Detroit Diesel Reports All-Time Record Q4 And Full Year 1999 Earnings
3 February 2000
Detroit Diesel Reports All-Time Record Fourth Quarter And Full Year 1999 Earnings
DETROIT, Feb. 3 -- Detroit Diesel Corporation
announced today record 1999 net income of $49.2 million, or $2.00 per common
share, an increase of 21% over 1998 net income (before a special charge) of
$40.5 million, or $1.64 per common share. These earnings also represent an
increase of 23% over the company's previous record 1995 earnings of $40.1
million, or $1.62 per common share. Total 1999 revenues of $2.4 billion were
also an all-time record.
For the three months ended December 31, 1999, total revenues were a record
$594 million, a 6% increase over the fourth quarter 1998, and net income
increased 17% to a record $12.0 million, or $0.49 per common share, compared
to fourth quarter 1998 net income of $10.3 million, or $0.42 per common share.
Total fourth quarter 1999 engine shipments were 41,900 units compared to
37,500 units in fourth quarter 1998.
Full year shipments increased 7% to a record 166,700 units, reflecting
strong growth in the company's Series 60, Series 2000, Series 4000, and
automotive engine sales.
Roger S. Penske, Chairman, said, "Detroit Diesel's record 1999 performance
reflects the numerous initiatives we have implemented in recent years,
including the CCVI material cost reduction and PowerEvolution programs.
Record results were possible because of our consistent focus on cost
reduction, revenue growth in new products, and the very strong North American
truck market. Our entire team contributed to the success we have achieved
over the last several years. As a result of these efforts, our cash flow and
balance sheet have never been stronger, with a debt to capital ratio below
17%, and we are solidly positioned to sustain our growth plan going forward."
Charles G. (Chip) McClure, President and CEO, added, "We are very pleased
to announce record 1999 Detroit Diesel revenues and earnings, particularly in
light of weaker than expected revenues in the energy and mining markets, and
our decision to cease production of most of our two-cycle engine products at
mid-year. For the year 2000, our objective is to build on the strong
fundamentals for growth in our service parts and remanufactured products
operations, and to continue to implement our cost reduction plans. These
efforts should mitigate the currently expected decline in the North American
truck market from record setting 1999 levels."
Parts and remanufactured products revenues for the fourth quarter were
$114 million, an increase of $10 million over the fourth quarter 1998. Total
1999 parts and remanufactured products revenues reached $440 million, as four-
cycle parts demand and an expanded lineup of remanufactured products continued
to generate growth.
Operating income (earnings before interest and taxes) in the fourth
quarter increased 9% to a record $20.9 million compared to fourth quarter
1998. Total 1999 operating income was $86.0 million, an increase of 15%
compared to 1998 operating income before a special charge. Operating cash
flow during 1999 rose 50%, or $40 million, to $118 million compared to full
year 1998, and free cash flow (operating cash flow less capital expenditures)
increased $21 million to $57 million.
Gross margin was 23.7% in the fourth quarter, an increase of 0.3
percentage points over the fourth quarter 1998. Full year 1999 gross margin
also was 23.7%, an increase of 0.4 percentage points over 1998 gross margin
and the highest in the company's history. A more favorable mix of engine
products, material cost reductions, and improved operating efficiencies
resulted in the gross margin improvement.
Research and development expenses were $25.8 million for the quarter,
compared to $23.0 million in the fourth quarter 1998. Total 1999 research and
development expenses were $105.8 million, compared to $93.9 million for full
year 1998. The company continues to make significant investments in its new
product development and application engineering activities to maintain its
technological leadership role.
Selling, general and administrative expenses were $93.8 million for the
quarter, compared to $89.6 million in fourth quarter 1998. Total 1999
selling, general, and administrative expenses were $368.0 million, or 15.6% of
total revenues, compared to $355.6 million in 1998.
In conjunction with the previously announced share repurchase program, the
company acquired 1.1 million shares of its stock during the fourth quarter at
a total cost of $20.6 million. Current total shares outstanding are reduced
to 23.6 million. As a result of the repurchase program, the weighted average
number of shares outstanding for the fourth quarter are 24.3 million.
Earnings per share results for both the fourth quarter and the full year were
improved by $0.01 due to the share repurchases.
The following is a review of the Company's three markets:
On-Highway. Revenues increased 11% to $388 million in the fourth quarter
compared to fourth quarter 1998. Shipments within the coach and bus sector
experienced consistent growth during 1999. Demand within the North American
heavy-duty truck market likewise continued to be strong throughout the fourth
quarter. Revenues from four cycle service parts continues to exhibit
significant improvement as a result of a growing in-service engine population,
represented by the nearly 600,000 Series 50 and Series 60 units in operation.
Total 1999 revenues increased 15% to a record $1.5 billion compared to full
year 1998 revenues. Based upon early indications, it is currently anticipated
that the North American Class 8 truck market production for the full year 2000
will decline 10-15% over prior year levels. OEM production rate reductions
are likely to take place during the first quarter of 2000, and the company has
taken steps to adjust for lower demand levels.
