-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KhCsZbh/ZxafjMZVGfPfGMZHVS4EdDABxjqjrr2BO6EfWOLoAPiOtqbiOkX/1GCU GrCwg29xA03WPLiA9uoitA== 0000950124-03-000181.txt : 20030130 0000950124-03-000181.hdr.sgml : 20030130 20030130171422 ACCESSION NUMBER: 0000950124-03-000181 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030130 ITEM INFORMATION: Financial statements and exhibits ITEM INFORMATION: FILED AS OF DATE: 20030130 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TECUMSEH PRODUCTS CO CENTRAL INDEX KEY: 0000096831 STANDARD INDUSTRIAL CLASSIFICATION: AIR COND & WARM AIR HEATING EQUIP & COMM & INDL REFRIG EQUIP [3585] IRS NUMBER: 381093240 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-00452 FILM NUMBER: 03532613 BUSINESS ADDRESS: STREET 1: 100 E PATTERSON ST CITY: TECUMSEH STATE: MI ZIP: 49286 BUSINESS PHONE: 5174238411 MAIL ADDRESS: STREET 1: 100 EAST PATTERSON STREET CITY: TECUMSEH STATE: MI ZIP: 49286 8-K 1 k74421e8vk.txt CURRENT REPORT DATED 01/30/03 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): January 30, 2003 TECUMSEH PRODUCTS COMPANY (Exact name of registrant as specified in its charter) Michigan 0-452 38-1093240 (State or other jurisdiction of (Commission File No.) (IRS Employer incorporation) Identification No.) 100 East Patterson Street, Tecumseh, Michigan 49286 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (517) 423-8411 (Former name or former address, if changed since last report) ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (c) Exhibits: Exhibit No. Description 99.1 Press release dated January 30, 2003 99.2 Fourth Quarter and Full Year 2002 Investor Presentation ITEM 9. REGULATION FD DISCLOSURE The registrant's press release dated January 30, 2003, regarding its 2002 fourth quarter and full year consolidated results is attached hereto as Exhibit 99.1. The registrant hosted its fourth quarter and full year 2002 earnings conference call and webcast on Thursday, January 30, 2003 at 11:00 a.m. Eastern Time. Via the webcast, registrant presented its Fourth Quarter and Full Year 2002 Investor Presentation, which contains a summary of registrant's financial results for the quarter and year ending December 31, 2002, as well as certain other financial and operating information. Pursuant to Regulation FD, registrant hereby furnishes the Fourth Quarter and Full Year 2002 Investor Presentation as Exhibit 99.2 to this report. The Investor Presentation will be posted on the registrant's website, www.tecumseh.com, through at least February 13, 2003. Exhibit 99.2 is incorporated by reference under this Item 9. Note: The information in this report (including Exhibit 99.2) is furnished pursuant to Item 9 and shall not be deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that Section. The information in this report will not be deemed an admission as to the materiality of any information required to be disclosed solely to satisfy the requirements of Regulation FD. ### SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TECUMSEH PRODUCTS COMPANY Date: January 30, 2003 By /s/ David W. Kay -------------------------------- David W. Kay Vice President, Treasurer and Chief Financial Officer -ii- EXHIBIT INDEX Exhibit No. Description 99.1 Press release dated January 30, 2003 99.2 Fourth Quarter and Full Year 2002 Investor Presentation -iii- EX-99.1 3 k74421exv99w1.txt PRESS RELEASE DATED 01/30/03 Exhibit 99.1 Tecumseh Products Company 100 E. Patterson Street Press Release Tecumseh, MI 49286 For Immediate Release TECUMSEH PRODUCTS COMPANY REPORTS FOURTH QUARTER 2002 NET INCOME BEFORE NONRECURRING CHARGES OF $0.70 PER SHARE Tecumseh, Michigan, January 30, 2003 . . . . Tecumseh Products Company (NASDAQ-TECUA, TECUB) announced today its 2002 fourth quarter and full year consolidated results as summarized in the following Consolidated Condensed Statements of Income.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED) ============================================================================================================================ Three Months Ended Twelve Months Ended (Dollars in millions except per share amounts) December 31, December 31, --------------------- --------------------- 2002 2001 2002 2001 ============================================================================================================================ NET SALES $304.2 $299.1 $1,343.8 $1,398.9 Cost of sales and operating expenses 259.5 264.0 1,141.6 1,207.2 Selling and administrative expenses 28.5 22.5 117.4 112.1 Nonrecurring charges 5.8 6.1 10.3 35.4 - ---------------------------------------------------------------------------------------------------------------------------- OPERATING INCOME 10.4 6.5 74.5 44.2 Interest expense (2.3) (0.7) (5.8) (4.1) Interest income and other, net 6.3 3.7 15.1 20.3 - ---------------------------------------------------------------------------------------------------------------------------- INCOME BEFORE TAXES AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING 14.4 9.5 83.8 60.4 PRINCIPLE Taxes on income 5.1 3.4 29.7 17.6 - ---------------------------------------------------------------------------------------------------------------------------- INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 9.3 6.1 54.1 42.8 Cumulative effect of accounting change