Detroit Diesel Reports Fourth Quarter and Full Year 1997 Results
4 February 1998
Detroit Diesel Reports Fourth Quarter and Full Year 1997 Results
DETROIT, Feb. 4 -- Detroit Diesel Corporation
announced today fourth quarter 1997 revenues of $563 million and net income of
$7.9 million or $0.32 per common share. These figures compare to fourth
quarter 1996 revenues of $505 million and net income of $4.6 million or $0.19
per common share. Revenues for the quarter increased 11% compared to fourth
quarter 1996 and net income increased 72%.
For the year ended December 31, 1997, Detroit Diesel reported record
total revenues of $2.16 billion and net income of $29.9 million or $1.21 per
common share. Total revenues for 1996 were $1.96 billion and net income was
$3.8 million or $0.16 per common share. The 1996 results included a $24.9
million ($1.01 per common share) after tax special charge.
Reported per share figures represent "Diluted Earnings Per Share"
calculated in accordance with the recently issued FASB #128 pronouncement.
These reported per share figures for the Company are consistent with the
"Primary Earnings Per Share" figures reported in prior periods.
Total fourth quarter 1997 engine shipments were 40,057, and total 1997
engine shipments were 163,191, an increase of 4% compared with full year 1996
shipments. Strong increases in Series 60 engine and automotive engine
shipments resulted in the unit growth.
Roger S. Penske, Chairman, said, "Detroit Diesel's results reflect the
continued strength in most of our market segments, principally the on-highway
and automotive sectors, offset by costs associated with the introduction of
the new Series 2000 and Series 4000 engines. We remain focused on achieving
further growth in our new product shipments, coupled with additional measures
to generate cost reductions and increased efficiencies to improve our future
performance. We anticipate that these efforts will generate stronger results
for Detroit Diesel in 1998."
The Company's service parts revenues for 1997 were a record $405 million,
an increase of 5% over the previous year. Revenues from both two-cycle and
four-cycle service parts have continued to show increases versus the prior
year. Total 1997 revenues from the Company's remanufacturing operations were
a record $134 million, a 19% increase over 1996, with solid shipment growth of
both components and full engine units.
Gross margin was 23.0% in the fourth quarter, compared with 22.2% in the
fourth quarter 1996. Increased unit shipments partially offset by new product
introductions resulted in the gross margin improvement. Gross margin was
22.9% in 1997, consistent with the full-year 1996 gross margin.
Research and development expenses were $26.0 million for the quarter,
compared with $27.1 million in fourth quarter 1996. For the full year,
research and development expenses in 1997 declined $7.7 million, or 7% to
$97.5 million, despite the investments in new product development and
additional applications of existing products. Selling, general, and
administrative expenses were $90.9 million for the quarter compared with $78.5
million in 1996, resulting from costs associated with new product
introductions and increased unit shipments during the period. Total 1997
selling, general and administrative expenses were $338.9 million, compared
with $292.1 million in 1996.
Following is a review of the Company's market segments:
On-Highway Truck. Revenues increased 41% to $256 million in the fourth
quarter compared with 1996, driven by strong demand levels in the North
American heavy-duty truck market. Market acceptance of the Company's recently
introduced higher torque Series 60 engine has shown continued growth. The
Company's North American heavy-duty market share for 1997 was 29.5%, compared
with a 1996 average share of 26.3%. Total 1997 revenues increased 28% to a
record $967 million compared with 1996.
Construction and Industrial. Revenues were $89 million in the fourth
quarter, compared with $100 million in 1996, due to discontinued distribution
of Perkins products at the end of 1996. Year-to-date revenues were $330
million versus $364 million in 1996. Excluding the effect of the Perkins
business, fourth quarter revenues increased 2% compared with the fourth
quarter 1996 and total 1997 revenues increased 6%. Consistent strong demand
and a favorable mix of product shipments generated the revenue growth.