Off-Road. Revenues were $152 million in the fourth quarter compared to
$175 million in the fourth quarter 1998. As planned, two-cycle unit volumes
within this market declined 78%, with production of the majority of these
engines was completed in mid-1999. Acceptance of the company's four-cycle
products as part of the PowerEvolution program continues to increase through
new product applications. Demand within the power generation, marine and
industrial sectors has exhibited improving fundamentals in the fourth quarter
and the beginning of year 2000. Activity within the energy markets,
particularly service parts demand, has shown marked improvement in late 1999
and early 2000. Total 1999 revenues were $620 million, compared to $724
million in 1998.
Automotive. Revenues increased 35% to $54 million in the fourth quarter
compared to the fourth quarter 1998. The company recently launched its state-
of-the-art 2.5 liter 16-valve common rail automotive engine, supplementing its
product line ranging from 1.5 to 4.2 liters. The new 2.5 liter engine, which
is scheduled for production in the fourth quarter of 2000, will be the first
2.5 liter common rail automotive engine available in Europe. Total 1999
revenues rose 4% to $194 million compared to $186 million in 1998.
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. The company offers a complete line of
diesel engines from 22 to 10,000 horsepower for the on-highway, off-road, and
automotive markets.
Detroit Diesel services these markets directly and through a worldwide
network of more than 2,800 authorized distributor and dealer locations. 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., and Penske Capital Partners, L.L.C. Penske
Corporation and its subsidiaries manage and operate businesses with annual
revenues exceeding $10 billion and employ more than 34,000 people around the
world.
This news release may include projections, forecasts and other forward-
looking statements about Detroit Diesel, 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 Reform Act of 1995"
in the company's most recent Annual Report on Form 10-K, which is on file with
the Securities and Exchange Commission.
DETROIT DIESEL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts)
Three Months Ended Year Ended
December 31, December 31,
1999 1998 1999 1998
(Unaudited)
Net revenues $593.8 $562.5 $2,358.7 $2,250.6
Cost of sales 453.3 430.8 1,798.9 1,726.0
Gross profit 140.5 131.7 559.8 524.6
Expenses:
Selling and
administrative 93.8 89.6 368.0 355.6
Research and development 25.8 23.0 105.8 93.9
Total 119.6 112.6 473.8 449.5
Income before interest,
taxes and special charge 20.9 19.1 86.0 75.1
Interest 1.9 3.0 7.9 11.8
Special charge 0.0 0.0 0.0 12.5
Income before income
taxes
19.0 16.1 78.1 50.8
Provision for income taxes 7.0 5.8 28.9 22.8
Net income available
for common shares $12.0 $10.3 $49.2 $28.0
Basic net income
per share
$ .49 $ .42 $2.00 $1.13
Diluted net income
per share $ .49 $ .42 $1.99 $1.13
Sales Data by Market
(In millions)
Three Months Ended Year Ended
December 31, December 31,
1999 1998 1999 1998
(Unaudited) (Unaudited)
On-Highway $388 $348 $1,545 $1,341
Off-Road 152 175 620 724
Automotive 54 40 194 186
Total $594 $563 $2,359 $2,251
DETROIT DIESEL CORPORATION
CONSOLIDATED BALANCE SHEETS
(In millions, except per share amounts)
December 31, December 31,
1999 1998
ASSETS
CURRENT ASSETS:
Cash $2.9 $3.2
Receivables, net of allowances 310.2 313.3
Inventories 344.3 344.2
Prepaid expenses, deferred
charges and other current
assets 10.3 14.9
Deferred tax assets 62.0 61.8
TOTAL CURRENT ASSETS 729.7 737.4
PROPERTY, PLANT AND EQUIPMENT
Net of accumulated depreciation
of $226.7 and $191.6,
respectively 313.4 309.4
DEFERRED TAX ASSETS 15.9 15.1
INTANGIBLE ASSETS, net 118.5 144.7
OTHER ASSETS 53.6 34.1
TOTAL ASSETS $1,231.1 $1,240.7
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $27.4 $38.3
Accounts payable 294.8 278.2
Accrued expenses 239.5 210.3
Current portion of long-term debt
and capital leases 3.4 4.1
TOTAL CURRENT LIABILITIES 565.1 530.9
LONG-TERM DEBT AND CAPITAL
LEASES 47.1 62.6
OTHER LIABILITIES 196.0 240.5
DEFERRED TAX LIABILITIES 24.2 28.9
DEFERRED INCOME 5.0 5.5
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 224.3 224.2
Retained earnings 203.8 166.8
Treasury stock
(1.1 million shares, at cost) (20.6) -
Additional minimum pension
adjustment - (9.7)
Currency translation adjustment (14.0) (9.2)
TOTAL STOCKHOLDERS' EQUITY 393.7 372.3
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $1,231.1 $1,240.7