for goodwill, net of tax --- --- (3.1) --- - ---------------------------------------------------------------------------------------------------------------------------- NET INCOME $9.3 $6.1 $51.0 $42.8 - ---------------------------------------------------------------------------------------------------------------------------- BASIC AND DILUTED EARNINGS PER SHARE Income before cumulative effect of accounting change $0.50 $0.33 $2.93 $2.30 Change in accounting for goodwill --- --- (0.17) --- - ---------------------------------------------------------------------------------------------------------------------------- NET INCOME $0.50 $0.33 $2.76 $2.30 ============================================================================================================================ WEIGHTED AVERAGE SHARES (in thousands of shares) 18,480 18,480 18,480 18,607 ============================================================================================================================
Consolidated net income for the fourth quarter of 2002 amounted to $9.3 million, or $0.50 per share, compared to net income of $6.1 million, or $0.33 per share in the fourth quarter of 2001. Included in 2002's fourth quarter results are nonrecurring charges of $5.8 million ($3.7 million net of tax or $0.20 per share) related to the movement of certain engine component manufacturing and for environmental costs. Fourth quarter 2001 nonrecurring charges were also related to a realignment of certain engine and engine component manufacturing and had the effect of reducing 2001 fourth quarter earnings by $3.9 million net of tax or $0.21 per share. Full year 2002 consolidated net income amounted to $51.0 million or $2.76 per share, compared to $42.8 million or $2.30 per share in the same period of 2001. Included in the full year 2002 reported results are several one-time items such as nonrecurring charges of $10.3 million ($6.6 million net of tax or $0.36 per share), and the cumulative effect of a change in accounting for goodwill ($3.1 million net of tax or $0.17 per share) related to the adoption of Statement of Financial Accounting Standards (SFAS) No. 142 "Goodwill and Other Intangible Assets." On a proforma basis (excluding one-time items), full year results would have been $60.7 million or $3.28 per share. Full year 2001 results also included several one-time items such as nonrecurring charges of $35.4 million ($22.8 million or $1.23 per share), a $5.2 million ($0.28 per share) tax credit resulting from a refund of prior years' federal income taxes, and $2.0 million net of tax ($0.11 per share) for interest income associated with the tax credit. For comparative purposes, proforma results for the 2001 full year would have been $58.4 million or $3.14 per share. The improvement in proforma results for the full year is attributable to better results from the Compressor and Pumps Groups, mostly offset by a substantial decline in profitability at the Engine & Power Train Group. Consolidated net sales for the fourth quarter of 2002 amounted to $304.2 million compared to sales of $299.1 million in the fourth quarter of 2001. The increase is the result of improved sales in the Compressor and Pump Groups offset by lower sales in the Engine & Power Train Group. Sales for the full year ended December 31, 2002 amounted to $1,343.8 million compared to sales of $1,398.9 million for the comparable period in 2001. Excluding the effects of foreign currency translation on sales, the lower 2002 sales are attributable to the Engine & Power Train Group. COMPRESSOR BUSINESS Fourth quarter 2002 sales in the Company's Compressor Business increased to $169.4 million from $156.7 million in the fourth quarter of 2001. Sales for the year ended December 31, 2002 amounted to $790.9 million compared to $804.6 million in 2001. The increase in sales in the fourth quarter is due to improved sales in almost all of the Compressor Group market segments, particularly the residential refrigeration market where sales have improved year over year for the past three consecutive quarters. Foreign currency translation reduced sales by $1.8 million in the quarter. Excluding the full year effect from currency on sales of $8.5 million, full year sales declined less than 1%. Increases in sales of compressors used in household refrigeration and commercial applications nearly offset losses of share in the unitary and room air conditioning markets. Compressor Business operating income for the fourth quarter of 2002 amounted to $14.3 million compared to $2.3 million in the fourth quarter of 2001. Operating income for the years ended December 31, 2002 and 2001 amounted to $77.5 million and $54.3 million, respectively. The improvement in operating margins is attributable to greater coverage of fixed costs, the positive effects of restructuring actions implemented over the last 18 months, and the favorable effects from devaluation of the Brazilian Real. This improvement in operating margins was partially offset by declining margins on high-volume, commodity-type compressors and accelerated spending on new products. The Company's Brazilian operations contributed approximately 67% of the compressor business' operating profit for the year. Operating margins have benefited from the effects of the weak Brazilian