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15 Dec 2000
MOODY'S REVIEWS DEBT RATINGS OF CUMMINS INC. FOR POSSIBLE DOWNGRADE (SR AT Baa1)
Approximately $500 Million of Debt Securities Affected.
New York, December 15, 2000 -- Moody's Investors Service is reviewing the Baa1 long-term and Prime-2
short-term ratings of Cummins Inc. for possible downgrade.
Our review will assess Cummins' operational and financial capacity to
adjust to the rapid deterioration in demand in the North American heavy-duty
truck market, as well as the degree to which the company's more
diversified business mix will cushion it against the weakness in truck
engine demand. Specific areas of focus will include: Cummins'
plans for reducing its fixed cost position, the company's ability
to fund the large ongoing R&D requirements in the engine sector,
its strategy for remaining competitive in the face of ongoing consolidation
within the engine industry, and its plans for continuing to pursue
geographic and product diversification away from the North American truck
Shipments of engines to the North American heavy-duty truck industry
account for a material portion of Cummins' overall revenues and earnings.
During the third quarter ended September 2000, Cummins' shipments
to this sector fell by 49%, and contributed to a considerable
erosion in the company's earnings and cash flow. Because of the
high inventory levels of used heavy-duty trucks, the shortage
of truck drivers, high fuel prices, and overall uncertainty
about the outlook the U.S. economy, we expect that
shipment levels of heavy-duty truck engines will remain depressed
through 2001. Moreover, a significant percentage of Cummins'
sales are to DaimlerChrysler - its largest customer. Cummins
is the exclusive supplier of diesel engines for Chrysler's Dodge Ram pickup
trucks. Consequently, the significant competitive pressures
facing Chrysler represent an additional challenge for Cummins.
In response to this downturn, Cummins continues to take aggressive
action to reduce both its salaried and hourly work force. The company
also benefits from a diversified business portfolio. It has competitive
positions in the power generation and engine filtration markets.
In addition, over 40% of its revenues and earnings are generated
outside of North America. Cummins also has an unutilized $500
million revolving credit facility maturing in 2003 that provides adequate
backup for commercial paper borrowings
Cummins Engine Company, Inc., headquartered in Columbus,
IN, is the world's largest producer of diesel engines and related
Michael J. Mulvaney
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653
J. Bruce Clark
Senior Vice President
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653
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