Detroit Diesel Reports 23% Improvement in Q3 Operating Results
28 October 1998
Detroit Diesel Reports 23% Improvement in Third Quarter Operating Results
DETROIT, Oct. 28 -- Detroit Diesel Corporation
announced today third quarter 1998 revenues of $543 million and earnings of
$10.1 million or $0.41 per common share, before a special charge of
$12.5 million or $0.51 per common share. After the special charge related to
the previously announced agreements with the Environmental Protection Agency
and the California Air Resources Board, the Company's third quarter results
were a net loss of $2.4 million, or $0.10 per share. These pre-charge figures
compare with third quarter 1997 revenues of $524 million and net income of
$8.2 million, or $0.33 per common share.
Total third quarter 1998 engine shipments were 36,800 units compared to
37,800 units in third quarter 1997, as anticipated lower two-cycle and
automotive unit shipments were offset by stronger Series 60 engine deliveries.
Shipments of the Company's heavy-duty products rose 8% in the third quarter
compared to third quarter 1997 shipments.
Roger S. Penske, Chairman, said, "Our operating performance in the third
quarter again reflects the earnings momentum we have developed. We are
committed to continue our focus on generating a stronger earnings base in the
future. We currently anticipate a similar improvement in year-over-year
operating performance in the fourth quarter. We are well positioned for
additional earnings growth in 1999, driven by gains in cost reduction and
product focus."
Operating income (earnings before interest and taxes), excluding the
special charge, increased 8% to $18.0 million compared to third quarter 1997.
Gross margin was 23.5% in the third quarter, an increase of 1.1 percentage
points over the third quarter 1997, driven principally by solid sales mix,
improved efficiencies and material cost reductions.
Research and development expenses were $22.7 million for the quarter,
compared to $22.2 million in third quarter 1997. Selling, general and
administrative expenses were $86.8 million for the quarter, which reflect
costs associated with increased four-cycle unit volume shipments.
For the nine months ended September 30, 1998, total revenues were
$1.69 billion, a 5% increase over the first nine months of 1997. Year to date
net income before the special charge rose 37% to $30.2 million or $1.22 per
common share compared to the same period in 1997.
Year to date revenues from the Company's service parts were consistent
with record 1997 results, while remanufacturing operations revenues improved
13% to a record $114 million.
The following is a review of the Company's four markets:
On-Highway. Revenues increased 9% to $335 million in the third quarter
compared to third quarter 1997. Shipments of the Company's Series 60 product
for both on-highway truck and coach customers continue to show strong growth.
North American Class 8 order backlogs remain at all-time highs. The Company
recently announced the implementation of additional Series 60 engine capacity
to meet customer demand and generate improved efficiencies. Year to date
revenues increased 12% to $993 million compared to 1997.
Off-Road. Revenues increased 1% to $138 million in the third quarter
compared to 1997. Increased Series 2000 and Series 4000 engine shipments have
resulted from the transition of construction and marine applications from
existing two-cycle products, along with new demand generated by the broader
product horsepower range. The Company recently announced the award of a
160 unit order for 16V2000 engines to power Unit Rig haul trucks for Coal
India. Delivery of these units is expected to take place over the remainder
of 1998 and through 1999. Year to date revenues rose 8% to $452 million
compared to the first nine months of 1997.
Automotive. Revenues were $38 million in the third quarter compared to
$47 million in the third quarter 1997. As anticipated, automotive shipments
for the remainder of the full year are currently expected to remain below 1997
volume on a consistent basis. Year to date revenues were $146 million
compared to $188 million for 1997. During the period the Company also
introduced the 4.0 liter V-6 DELTA engine for passenger car and truck
applications.
Power Generation. Revenues were $32 million in the third quarter compared
to $33 million in the third quarter 1997. The Company commenced shipment of
Series 60 and Series 4000 products during the quarter, with initial Series
2000 engine deliveries taking place in the fourth quarter. Steady production
of two-cycle products is expected through the end of the year and into 1999 to
meet customer needs in conjunction with implementation of the Company's
PowerEvolution program. Year to date revenues were $97 million compared to
$106 million for 1997.
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
Litigation Reform 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's World Wide Web address is http://www.detroitdiesel.com
DETROIT DIESEL CORPORATION
Consolidated Statements of Operations
(In millions, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
Net revenues $543.0 $524.1 $1,688.1 $1,601.2
Cost of sales 415.5 406.9 1,295.2 1,235.8
Gross profit 127.5 117.2 392.9 365.4
Expenses:
Selling and
administrative 86.8 78.4 266.0 248.0
Research and
development 22.7 22.2 70.9 71.5
Interest 2.8 3.1 8.8 9.7
Special Charge 12.5 -- 12.5 --
Total 124.8 103.7 358.2 329.2
Income before income taxes
and minority
interests 2.7 13.5 34.7 36.2
Provision for income
taxes 5.2 5.2 17.0 14.1
Minority interests (0.1) 0.1 -- 0.1
Net income (loss) available
for common shares $ (2.4) $ 8.2 $ 17.7 $ 22.0
Basic net income
(loss) per share $ (0.10) $ .33 $ .72 $ .89
Diluted net income
(loss) per share $ (0.10) $ .33 $ .71 $ .89
Sales Data by Market
(In millions)
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
1998 1997 1998 1997
On-Highway $ 335 $ 307 $ 993 $ 889
Off-Road 138 137 452 418
Automotive 38 47 146 188
Power Generation 32 33 97 106
Total $ 543 $ 524 $1,688 $1,601
DETROIT DIESEL CORPORATION
Consolidated Balance Sheets
(In millions, except per share amounts)
Sept. 30, Dec. 31,
1998 1997
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2.0 $ 3.2
Receivables, net of allowances 328.2 318.8
Inventories 342.9 305.8
Prepaid expenses, deferred charges and
other current assets 16.2 13.0
Deferred tax assets 58.7 52.1
TOTAL CURRENT ASSETS 748.0 692.9
PROPERTY, PLANT AND EQUIPMENT
Net of accumulated depreciation
of $175.3 and $153.7, respectively
LONG-TERM DEBT AND CAPITAL LEASES 73.7 73.8
OTHER LIABILITIES 200.3 182.5
DEFERRED TAX LIABILITIES 29.3 25.3
DEFERRED INCOME 5.6 5.9
MINORITY INTERESTS .6 .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 156.5 138.8
Additional minimum pension adjustment (9.7) (9.7)
Currency translation adjustment (7.3) (8.7)
TOTAL STOCKHOLDERS' EQUITY 363.9 344.8
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $1,235.6 $1,156.5