Cummins Reports Fourth Quarter and Full-Year 2003 Earnings
COLUMBUS, Ind.--Jan. 2, 20047, 2004--Cummins Inc. today reported fourth-quarter 2003 sales of $1.74 billion and earnings before interest, income taxes, minority interest and preferred dividends (EBIT) of $84 million, compared with sales of $1.41 billion and EBIT of $20 million a year ago. Net earnings for the quarter before the cumulative effect of an accounting change were $47 million, or $1.07 per share, compared with net earnings of $46 million, or $1.10 per share, in the year ago quarter. Total sales for 2003 were $6.30 billion with EBIT of $181 million, compared to sales of $5.85 billion and EBIT of $139 million in 2002. Net earnings before the cumulative effect of accounting changes were $54 million, or $1.36 per share, in 2003 compared with $79 million, or $2.06 per share, in 2002.The fourth quarter and full-year 2003 net earnings, as reported, were $43 million, or $1.00 per share, and $50 million, or $1.27 per share, respectively, which include a $4 million charge for the cumulative effect of an accounting change resulting from the consolidation of a financing variable interest entity as of December 31, 2003. Full year 2002 earnings, as reported, were $82 million, or $2.13 per share, which included a $3 million benefit from the cumulative effect of an accounting change. The fourth-quarter and full-year 2002 earnings included a one-time positive income tax adjustment of $57 million for the year.
"2003 was a good year for Cummins, characterized by marked improvement with each successive quarter," said Tim Solso, Chairman and Chief Executive Officer, Cummins. "After a slow start, our markets finally showed signs of improvement following a very tough three-year recession. For the second half of the year, all of our businesses were generating a profit, which was largely due to increased sales in most markets and our ongoing cost-reduction efforts."
"Our ability to win new business based on our quality products and strong brand image, combined with our effective partnerships and global presence, gives me optimism about 2004," Solso added.
Solso cited several recent business developments that provide momentum for 2004.
-- Cummins has recently received significant orders from industry-leading truckload carriers and leasing companies, including Swift Transportation, Wal-Mart, Penske Truck Leasing, FFE Transportation and Ryder. The selection of Cummins signals the willingness of truck fleets to fairly evaluate the quality and performance of various engine alternatives and award business accordingly.
-- Ward's Communications named the Cummins diesel engine for the Dodge Ram pickup one of "10 best engines for 2004." At 5.9 liters and 325-horsepower, the Cummins product is the most powerful diesel engine available in this segment of the automotive market.
-- Cummins will launch its medium-duty ISB engine in the school bus market this month in the Thomas Built Saf-T-Liner school bus. Thomas Bus selected the ISB engine because of its low emissions, improved fuel economy and reduced operating and maintenance costs.
-- Power Generation expects to increase consumer business revenues through its expanded product offering for the towable recreational vehicle and recreational marine markets. The strong brand and quality of these consumer generator sets continue to position Cummins as the dominant supplier for recreational vehicles and provide opportunity to penetrate other consumer markets.
-- The Company's Filtration Business continues to pursue additional long-term supply arrangements with major original equipment manufacturers (OEMs). In 2003, it signed customer agreements extending through 2007 valued at more than $1.4 billion. These agreements expand current business and lay the foundation to achieve future growth targets.
-- In 2003, the International Distributor Business invested in new service facilities in China, United Kingdom, Belgium, Italy, Argentina and Russia. The business expects to drive profitability improvement through these expanded operations and its focus on growing parts and service revenue.
Corporate Overview
The 2003 fourth quarter produced record sales for the Filtration Business and record sales and profitability for International Distributors Business. Automotive and industrial markets improved in both quarter-over-quarter and year-over-year comparisons, particularly in the heavy-duty and medium-duty trucks, bus and construction equipment markets. 2003 was a record sales year for the Dodge Ram pickup, with Cummins shipping 128,200 engines - a 28 percent increase over 2002. The Power Generation Business reported earnings of $14 million in the quarter, returning to profitability on the strength of higher volume and cost-reduction improvements. Strong sales in China helped boost income from joint ventures and alliances to a record $70 million for 2003, more than three times the income earned in the previous year. Cummins received cash of $22 million from joint ventures in 2003 and expects to receive nearly twice that amount in 2004 as a result of established dividend distribution policies. Free cash flow for the quarter was $94 million.