currency as approximately two-thirds of its full year sales were exported and denominated in other currencies. The Company's Indian Compressor operations continue to improve. Results for the fourth quarter and full year 2002 were profitable compared to losses for the respective 2001 comparable periods. ENGINE & POWER TRAIN BUSINESS Engine & Power Train sales in the fourth quarter of 2002 declined to $111.6 million from $123.2 million in the fourth quarter of 2001. Sales in the year ended December 31, 2002 amounted to $432.3 million compared to $480.9 million in 2001. Operating income for the three months ended December 31, 2002 amounted to $1.4 million (excluding the fourth quarter nonrecurring charge attributable to the Engine Group) compared to $10.1 million in the fourth quarter of 2001. For the year ended December 31, 2002, operating income was $1.4 million compared to $20.0 million in 2001. Fourth quarter domestic engine unit volume increased 10% over the prior year; however, a very unfavorable mix between engines for snow throwers versus walk behind rotary mowers was responsible for the decline in profitability. For the full year 2002, domestic engine unit volume decreased 8% over the prior year, including a 36% decline in engines for snow throwers. Declines in volume, less profitable mix and declining contribution margins were responsible for the substantial deterioration in full year profitability. PUMP BUSINESS Sales in the fourth quarter of 2002 increased to $23.2 million from $19.2 million in the fourth quarter of 2001. Pump Business sales for the year ended December 31, 2002 increased to $120.6 million compared to $113.4 million in 2001. Operating income in the fourth quarter of 2002 amounted to $2.4 million, compared to $0.9 million in the same period of 2001. Full year operating income amounted to $14.8 million in 2002 compared to $11.6 million in 2001. Improvements in sales have been primarily in pumps used in consumer applications. NONRECURRING CHARGES Full year 2002 results were adversely impacted by $10.3 million ($6.6 million net of tax or $0.36 per share) in nonrecurring charges. The fourth quarter charge of $5.8 million ($3.7 million net of tax or $0.20 per share) is in the Engine & Power Train business. Included in the charge is $4.1 million for costs, mostly write-downs of fixed assets, associated with the relocation of engine component manufacturing, and the discontinuation of production activities at its Grafton, Wisconsin facility. Also included in the charge is $1.7 million for additional environmental clean up costs, primarily additional past response costs levied by the EPA for its Sheboygan, Wisconsin facility. The first quarter charge of $4.5 million ($2.8 million net of tax or $0.15 per share) is in the Compressor business. This charge is for costs, primarily the write-off of certain unusable equipment, related to the relocation of additional rotary compressor lines from the U.S. to Brazil. 2001 annual results were adversely impacted by $35.4 million ($22.8 million, net of tax, or $1.23 per share) in nonrecurring items. The fourth quarter charge of $6.1 million ($3.9 million, net of tax, or $0.21 per share) is in the Engine & Power Train business and relates primarily to the transfer of certain engine and component part production from domestic facilities to our facilities in the Czech Republic. The third quarter charge of $29.3 million ($18.9 million, net of tax, or $1.02 per share) is to provide for the cost of an early retirement program which resulted in the reduction of 250 salaried employees. ACQUISITION On December 30, 2002, the Company acquired FASCO Motors from Invensys Plc for cash of $396.6 million and the assumption of approximately $14.5 million in debt. FASCO is a leading manufacturer in the U.S. of fractional horsepower motors. FASCO manufactures AC motors, DC motors, blowers, gear motors and linear actuators, all of which are used in a wide variety of applications within the HVAC, automotive, healthcare and appliance industries. The acquisition was financed with proceeds from $325 million in new bank borrowings and internal cash flows. Of $325 million in new borrowings, $250 million was from a six-month bridge loan and $75 million was from a new three-year $125 million revolving credit facility. As the bridge loan is expected to be replaced with permanent long-term financing, it has been presented as long-term debt in the December 31, 2002 balance sheet. The purchase price allocation has been prepared on a preliminary basis, and reasonable changes are expected as additional information becomes available. The following is a summary of the estimated values of the assets acquired and liabilities assumed as of the date of the acquisition: (dollars in millions) Current assets $110.4 Property, plant and equipment 158.2 Intangible assets 55.0 Goodwill 223.2 ------ Total assets acquired $546.8 ====== Current liabilities $92.2 Other liabilities 53.7 Long-term debt 0.6 ------ Total liabilities assumed $146.5 ====== ACCOUNTING CHANGES On January 1, 2002, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 142 "Goodwill and Other Intangible Assets." Under SFAS No. 142 goodwill is no longer amortized, but is subject to impairment testing on at least an annual basis. As of December 31, 