Automotive. Revenues were $52 million in the fourth quarter, compared to $65
million in 1996, due to changes in production levels among certain
applications between the respective periods. During January 1998 the Company
commenced shipment of production units from its new facility in Curitiba,
Brazil. Total 1997 revenues increased 8% to $240 million compared to $222
million in 1996.
Coach and Bus. Revenues increased 7% to $65 million in the fourth quarter
compared with 1996. Series 60 engine shipments to the on-highway coach
segment, coupled with steady improvement in the Mexican market contributed to
the revenue gain. Total 1997 revenues increased 10% to $243 million, compared
with $220 million in 1996.
Marine. Revenues increased 6% to $38 million in the fourth quarter,
compared to $36 million in the fourth quarter 1996. Total 1997 revenues were
$143 million versus $156 million in 1996. Customer demand for the Company's
new Series 2000 and Series 60 commercial marine engines has continued to show
growth during the quarter.
Power Generation. Revenues were $35 million in the fourth quarter,
comparable to the fourth quarter 1996. Total 1997 revenues increased 6% to
$141 million, compared to $133 million in 1996. SPECTRUM(R)-branded orders
placed for U.S. deliveries increased 16% over the prior year, and demand for
high-horsepower engines remains solid.
Military. Revenues increased 8% to $28 million in the fourth quarter,
compared with $26 million in the fourth quarter 1996. Total 1997 revenues
were $100 million versus $113 million in the prior year. Increased
international shipments and improved parts and remanufactured products
business resulting from the Company's significant domestic market share has
offset declines in new defense procurements.
Based upon current forecasts, the Company anticipates improved financial
performance in 1998, primarily generated through a continued emphasis on cost
reduction activities and operating performance enhancements combined with
moderate overall revenue growth. Increased shipments of Series 2000 and
Series 4000 engines within the marine and construction and industrial markets
are anticipated, while the transition of certain customer programs within the
automotive sector is expected to result in lower unit volume in 1998.
Exposure to the Asia region for the Company is limited, and primarily
concentrated within the power generation market. The recent economic events
in this region may effect the growth of this market for 1998.
The Company is participating with the heavy-duty diesel engine industry in
discussions with the U.S. Environmental Protection Agency (EPA), the U.S.
Department of Justice and the California Air Resources Board to address NOx
emissions from heavy-duty diesel engines under certain driving conditions.
The EPA has issued conditional certificates of conformity to Detroit Diesel
and other engine manufacturers on 1998 heavy-duty, on-highway diesel engine
models and has requested information to show performance of the company's
prior and current production engines relative to EPA requirements.
The industry is working to address the agencies' objectives regarding
overall NOx emissions and is actively engaged in cooperative efforts with the
agencies to reduce them. DDC believes its engines are in compliance with EPA
emissions standards and fully supports the cooperative efforts of industry and
government to meet the increasingly stringent Clean Air Act emissions
standards. The challenge is to be able to accomplish immediate goals without
sacrificing advances made in fuel economy, engine life, and the reduction of
greenhouse and particulate emissions from diesel engines.
Detroit Diesel Corporation is engaged in the design, manufacture, sale and
service of heavy-duty diesel and alternative fuel engines, automotive diesel
engines, and engine related products; and provides financing through Detroit
Diesel Capital Corporation. The Company offers a complete line of diesel
engines from ten to 10,000 horsepower for the on-highway truck; construction,
mining and industrial; automotive; coach and bus; marine; power generation;
and military markets. Detroit Diesel services these markets directly and
through a worldwide network of more than 2,500 authorized distributors and
dealers. DDC is a QS-9000 certified company.
Detroit Diesel's major shareholder is Penske Corporation, a closely-held,
diversified transportation services company whose operations include Penske
Truck Leasing Company, Diesel Technology Company, Penske Automotive Group,
Inc., Penske Auto Centers, Inc., Penske Motorsports, Inc., and Penske Capital
Partners. The Penske Group of businesses has annual revenues exceeding $6
billion and employs more than 28,000 people around the world.