Business Unit Results
Engine
Total sales for the Engine Business in the fourth quarter were $984 million, a 27 percent increase from sales of $776 million a year ago. Engine Business segment EBIT was $32 million for the quarter versus a loss of $1 million in the fourth quarter a year ago.
Automotive market sales were up 32 percent, compared with the fourth quarter of 2002. The North American heavy-duty truck markets and global medium-duty truck markets were particularly strong. Broad-based growth in Cummins industrial markets drove a 16 percent year-over-year revenue increase, driven by a 19 percent increase in sales for construction equipment and an 18 percent increase in sales for mining equipment.
Power Generation
The Power Generation Business reported fourth-quarter sales of $392 million, up 21 percent from a year ago. Profitability improved substantially with quarterly segment EBIT of $14 million compared with a loss of $11 million in the fourth quarter last year.
Sales of commercial gensets and engines sold to other genset manufacturers were responsible for nearly half of the sales increase from the year-ago quarter. The consumer segment of Power Generation also performed extremely well, with record sales and profits that reflected continuing strength in the recreational vehicle market. The higher volume combined with continued focus on cost reduction initiatives provided the strong improvement in segment performance.
Filtration and Other
The Filtration and Other segment had record sales of $282 million for the quarter, a 16 percent increase compared with the fourth quarter of 2002.
North American Emissions Solutions first-fit automotive sales and aftermarket sales in the Middle East, Eastern Europe and Africa contributed to the year-over-year revenue increase, as did an overall favorable currency impact.
The Filtration Business reported segment EBIT of $25 million, compared with $28 million a year ago, as this business continues to fund growth initiatives, including its long-term sales agreements, distribution and logistics improvements and the Emissions Solutions business.
International Distributors
The 2003 fourth quarter set records for both sales and profitability for the International Distributor Business, with demand improvement across nearly all territories. Sales were $190 million in the fourth quarter - an increase of 24 percent compared with sales of $153 million in last year's quarter. Segment EBIT for the quarter was $13 million, compared with $12 million a year ago.
2004 Guidance
The Company expects annual earnings per share in 2004 to be in the range of $3.20 to $3.40, with a first quarter 2004 earnings expectation of $.40 to $.50 per share. Capital expenditures for 2004 are forecasted to be in the range of $125 to $135 million.
The Company's earnings projections are based on expectations of a substantial recovery in the North American heavy-duty and global medium-duty truck markets and solid increases in most industrial markets; double-digit revenue growth in International Distributors, with growth in nearly all regions; double-digit revenue growth in the Filtration and Other segment coming from Emission Solutions and OEM growth through the Company's long-term sales agreements; and, double-digit sales growth in its Power Generation Business through both organic growth and increased penetration due to new products for multiple markets.
Presentation of Non-GAAP Financial Information
Non-GAAP financial measures used in this release include EBIT and Free Cash Flow. These measures are defined and reconciliations to what management believes to be the most comparable GAAP measures are included in a schedule attached to this release. Cummins presents this information as it believes the data is useful to understanding the Company's operating performance and they are measures used internally to assess the performance of the operating units.
About Cummins
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 680 company-owned and independent distributor locations in 137 countries and territories. Cummins also provides service through a vast dealer network of more than 5,000 facilities in 197 countries. With over 23,000 employees worldwide, Cummins reported sales of $6.3 billion in 2003. Press releases can be found by accessing the Cummins home page at www.cummins.com.
Cummins Inc.