2001, the net book value of the Company's goodwill was $45.1 million. However, as required by the Statement, the Company tested for impairment at the date of adoption and found that the goodwill associated with the Engine & Power Train European operations had been impaired. Accordingly, goodwill amounting to $4.8 million ($3.1 million net of tax) has been written-off and recognized as a cumulative effect from an accounting change. The net book value of the Company's goodwill at December 31, 2002, was $270.3 million, and includes $223.2 million of goodwill recorded in connection with the FASCO acquisition. Amortization of goodwill amounted to approximately $1.5 million for the twelve months ended December 31, 2001. On January 1, 2002, the Company also adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets." This statement, which supersedes SFAS No. 121, addresses accounting and financial reporting for the impairment or disposal of long-lived assets. There was no material effect on the results of operations or financial position as a result of adopting this standard. The nonrecurring charges recorded in the first and fourth quarters were determined in accordance with the provisions of SFAS No. 144. OUTLOOK The Company does not expect worldwide market conditions in its Compressor and Engine Businesses to be much improved over 2002. Conditions in these markets will continue to suffer from over-capacity and deflationary pricing. However, actions to improve profitability in these segments, as well as the addition of FASCO should improve earnings in 2003, excluding any restructuring charges, if cost reduction efforts are sustained. Full year 2003 results in the Compressor segment are expected to continue to improve, as they did in 2002, as a result of past actions to consolidate operations in the U.S. and move production to low-cost locations like India and Brazil. In addition, the Group will be looking at ways to revitalize U.S. operations by reversing the negative growth pattern demonstrated over the past several years. Until this can be accomplished, the Group's reliance on Brazilian operations for growth and profitability will represent a significant concentration of risk. Profits from the Brazilian and Indian compressor operations are expected to grow in 2003 as a result of their additional productive capacities. Results in the Engine Group are expected to deteriorate before they improve. The restructuring actions recognized in the fourth quarter only represent an initial step in correcting the overall cost structure of the Group and further actions are expected in 2003 as the new engine component operations in Brazil commence and further restructuring actions are defined and implemented. While improvements are not materializing as quickly as desired, the slower approach has the benefit of not compromising the supply of quality product to our customers.
RESULTS BY BUSINESS SEGMENTS (UNAUDITED) =========================================================================================================================== Three Months Ended Twelve Months Ended (Dollars in millions) December 31, December 31, ------------------ -------------------- 2002 2001 2002 2001 =========================================================================================================================== NET SALES: Compressor Products $169.4 $156.7 $790.9 $804.6 Engine & Power Train Products 111.6 123.2 432.3 480.9 Pump Products 23.2 19.2 120.6 113.4 - --------------------------------------------------------------------------------------------------------------------------- Total Net Sales $304.2 $299.1 $1,343.8 $1,398.9 =========================================================================================================================== OPERATING INCOME: Compressor Products $14.3 $2.3 $77.5 $54.3 Engine & Power Train Products 1.4 10.1 1.4 20.0 Pump Products 2.4 0.9 14.8 11.6 Corporate expenses (1.9) (0.7) (8.9) (6.3) Nonrecurring charges (5.8) (6.1) (10.3) (35.4) - --------------------------------------------------------------------------------------------------------------------------- Total Operating Income 10.4 6.5 74.5 44.2 Interest expense (2.3) (0.7) (5.8) (4.1) Interest income and other, net 6.3 3.7 15.1 20.3 - --------------------------------------------------------------------------------------------------------------------------- INCOME BEFORE TAXES AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE $14.4 $9.5 $83.8 $60.4 =========================================================================================================================== CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED) ============================================================================================== DECEMBER 31, December 31, (Dollars in millions) 2002 2001 ============================================================================================== ASSETS CURRENT ASSETS: Cash and cash equivalents $333.1 $317.6 Accounts receivable, net 242.4 207.1 Inventories 304.0 261.9 Deferred income taxes and other 75.6 72.9 - ---------------------------------------------------------------------------------------------- Total Current Assets 955.1 859.5 PROPERTY, PLANT AND EQUIPMENT -- NET 570.5 431.9 OTHER ASSETS 537.4 228.4 - ---------------------------------------------------------------------------------------------- TOTAL ASSETS $2,063.0 $1,519.8 ============================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable, trade $172.6 $101.3 Short-term borrowings 112.6 11.6 Accrued liabilities 166.2 140.9 - ---------------------------------------------------------------------------------------------- Total Current Liabilities 451.4 253.8 PRODUCT WARRANTY AND SELF-INSURED RISKS 21.3 23.9 LONG-TERM DEBT 298.2 13.7 DEFERRED INCOME TAXES 33.6 3.0 PENSION AND POSTRETIREMENT BENEFITS 250.1 218.3 ACCRUAL FOR ENVIRONMENTAL MATTERS 29.5 29.4 - ---------------------------------------------------------------------------------------------- Total Liabilities 1,084.1 542.1 STOCKHOLDERS' EQUITY 978.9 977.7 - ---------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,063.0 $1,519.8 ==============================================================================================
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) =========================================================================================================================== Three Months Ended Twelve Months Ended (Dollars in millions) December 31, December 31, ------------------ -------------------- 2002 2001 2002 2001 =========================================================================================================================== TOTAL STOCKHOLDERS' EQUITY BEGINNING BALANCE $960.6 $965.4 $977.7 $995.4 Comprehensive Income: Net Income 9.3 6.1 51.0 42.8 Other Comprehensive Income 14.9 12.2 (26.2) (18.6) - --------------------------------------------------------------------------------------------------------------------------- Total Comprehensive Income 24.2 18.3 24.8 24.2 Cash Dividends Declared (5.9) (5.9) (23.6) (23.8) Stock Repurchases --- (0.1) --- (18.1) - --------------------------------------------------------------------------------------------------------------------------- TOTAL STOCKHOLDERS' EQUITY ENDING BALANCE $978.9 $977.7 $978.9 $977.7 =========================================================================================================================== CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) =========================================================================================================================== Twelve Months Ended (Dollars in millions) December 31, ---------------------- 2002 2001 =========================================================================================================================== CASH FLOWS FROM OPERATING ACTIVITIES: Income before cumulative effect of change in accounting principle $54.1 $42.8 Adjustments to reconcile net income before cumulative effect of change in accounting principle to net cash provided by operating activities: Depreciation and amortization 65.1 72.0 Nonrecurring charges 10.3 35.4 Accounts receivable 18.4 52.7 Inventories (13.8) 8.7 Payables and accrued expenses 20.0 (23.6) Prepaid pension expense (25.5) (31.4) Other 2.9 16.4 - --------------------------------------------------------------------------------------------------------------------------- Cash Provided By Operating Activities 131.5 173.0 - --------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Business acquisitions, net of cash acquired (392.9) (13.4) Capital expenditures (73.9) (65.4) - --------------------------------------------------------------------------------------------------------------------------- Cash Used in Investing Activities (466.8) (78.8) - --------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Dividends paid (23.7) (23.8) Increase in borrowings, net 377.5 4.9 Repurchases of common stock --- (18.1) - --------------------------------------------------------------------------------------------------------------------------- Cash Provided By (Used In) Financing Activities 353.8 (37.0) - --------------------------------------------------------------------------------------------------------------------------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (3.0) (7.8) - --------------------------------------------------------------------------------------------------------------------------- INCREASE IN CASH AND CASH EQUIVALENTS 15.5 49.4 CASH AND CASH EQUIVALENTS: Beginning of Period 317.6 268.2 - --------------------------------------------------------------------------------------------------------------------------- End of Period $333.1 $317.6 ===========================================================================================================================
