Detroit Diesel Reports Q2 Earnings
22 July 1998
Detroit Diesel Reports 41% Earnings Increase
DETROIT, July 22 -- Detroit Diesel Corporation
announced today second quarter 1998 revenues of $556 million and a 41%
increase in net income to $10.4 million, or $0.42 per common share. These
figures compare with second quarter 1997 revenues of $557 million and net
income of $7.4 million, or $0.30 per common share.
Total second quarter 1998 engine shipments were 38,183 units compared to
45,348 units in second quarter 1997, resulting from anticipated declines in
automotive unit shipments. Shipments of the Company's heavy-duty products
increased 6% in the second quarter compared to second quarter 1997 shipments.
Roger S. Penske, Chairman, said "These second quarter results show
further progress in improving our profitability, coupled with strong demand
for a number of our products. Our emphasis will remain focused on our
operations to generate consistent growth in profitability, and thereby
enhancing shareholder value."
Operating income (earnings before interest and taxes) increased 21% to
$19.3 million compared to second quarter 1997. Gross margin was 23.5% in the
second quarter, compared to 22.6% in the second quarter 1997, as a result of
strong heavy-duty engine mix, reduced automotive unit sales, and other cost
reductions.
Research and development expenses were $23.7 million for the quarter,
consistent with second quarter 1997. Selling, general and administrative
expenses were $88.0 million for the quarter, as a result of increased unit
volume partially offset by decreases in certain overhead expenses.
For the six months ended June 30, 1998, total revenues were $1.15 billion,
a 6% increase over the first six months of 1997. Year to date net income rose
46% to $20.1 million or $0.81 per common share compared to the same period in
1997.
Revenues from the company's parts and remanufacturing operations once
again set new records, increasing 1% and 8%, respectively year to date
compared to the first six months of 1997.
The following is a review of the Company's four market segments:
On-Highway. Revenues increased 7% to $326 million in the second quarter
compared to second quarter 1997. The Company has benefited from continuing
strong demand for the Series 60 product in on-highway truck and coach
applications.
Current order backlog indicates demand for engine shipments will remain
steady through the end of 1998. Year to date revenues increased 13% to $658
million compared to 1997.
Off-Road. Revenues increased 7% to $154 million in the second quarter
compared to 1997. Increased shipments in the Company's new Series 2000 and
Series 4000 products combined with a sharp improvement in military products
were partially offset by declines in two cycle engine shipments for this
market. Year to date revenues rose 12% to $314 million compared to the first
six months of 1997.
Automotive. Revenues were $45 million in the second quarter compared to
$70 million in the second quarter 1997. As expected, production on the IBC
Frontera program was completed during the quarter, and shipments for other
customer applications declined relative to record 1997 levels. Automotive
shipments for the remainder of the year are likewise currently expected to
remain below 1997 volume. Year to date revenues were $108 million compared to
$141 million for 1997.
Power Generation. Revenues were $31 million in the second quarter
compared to $37 million in the second quarter 1997. The Company has
experienced some reduction in demand in the Far East region, combined with a
shift in the mix of shipments towards smaller, lower horsepower applications.
Year to date revenues were $65 million compared to $73 million for 1997.
In a separate statement, the Company announced it would be phasing down
the production of its two-cycle product line in early 1999. Approximately 80%
of the current 10,000 two-cycle units produced annually will be affected by
this action. This program coincides with the shift by most customers to the
Company's technologically advanced four-cycle product offerings. The service
parts and remanufacturing support for the estimated 800,000 two-cycle units in
active service around the world will continue into the future. This program
undertaken by Detroit Diesel Corporation is known as "PowerEvolution."
As the production of the Company's two-cycle products is significantly
more labor intensive than the replacement four-cycle products, PowerEvolution
will result in the need for approximately 400 fewer workers at the Company's
Redford facility. Most of the reductions will come through normal attrition
and the significant number of planned retirements over the next twelve months.
Accordingly, the Company does not currently plan on taking a charge against
earnings for this action.
Timothy D. Leuliette, Vice Chairman, commented "Our efforts in controlling
costs have begun to produce tangible results. However, it is imperative that
we maintain this momentum by achieving further improvements in cost control
and operating efficiencies in the future. This is the foundation of our value
enhancement strategy. PowerEvolution does form one of the critical building
blocks of the Company's planned profit improvement for 1999 and beyond."
As previously reported, the Company and the heavy-duty diesel engine
industry are having on-going 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. While DDC believes its engines are in compliance
with EPA emissions standards, it continues to fully support the cooperative
efforts of industry and government to resolve emissions issues and advance
technology to attain further reductions in NOx and other emissions. The
Company is hopeful that an agreement can be reached, but indicated that such a
resolution may have a material impact on financial results.
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; off-road;
automotive; and power generation 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, 1997,
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 Six Months Ended
June 30, June 30,
1998 1997 1998 1997
Net revenues $556.3 $557.4 $1,145.1 $1,077.1
Cost of sales 425.3 431.4 879.7 828.9
Gross profit 131.0 126.0 265.4 248.2
Expenses:
Selling and administrative 88.0 86.3 179.2 169.6
Research and development 23.7 23.8 48.2 49.3
Interest 2.7 3.4 6.0 6.6
Total 114.4 113.5 233.4 225.5
Income before income taxes
and minority interests 16.6 12.5 32.0 22.7
Provision for income taxes 6.1 5.1 11.8 8.9
Minority interests 0.1 - 0.1 -
Net income available
for common shares $10.4 $7.4 $20.1 $13.8
Basic net income
per share $.42 $.30 $.81 $.56
Diluted net income
per share $.42 $.30 $.81 $.56
Sales Data by Market
(In millions)
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
On-Highway $326 $306 $658 $582
Off-Road 154 144 314 281
Automotive 45 70 108 141
Power Generation 31 37 65 73
Total $556 $557 $1,145 $1,077
Detroit Diesel Corporation
Consolidated Balance Sheets
(In millions, except per share amounts)
June 30, Dec. 31,
1998 1997
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $2.5 $3.2
Receivables, net of allowances 345.3 318.8
Inventories 320.4 305.8
Prepaid expenses, deferred charges and
other current assets 14.4 13.0
Deferred tax assets 55.1 52.1
TOTAL CURRENT ASSETS 737.7 692.9
PROPERTY, PLANT AND EQUIPMENT
Net of accumulated depreciation
of $172.5 and $153.7, respectively 298.1 298.3
DEFERRED TAX ASSETS 17.6 18.4
INTANGIBLE ASSETS, net 117.2 104.8
OTHER ASSETS 43.2 42.1
TOTAL ASSETS $1,213.8 $1,156.5
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $21.1 $44.7
Accounts payable 311.5 297.0
Accrued expenses 199.2 175.0
Current portion of long-term debt
and capital leases 4.4 6.9
TOTAL CURRENT LIABILITIES 536.2 523.6
LONG-TERM DEBT AND CAPITAL LEASES 84.0 73.8
OTHER LIABILITIES 197.0 182.5
DEFERRED TAX LIABILITIES 26.8 25.3
DEFERRED INCOME 5.7 5.9
MINORITY INTERESTS .7 .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 224.2 224.2
Retained earnings 158.9 138.8
Additional minimum pension adjustment (9.7) (9.7)
Currency translation adjustment (10.2) (8.7)
TOTAL STOCKHOLDERS' EQUITY 363.4 344.8
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $1,213.8 $1,156.5