
and alliances (55) (46)
Acquisition and Disposition of businesses, net 32 1
Other - 2
Net cash used in investing activities (91) (86)
Net cash provided by operating and
investing activities 99 58
Cash flows from financing activities:
Proceeds from borrowings 258 -
Payments on borrowings (87) (9)
Net borrowings under credit agreements (4) (248)
Dividend payments on common stock (50) (50)
Proceeds from issuance of preferred securities
of subsidiary trust - 291
Other 1 (11)
Net cash provided by (used in) financing
activities 118 (27)
Effect of exchange rate changes on cash and
cash equivalents 2 (1)
Net change in cash and cash equivalents 219 30
Cash and cash equivalents at the beginning
of the year 92 62
Cash and cash equivalents at the end of the year $311 $92
Cash payments for interest $52 $80
Cummins Inc.
Segment Information
Unaudited
Operating segment information is as follows:
Power Filtration
Millions Engine Generation And Other
Fourth Quarter Ended December 31, 2002
Net sales $776 $324 $244
Earnings (loss) before interest,
income taxes and special charges (17) (9) 28
Special charges (6) - 1
Earnings (loss) before interest
and income taxes (11) (9) 27
Net assets 583 317 587
Fourth Quarter Ended December 31, 2001
Net sales $800 $358 $238
Earnings (loss) before interest
and income taxes (15) 12 23
Net assets 740 314 638
Year Ended December 31, 2002
Net sales $3,435 $1,226 $951
Earnings (loss) before interest,
income taxes and special charges 28 (27) 88
Special charges (12) 1 1
Earnings (loss) before interest
and income taxes 40 (28) 87
Year Ended December 31, 2001
Net sales $3,121 $1,422 $889
Earnings (loss) before interest,
income taxes and special charges (91) 81 66
Special charges 118 5 1
Earnings (loss) before interest
and income taxes (209) 76 65
International
Millions Distributor Eliminations Total
Fourth Quarter Ended December 31, 2002
Net sales $153 $(83) $1,414
Earnings (loss) before interest,
income taxes and special charges 12 - 14
Special charges - - (5)
Earnings (loss) before interest
and income taxes 12 - 19
Net assets 166 - 1,653
Fourth Quarter Ended December 31, 2001
Net sales $150 $(83) $1,463
Earnings (loss) before interest
and income taxes 8 - 28
Net assets 168 - 1,860
Year Ended December 31, 2002
Net sales $574 $(333) $5,853
Earnings (loss) before interest,
income taxes and special charges 33 - 122
Special charges 4 - (6)
Earnings (loss) before interest
and income taxes 29 - 128
Year Ended December 31, 2001
Net sales $562 $(313) $5,681
Earnings (loss) before interest,
income taxes and special charges 27 - 83
Special charges 1 - 125
Earnings (loss) before interest
and income taxes 26 - (42)
Product Revenues as Percent of Total Sales
------------------------------------------
----------------------------------------------------------------------
% of Consolidated Sales Q1 Q2 Q3 Q4 YTD
----------------------------------------------------------------------
2002:
----------------------------------------------------------------------
Engines 44 46 51 41 46
----------------------------------------------------------------------
Non-Engine Products 56 54 49 59 54
----------------------------------------------------------------------
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 219 265 378 207 1,069
----------------------------------------------------------------------
Medium Duty Truck+Bus 138 157 191 113 599
----------------------------------------------------------------------
Light Duty Auto+RV 157 179 236 209 781
----------------------------------------------------------------------
Industrial 262 249 228 247 986
----------------------------------------------------------------------
TOTAL ENGINE BUSINESS 776 850 1,033 776 3,435
----------------------------------------------------------------------
Power Generation 283 304 315 324 1,226
----------------------------------------------------------------------
Int'l. Distributors 124 145 152 153 574
----------------------------------------------------------------------
Filtration / Other 228 243 236 244 951
----------------------------------------------------------------------
Eliminations (78) (84) (88) (83) (333)
----------------------------------------------------------------------
TOTAL 1,333 1,458 1,648 1,414 5,853
----------------------------------------------------------------------
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 65,800 265,100
----------------------------------------------------------------------
Heavy-duty 11,200 14,700 22,700 9,300 57,900
----------------------------------------------------------------------
High Horsepower 2,100 2,100 2,200 2,500 8,900
----------------------------------------------------------------------
TOTAL 73,800 83,800 96,700 77,600 331,900
----------------------------------------------------------------------
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
----------------------------------------------------------------------