CAUTIONARY STATEMENT RELATING TO FORWARD-LOOKING STATEMENTS This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to the safe harbor provisions created by that Act. In addition, forward-looking statements may be made orally in the future by or on behalf of the Company. Forward-looking statements can be identified by the use of terms such as "expects", "should", "may", "believes", "anticipates", "will", and other future tense and forward-looking terminology. Readers are cautioned that actual results may differ materially from those projected as a result of certain risks and uncertainties, including, but not limited to, i) changes in business conditions and the economy in general in both foreign and domestic markets; ii) the effect of terrorist activity and armed conflict; iii) weather conditions affecting demand for air conditioners, lawn and garden products, portable power generators and snow throwers; iv) the extent to which the decline in demand for lawn and garden and utility engines will continue, and the success of the Company's ongoing effort to bring costs in line with projected production levels and product mix; v) financial market changes, including fluctuations in interest rates and foreign currency exchange rates; vi) economic trend factors such as housing starts; vii) emerging governmental regulations; viii) availability and cost of materials; ix) actions of competitors; x) the ultimate cost of resolving environmental matters; xi) the Company's ability to profitably develop, manufacture and sell both new and existing products; xii) the extent of any business disruption that may result from the restructuring and realignment of the Company's manufacturing operations, the ultimate cost of those initiatives and the amount of savings actually realized; xii) the integration of the FASCO Motors business into the Company and the issuance of debt in connection with the FASCO Motors acquisition; and xiii) potential political and economic adversities that could adversely affect anticipated sales and production in Brazil. These forward-looking statements are made only as of the date hereof, and the Company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise. Tecumseh Products Company will host a conference call to report on the fourth quarter results on Thursday, January 30th at 11:00 a.m. ET. The call will be broadcast live over the Internet and then available for replay through Tecumseh Products Company's website at www.tecumseh.com. Press releases and other investor information can be accessed via Tecumseh Products Company's Internet web site at http://www.tecumseh.com. Contact: Pat Walsh Tecumseh Products Company 517-423-8455 EX-99.2 4 k74421exv99w2.txt DECEMBER 2002 INVESTOR PRESENTATION EXHIBIT 99.2 FOURTH QUARTER AND YEAR END 2002 INVESTOR PRESENTATION DAVID W. KAY, VICE PRESIDENT, TREASURER & CHIEF FINANCIAL OFFICER JANUARY 30, 2003 Good Morning and welcome to our fourth quarter and year end 2002 conference call. This call is being simultaneously broadcast on the internet and will also be archived for replay starting this afternoon. The replay can be accessed at our web site, Tecumseh.com. I will begin with some brief comments expanding on our press release both in terms of our actual results for the quarter and year, as well as a preliminary look at 2003. Following my comments, we will open up the call for your questions. First, however, I would remind you that my prepared comments this morning, and the answers to your questions, contain forward-looking statements within the meaning of the securities laws. I refer you to the cautionary statements contained in our press release concerning significant risks and uncertainties involved with forward looking statements that could cause actual results to differ materially from projected results. Results for the quarter, before nonrecurring charges, amounted to $13.0 million dollars or $0.70 cents per share compared to income of $10.0 million dollars or $0.54 cents per share in the fourth quarter of 2001, also before nonrecurring charges. Included in fourth quarter 2002 reported net results are nonrecurring charges of $5.8 million dollars gross, or $3.7 million dollars net of tax, representing costs related to the movement of certain engine component manufacturing and environmental costs. After accounting for these charges, reported results for the quarter amounted to net income of $9.3 million dollars, or $0.50 cents per share. Sales for the quarter amounted to $304.2 million dollars, up approximately 2% from last year's sales of $299.1 million dollars. Of that amount, Compressor Products sales increased $12.7 million dollars, or approximately 8%, and Engine & Power Train Group sales were down $11.6 million dollars, or about 9% from last year. Sales in the Engine & Power Train Group were particularly hard hit by major decreases in engines for snow thrower applications. Pump Group sales increased by nearly 21%. Results for the quarter, both in terms of sales and operating profits, while not yet where we would like to see them, show improvement from last year's fourth quarter. The improvement is attributable to the Compressor and Pump segments, offset by a decline in the Engine and Power Train segment. We are seeing positive benefits from our previous restructuring efforts. Compressor operating profits were $14.3 million dollars in the fourth quarter of 2002 versus $2.3 million dollars in the quarter a year ago, an increase of over 500%. Improvements in results were evident in the majority of our key Compressor operating units, including Europe, Brazil and India; the exception being the U.S. where results weakened as sales continue to erode due to production shifts elsewhere. For the full year, the story is similar --- operating profit improved 43% to $77.5 million dollars versus $54.3 million dollars the year before. Like the fourth quarter, the improvement is attributable to the positive effects of cost cutting, increased sales in the refrigeration, freezer and commercial