Consolidated Statements of Earnings
(Unaudited)
Fourth Quarter Twelve Months Third Quarter
Millions, except per 2003 2002 2003 2002 2003
share amounts
Net sales $1,736 $1,414 $6,296 $5,853 $1,634
Cost of goods sold 1,400 1,192 5,173 4,808 1,341
Gross margin 336 222 1,123 1,045 293
Selling and
administrative expenses 227 172 830 736 208
Research and engineering
expenses 52 37 200 201 51
Equity, royalty and other
income from investees (26) (6) (70) (22) (20)
Restructuring, asset
impairment and other - (10) - (8) -
Interest expense 25 17 90 61 25
Loss on early retirement
of debt - 8 - 8 -
Other (income) expense,
net (1) 1 (18) (9) (7)
Earnings before income
taxes, minority
interest, dividends on
preferred securities
of subsidiary trust
and cumulative effect of
change in accounting
principles 59 3 91 78 36
Provision (benefit) for
income taxes 7 (53) 12 (38) 9
Minority interest 5 5 14 16 3
Dividends on preferred
securities of subsidiary
trust - 5 11 21 -
Earnings before
cumulative effect of
change in
accounting principle 47 46 54 79 24
Cumulative effect of
change in accounting
principle, net of tax (4) - (4) 3 -
Net earnings $43 $46 $50 $82 $24
Earning Per Share
Basic
Earnings before
cumulative effect of
change in accounting
principle $ 1.17 $ 1.20 $ 1.37 $ 2.06 $ .62
Cumulative effect of
change in accounting
principle, net of tax (.09) - (.09) .07 -
Net earnings $1.08 $1.20 $1.28 $2.13 $.62
Diluted
Earnings before
cumulative effect of
change in accounting
principle $ 1.07 $ 1.10 $ 1.36 $ 2.06 $ .60
Cumulative effect of
change in accounting
principle, net of tax (.07) - (.09) .07 -
Net earnings $1.00 $1.10 $1.27 $2.13 $.60
Cash dividends declared
per share $.30 $.30 $1.20 $1.20 $.30
Weighted average shares
(millions)
Basic 40.1 38.9 39.3 38.6 39.4
Diluted 46.7 45.2 39.5 38.8 45.9
Cummins Inc.
Consolidated Statements of Financial Position
(Unaudited)
Millions Dec. 31, Dec. 31,
2003 2002
Assets
Current assets:
Cash and cash equivalents $108 $224
Marketable securities 87 74
Receivables, net 929 805
Inventories 733 641
Other current assets 273 238
2,130 1,982
Property, plant and equipment 1,347 1,305
Investments 339 264
Goodwill 344 343
Other intangibles and deferred charges 92 96
Deferred income taxes 663 640
Other non current assets 211 207
Total assets $5,126 $4,837
Liabilities and shareholders' equity
Current liabilities:
Loans payable $28 $19
Current maturities of long-term debt 21 119
Accounts payable 557 427
Accrued product coverage and marketing expenses 246 233
Other accrued expenses 539 531
1,391 1,329
Long-term debt 1,088 999
Cummins-obligated mandatorily redeemable convertible
preferred securities of subsidiary trust holding
solely convertible subordinated debentures of Cummins 292 -
Other long-term liabilities 1,283 1,285
Minority interest 123 92
Cummins-obligated mandatorily redeemable convertible
preferred securities of subsidiary trust holding
solely convertible subordinated debentures of Cummins - 291
Shareholders' equity:
Common stock, $2.50 par value, 48.3 and 48.6
shares issued 121 121
Additional contributed capital 1,113 1,115
Retained earnings 569 569
Accumulated other comprehensive income (492) (527)
Common stock in treasury, at cost, 5.6 and
7.0 shares (225) (280)
Common stock held in trust for
employee benefit plans, 2.3 and 2.6 shares (113) (128)
Unearned compensation (24) (29)
949 841
Total liabilities and shareholders' equity $5,126 $4,837
Cummins Inc.