This news release may include projections, forecasts and other forward-
looking statements about the Company, the industry in which it competes and
the markets it serves. The achievement of such projections is subject to
certain risks and uncertainties, fully detailed in the "Cautionary Statement
for purposes of 'Safe Harbor' under the Private Securities Act of 1995" in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996,
which is on file with the Securities and Exchange Commission.
Detroit Diesel Corporation
Consolidated Statements of Income
(In millions, except per share amounts)
(Unaudited)
Three Months Ended Years Ended
December 31, December 31,
1997 1996 1997 1996
Net revenues $562.7 $505.2 $2,163.9 $1,962.9
Cost of sales 433.3 393.3 1,669.1 1,513.8
Gross profit 129.4 111.9 494.8 449.1
Expenses:
Selling and administrative 90.9 78.5 338.9 292.1
Research and development 26.0 27.1 97.5 105.2
Interest 3.2 3.0 12.9 12.1
Special charge* - - - 38.3
Total 120.1 108.6 449.3 447.7
Income before income taxes
and minority interests 9.3 3.3 45.5 1.4
Provision (credit) for
income taxes 1.4 (1.3) 15.5 (3.0)
Minority interests - - .1 .6
Net income $7.9 $4.6 $29.9 $3.8
Basic net income per share $.32 $.19 $1.21 $.16
Diluted net income per share $.32 $.19 $1.21 $.16
* Consists of product coverage and reduction in the value of an investment
in Mexico of $24.9 million after tax or $1.01 per share
Sales Data by Market
(In millions)
Three Months Ended Years Ended
December 31, December 31,
1997 1996 1997 1996
On-Highway Truck $256 $182 $967 $755
Construction & Industrial 89 100 330 364
Coach & Bus 65 61 243 220
Automotive 52 65 240 222
Marine 38 36 143 156
Power Generation 35 35 141 133
Military 28 26 100 113
Total $563 $505 $2,164 $1,963
Detroit Diesel Corporation
Consolidated Balance Sheets
(In millions, except per share amounts)
Dec. 31, Dec. 31,
1997 1996
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $3.2 $3.0
Receivables, net of allowances 318.8 293.1
Inventories 305.8 292.1
Prepaid expenses, deferred charges and
other current assets 13.0 19.8
Deferred tax assets 52.1 56.4
TOTAL CURRENT ASSETS 692.9 664.4
PROPERTY, PLANT AND EQUIPMENT
Net of accumulated depreciation of $153.7
and $125.3, respectively 298.3 281.5
DEFERRED TAX ASSETS 18.4 26.0
INTANGIBLE ASSETS, net 104.8 103.9
OTHER ASSETS 42.1 36.8
TOTAL ASSETS $1,156.5 $1,112.6
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $44.7 $16.6
Accounts payable 297.0 279.9
Accrued expenses 175.0 179.8
Current portion of long-term debt
and capital leases 6.9 9.8
TOTAL CURRENT LIABILITIES 523.6 486.1
LONG-TERM DEBT AND CAPITAL LEASES 73.8 92.6
OTHER LIABILITIES 182.5 165.2
DEFERRED TAX LIABILITIES 25.3 35.4
DEFERRED INCOME 5.9 6.5
MINORITY INTERESTS .6 5.6
STOCKHOLDERS' EQUITY:
Preferred Stock, par value $0.01 per
share, no shares issued - -
Common Stock, par value $0.01 per share,
24.7 million shares issued .2 .2
Additional paid-in capital 224.2 217.8
Retained earnings 138.8 108.9
Additional minimum pension adjustment (9.7) (2.5)
Currency translation adjustment (8.7) (3.0)
Deferred compensation on restricted stock - (.2)
TOTAL STOCKHOLDERS' EQUITY 344.8 321.2
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $1,156.5 $1,112.6
SOURCE Detroit Diesel Corporation