markets, and the positive effects of Brazil's currency. Brazil continues to be the best performer of our compressor businesses. In the fourth quarter, Brazilian operations accounted for about 39% of Compressor Group sales and substantially all of the Group's operating profit. For the full year, Brazilian operations accounted for 67% of the Group's operating profit. Sales in Brazil were up when compared to the fourth quarter of 2001. Factors, such as improvement in the local Brazilian economy, volume increases from the additional production lines 1 recently placed in Brazil, and a currency that has bolstered exports, have all contributed to the increased sales. Currency translation adjustments reduced Brazilian sales by $4.0 million dollars during the quarter. Brazilian operating profits improved in excess of 200% in the quarter and 22% for the full year when compared to the respective prior year periods. For the year, Brazilian unit shipments increased by approximately 25%, primarily to the export market in the U.S. and Europe. While we anticipate Brazilian results will continue to benefit from higher production levels and favorable currency, there are several cautionary risks that could impact operations in Brazil. The Brazilian economy still shows signs of being fragile in light of the country's debt situation. Inflation is starting to edge higher and put upward pressure on manufacturing costs. The Brazilian government is new, and the full scope of its economic and political policies have yet to be fully understood. All of these factors will effect exchange rates, which have a significant impact on overall profitability. In spite of these uncertainties, we believe our Brazilian operations will continue to perform very well, and will contribute significantly to our bottom line. Compressor operations in India have shown significant improvement when compared, not only to the fourth quarter of last year, but also to the full year of 2001. The operations were profitable for each of these periods for the first time, and we expect them to remain profitable, on a full year basis, in 2003. We are cautiously optimistic about the outlook for the full year and the first quarter of 2003 in the Compressor Group. Despite worldwide overcapacity and fierce competition, we believe that past restructuring actions and our emphasis on low cost manufacturing will continue to bring improvement to the bottom line. Of course, we remain concerned about the possible effects on the global economy that may result from possible military action in Iraq. Capital spending and investment in the Compressor Group will continue to be focused primarily on expanding existing overseas operations in India and Brazil, where operating costs remain relatively low and where we can more effectively compete. We continue to evaluate investments in Asia, although the nature and timing of these potential investments, if any, cannot currently be accurately predicted. Let's take a look at the Engine and Power Train Group results for the quarter. Results here have deteriorated beyond our expectations. Operating profit of $1.4 million dollars in the quarter represents an 86% decline from the prior year's fourth quarter, and excludes a $4.1 million dollar restructuring charge taken in the quarter. This decline is primarily explained by a 36% decline in the sales of engines for snow throwers, a market that is key to Engine and Power Train Group results and where we enjoy a market share of over 80%. The decline is not a loss in share, but just a poor selling season which followed last year's near record snow year. Sales into the lawn and garden segment of the business during the quarter were up by 41% over the prior year, but margins on many of these products are very thin. Overall, the Engine and Power Train Group suffers from an uncompetitive cost structure, left over from the boom of 1999. Getting the Group's cost structure in line with its volume and bringing new products to market are key to improving the Group's performance. In the fourth quarter, the Group took a nonrecurring charge of $4.1 million dollars as an initial restructuring action. Production of certain component parts have been moved to both domestic and international locations and, as a result, production activities at the Grafton, Wisconsin location will cease in 2003; however, the Group's administrative headquarters, as well as the service and distribution activities, will remain there. This is just a beginning, as we expect to take further actions in 2003 after alternative plans can be evaluated. Our approach has been slow and methodical to ensure that the supply of quality product to our customers will not be disrupted. The Group has been pursuing a low cost manufacturing strategy in an effort to lower overall operating costs. As a part of this effort, we recently purchased a vacant plant facility in Curitiba, Brazil at a cost of approximately $7 million dollars. Current plans are to produce certain engine parts and 2 components for use in the U.S. assembly operations. The plant is in its very early stages of commissioning and is not expected to be operational until late in the first quarter. We anticipate spending an additional $15 to $20 million dollars on new equipment and tooling. Start up, training and