Consolidated Statements of Cash Flows
(Unaudited)
For the Year Ended
Dec. 31,
Millions 2003 2002
Cash flows from operating activities:
Net earnings $50 $82
Adjustments to reconcile net earnings to net cash
from operating activities:
Cumulative effect of change in accounting
principle 4 (3)
Loss on early extinguishment of debt - 8
Depreciation and amortization 223 219
Restructuring and other - (21)
Equity in earnings of investees (54) (9)
Minority interest 14 16
Non-cash compensation expense 24 19
Amortization of gain on swap unwind (7) (4)
Translation and hedging activities (18) 2
Changes in assets and liabilities:
Receivables (64) (87)
Proceeds (repayments) from sale of
receivables - (55)
Inventories (63) 46
Accounts payable and accrued expenses 3 (40)
Other 46 20
Total adjustments 108 111
Net cash provided by operating activities 158 193
Cash flows from investing activities:
Property, plant and equipment:
Capital expenditures (111) (90)
Investments in internal use software (29) (20)
Proceeds from disposals 13 16
Investments in and advances to joint ventures and
alliances (4) (60)
Acquisitions and dispositions of business
activities, net - 32
Purchases of marketable securities (137) (116)
Sales of marketable securities 134 86
Other (1) -
Net cash used in investing activities (135) (152)
Net cash provided by operating and investing
activities 23 41
Cash flows from financing activities:
Proceeds from borrowings 19 258
Payments on borrowings (150) (87)
Net borrowings (payments) under short-term
credit agreements 7 (4)
Issuance of common stock 52 15
Dividend payments on common stock (50) (50)
Other (23) (1)
Net cash (used in) provided by financing
activities (145) 131
Effect of exchange rate changes on cash and cash
equivalents 6 2
Net change in cash and cash equivalents (116) 174
Cash and cash equivalents at the beginning of year 224 50
Cash and cash equivalents at end of year $108 $224
Cummins Inc.
Segment Information
(Unaudited)
Inter-
Power Filtration national Elimi-
Millions Engine Generation And Other Distributor nations Total
Fourth Quarter
Ended Dec. 31,
2003
Net sales $984 $392 $282 $190 $(112) $1,736
Segment EBIT 32 14 25 13 - 84
Net assets 1,061 499 644 180 - 2,384
Fourth Quarter
Ended Dec. 31,
2002
Net sales $776 $324 $244 $153 $(83) $1,414
Segment EBIT (1) (11) 28 12 - 28
Net assets 909 522 645 168 - 2,244
Year Ended
Dec. 31, 2003
Net sales $3,631 $1,329 $1,056 $669 $(389) $6,296
Segment EBIT 70 (15) 86 40 - 181
Year Ended
Dec.31, 2002
Net sales $3,435 $1,226 $951 $574 $(333) $5,853
Segment EBIT 49 (25) 94 29 - 147
NON-GAAP FINANCIAL MEASURES
(Unaudited)
Earnings before interest, taxes, minority interests and preferred
dividends (EBIT)
We define EBIT as earnings before interest, taxes, minority
interest, preferred dividends and the cumulative effect of any
accounting changes. We use EBIT to assess and measure the operating
performance of our business and our business segments and also as a
component in measuring our variable compensation programs. Below is a
reconciliation of EBIT, a non-GAAP financial measure, to our
consolidated net earnings, a GAAP measure, for each of the applicable
periods:
Millions Fourth Quarter Full Year
----------------------------------------------------------------------
December 31, December 31, December 31, December 31,
2003 2002 2003 2002
EBIT $84 $20 $181 $139
Interest 25 17 90 61
Taxes 7 (53) 12 (38)
Minority interests 5 5 14 16
Preferred dividends - 5 11 21
Cumulative effect of
an accounting change 4 - 4 (3)
----------------------------------------------------------------------
Net earnings $43 $46 $50 $82
----------------------------------------------------------------------
Free cash flow
We use free cash flow as a measure of our business segments ability to
generate cash. In addition, we have provided guidance to the
investment community on our expectations of free cash flow for 2003.
