Cummins Inc. has reported earnings for the year ended Dec. 31, 2002, of $73 million or $1.89 diluted earnings per share on sales of $5.85 billion, compared to a loss of $102 million
or ($2.66) diluted earnings per share on sales of $5.68 billion for the prior year.
These earnings are before the impact, if any, of the non-cash accounts payable adjustment discussed below.
Cummins realized a profit for the full year, with three of Cummins four business units performing at or above expectations. The fourth business unit, Power Generation, did not meet the company's expectations due to a significant slowdown in most of its markets.
Net earnings in the fourth quarter of 2002 were $47 million, or $1.12 diluted earnings per share, compared to $3 million, or $.08 per share, in the fourth quarter of 2001. Again, these earnings are before the impact, if any, of the non-cash accounts payable adjustment discussed below.
For the full year, Cummins recorded sales of $5.85 billion, compared to sales of $5.68 billion in 2001, an increase of 3%. For the fourth quarter, Cummins recorded sales of $1.41 billion, reflecting decreased sales in most North American automotive markets and the Power Generation Business, partially offset by higher sales in the Dodge Ram business.
Included in the full-year and fourth-quarter earnings is a one-time positive income tax adjustment of $57 million or $1.47 diluted earnings per share for the year.
Free cash flow for the year totaled $122 million, far exceeding the company's projections. This was accomplished as the company significantly reduced its capital expenditures in 2002, and continued to make progress in further reducing working capital.
"We have delivered solid and improving results, and because of our ongoing cost reduction efforts, we are positioned for the upturn in our markets when it happens," said Tim Solso, Cummins Chairman and CEO.
The Engine Business Unit dramatically improved its results during 2002, going from a $91 million loss before interest and taxes in 2001 to a profit of $28 million before interest and taxes on a sales increase of $314 million. The Engine Business recorded a loss for the quarter due to the significant drop in demand in many markets following the Oct. 1 emission standards change in the United States. However, sales to DaimlerChrysler for the 2003 model Dodge Ram pick-up truck were very strong during the period.
In addition, the Engine Business delivered on its commitment to meet EPA's Oct. 1 deadline. Cummins was the first diesel manufacturer to have an engine certified to the new standards. Three engines -- the 6-liter ISB, 11-liter ISM and 15-liter ISX -- were certified before the EPA deadline.
"Our ISX engines have been receiving high marks for reliability, performance and power," said Joe Loughrey, Engine Business president. "We see these good customer reviews, coupled with the number of aging fleets on the highways and shrinking used-truck inventories, as positive signs for increased future orders."
Regarding the non-cash accounts payable adjustment mentioned above, the company announced that it believes that it will need to make such an adjustment concerning an understatement of accounts payable from 1998 through 2002 of $30 million to $40 million.
Cummins says this was primarily related to the implementation of a new enterprise resource planning system in one of its plants. The company says this adjustment does not affect the its operations going forward. The company has advised the Securities and Exchange Commission (SEC) of this matter, and says it will work closely with the SEC and the company's auditors, PricewaterhouseCoopers LLP, to determine the appropriate accounting treatment and any potential impact on the company's historical financial statements for the affected years. PricewaterhouseCoopers replaced Arthur Andersen as Cummins auditors in April 2002.