administrative costs, which are inherent with opening any new facility of this type, will negatively impact Engine and Power Train Group results, particularly in the first half of the year. As a result, we do not expect results in the Engine and Power Train Group to improve in 2003. Overall volumes should be comparable to 2002, but most of the benefits of the restructuring and low cost manufacturing actions will not be realized until 2004. Results in the first quarter 2003 are expected to be below the same period 2002, and it is possible that results could deteriorate even further during the remainder of the year, depending on how aggressively or conservatively our plans are implemented. Pump operations, while not as significant to consolidated results as the other major operating groups, experienced improved sales and profits for the quarter and full year. Most of the improvement was attributable to the Little Giant Pump Company through increases in sales of pumps for residential applications. Little Giant had perhaps its best year even in terms of sales and profits. MP Pumps, which is a producer of commercial and industrial pumps, has not seen an economic recovery in their respective market, but has been able to maintain profitability on lower sales. As you are aware, on December 30th, we completed the purchase of FASCO Motors from Invensys, Plc. The total cost of this transaction was $415 million dollars. Of that amount, $397 million dollars was paid at closing with the balance comprised of assumed debt and estimated working capital-net debt adjustments. To finance the transaction, we borrowed $250 million dollars from a new bridge financing facility and $75 million dollars from a newly negotiated $125 million dollar revolving credit facility. The balance came from available cash resources. We are currently in the process of negotiating long-term, permanent financing to replace the bridge loan. The expected amount of the permanent financing will be in a range of $250 million dollars, but not to exceed $300 million dollars. We expect to close on the permanent financing in early March. At that time, depending on the amount of permanent financing actually placed, we will repay, from available cash resources, some or all of the amounts borrowed under the revolving credit facility. This cash requirement will range from $25 to $75 million dollars. We view FASCO as an outstanding strategic acquisition for Tecumseh. FASCO is one of the world's leading manufacturers of fractional horsepower motors, blowers and gear motors. FASCO has a long history and excellent reputation with its customers and is a good fit for us. We share the same core competencies of manufacturing, design and engineering expertise, and our business are somewhat similar. We both manufacture electric motors; we use the same raw materials to build our motors; our production capabilities and processes are similar; and, to a great extent, we share many of the same customers. The addition of FASCO to Tecumseh will allow us to offer a more complete product offering to an even broader customer base. The integration of FASCO into Tecumseh is coming along well. Most day to day activities are under control, and we are now focusing on longer term integration issues. On the morale front, the vast majority of FASCO employees, customers and suppliers view the sale to Tecumseh as a very positive step. To the extent possible, we intend to allow FASCO to operate as a separate, stand-along entity. On a consolidated basis, forecasting 2003 results is difficult at best considering both the challenges and uncertainties we face. Sluggish growth in the worldwide economy, a strong U. S. currency, excess production capacity, an unstable Brazilian currency, and the unpredictable effects of potential military actions widen the spread of variability around any single point forecast. Despite these 3 uncertainties, we believe the Company's historical, or pre-FASCO, operations will show a slight overall improvement in results for the year, exclusive of any nonrecurring charges. However, we must caution that results in the Engine and Power Train Group are far from certain, and things there may get worse before they get better. The addition of FASCO will certainly improve the situation. Proforma information filed with our 8-K dated January 13, 2003, showed FASCO being accretive to earnings by 88 cents per share, based upon the full year ended 12/31/01, excluding nonrecurring charges. A recent look at the full year 2002 proforma results indicate FASCO to be accretive to earnings in the range of $1.00 per share, and we expect 2003 to be accretive as well. Because we have just completed the transaction, we do not yet have a full year or quarter-by-quarter breakout of the FASCO business plan. We would expect to have this process formalized and completed during the first quarter. Going forward, FASCO, together with several Tecumseh electrical component divisions, will be combined for reporting purposes into a new segment which we will call the "Electrical Components Group." As a result, our external financial reports will now reflect four operating segments. That concludes my prepared comments for this morning. I will now be pleased to take your questions. 4 -----END PRIVACY-ENHANCED MESSAGE-----