We define free cash flow as the sum of cash flows from operating and
investing activities, both of which are GAAP measures included in our
Statements of Cash Flows, adjusted to exclude cash flows from the
acquisition or disposition of certain business activities, receivable
transactions, sales-leaseback transactions and transactions related to
marketable securities, none of which we consider to be within the
control of our business segment management. Below is a reconciliation
of the GAAP measures of cash flows from operating activities and cash
flows from investing activities to the non-GAAP measure of free cash
flow.
Quarter Ended
Millions Dec. 31, 2003
Cash flows provided by operating activities $145
Cash flows used in investing activities (49)
Net cash provided by operating and investing activities 96
Adjustments:
Net sales of (proceeds from) investments in
marketable securities (2)
Free cash flow 94
Cash flows used in financing activities $(71)
Product Revenues as Percent of Total Sales
------------------------------------------
% of Consolidated Sales Q1 Q2 Q3 Q4 YTD
---------------------------------------------------------------------
2003:
---------------------------------------------------------------------
Engines 45 44 45 44 44
---------------------------------------------------------------------
Non-Engine Products 55 56 55 56 56
---------------------------------------------------------------------
2002:
---------------------------------------------------------------------
Engines 44 46 50 41 45
---------------------------------------------------------------------
Non-Engine Products 56 54 50 59 55
---------------------------------------------------------------------
Sales
-----
$Millions Q1 Q2 Q3 Q4 YTD
---------------------------------------------------------------------
2003:
---------------------------------------------------------------------
Engine Business
---------------------------------------------------------------------
Heavy-Duty Truck 236 266 278 320 1,100
---------------------------------------------------------------------
Medium Duty Truck+Bus 122 141 140 157 560
---------------------------------------------------------------------
Light Duty Auto+RV 222 228 264 221 935
---------------------------------------------------------------------
Industrial 236 254 260 286 1,036
---------------------------------------------------------------------
TOTAL ENGINE BUSINESS 816 889 942 984 3,631
---------------------------------------------------------------------
Power Generation 267 307 363 392 1,329
---------------------------------------------------------------------
Filtration / Other 254 265 255 282 1,056
---------------------------------------------------------------------
Int'l. Distributors 136 169 174 190 669
---------------------------------------------------------------------
Eliminations (86) (91) (100) (112) (389)
---------------------------------------------------------------------
TOTAL 1,387 1,539 1,634 1,736 6,296
---------------------------------------------------------------------
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
---------------------------------------------------------------------
Filtration / Other 228 243 236 244 951
---------------------------------------------------------------------
Int'l. Distributors 124 145 152 153 574
---------------------------------------------------------------------
Eliminations (78) (84) (88) (83) (333)
---------------------------------------------------------------------
TOTAL 1,333 1,458 1,648 1,414 5,853
---------------------------------------------------------------------
Engine Shipments
----------------
Units Q1 Q2 Q3 Q4 YTD
---------------------------------------------------------------------
2003:
---------------------------------------------------------------------
Midrange 66,300 69,800 73,800 70,900 280,800
---------------------------------------------------------------------
Heavy-duty 10,700 12,800 13,200 16,000 52,700
---------------------------------------------------------------------
High Horsepower 1,900 2,000 2,400 2,500 8,800
---------------------------------------------------------------------
TOTAL 78,900 84,600 89,400 89,400 342,300
---------------------------------------------------------------------
2002:
---------------------------------------------------------------------
Midrange 60,500 67,000 71,800 65,800 265,100
---------------------------------------------------------------------
Heavy-duty 11,100 14,800 22,700 9,300 57,900
---------------------------------------------------------------------
High Horsepower 2,100 2,100 2,200 2,500 8,900
---------------------------------------------------------------------
TOTAL 73,700 83,900 96,700 77,600 331,900
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