-----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, OOK6jVJvQstB391chhGtsb0GpS/L+t1zB3/qTMv72+b6tLmA/Jt/G9w7z8rHoz/d jG5gHZqOhbjF+hHFLI4lTw== 0000950124-03-003394.txt : 20031031 0000950124-03-003394.hdr.sgml : 20031031 20031031114423 ACCESSION NUMBER: 0000950124-03-003394 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20031030 ITEM INFORMATION: ITEM INFORMATION: Financial statements and exhibits ITEM INFORMATION: Regulation FD Disclosure FILED AS OF DATE: 20031031 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: 03968757 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 k80477be8vk.txt CURRENT REPORT DATED OCTOBER 30, 2003 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): October 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 October 30, 2003 99.2 Third Quarter 2003 Investor Presentation ITEM 9. REGULATION FD DISCLOSURE AND ITEM 12. RESULTS OF OPERATIONS AND FINANCIAL CONDITION The registrant's press release dated October 30, 2003, regarding its 2003 third quarter consolidated results is attached hereto as Exhibit 99.1. The registrant hosted its third quarter 2003 earnings conference call and webcast on Thursday, October 30, 2003 at 11:00 a.m. Eastern Time. Via the webcast, registrant presented its Third Quarter 2003 Investor Presentation, which contains a summary of registrant's financial results for the quarter ending September 30, 2003, as well as certain other financial and operating information. Pursuant to Regulation FD and the requirements of Item 12 of Form 8-K, registrant hereby furnishes the Third Quarter 2003 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 November 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 Items 9 and 12 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 or Item 12 of Form 8-K. 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: October 31, 2003 By /s/ David W. Kay ----------------------------------------- David W. Kay Vice President, Treasurer and Chief Financial Officer EXHIBIT INDEX Exhibit No. Description ----------- ----------- 99.1 Press release dated October 30, 2003 99.2 Third Quarter 2003 Investor Presentation EX-99.1 3 k80477bexv99w1.txt PRESS RELEASE DATED OCTOBER 30, 2003 EXHIBIT 99.1 TECUMSEH PRODUCTS COMPANY REPORTS THIRD QUARTER 2003 NET INCOME OF $1.03 PER SHARE Tecumseh, Michigan, October 30, 2003 . . . . Tecumseh Products Company (NASDAQ-TECUA, TECUB) announced today its 2003 third quarter consolidated results as summarized in the following Consolidated Condensed Statements of Operations.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) - ------------------------------------------------------------------------------------------------------------------------------- Three Months Ended Nine Months Ended (Dollars in millions except per share amounts) September 30, September 30, -------------------------- --------------------------- 2003 2002 2003 2002 =============================================================================================================================== NET SALES $438.5 $310.9 $1,394.7 $1,039.6 Cost of sales and operating expenses 379.7 261.1 1,212.7 882.1 Selling and administrative expenses 37.2 29.4 123.3 88.9 Restructuring charges (gains) and other items (3.3) --- 38.8 4.5 - ------------------------------------------------------------------------------------------------------------------------------- OPERATING INCOME 24.9 20.4 19.9 64.1 Interest expense (6.8) (1.4) (18.3) (3.5) Interest income and other, net 6.6 3.0 16.7 8.8 - ------------------------------------------------------------------------------------------------------------------------------- INCOME BEFORE TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE 24.7 22.0 18.3 69.4 Taxes on income 5.7 7.8 3.4 24.6 - ------------------------------------------------------------------------------------------------------------------------------- INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 19.0 14.2 14.9 44.8 CUMULATIVE EFFECT OF ACCOUNTING CHANGE FOR GOODWILL, NET OF TAX --- --- --- (3.1) - ------------------------------------------------------------------------------------------------------------------------------- NET INCOME $19.0 $14.2 $14.9 $41.7 - ------------------------------------------------------------------------------------------------------------------------------- BASIC AND DILUTED EARNINGS PER SHARE Income before cumulative effect of accounting change $1.03 $0.77 $0.81 $2.42 Accounting change for goodwill --- --- --- (0.17) - ------------------------------------------------------------------------------------------------------------------------------- NET INCOME $1.03 $0.77 $0.81 $2.25 =============================================================================================================================== WEIGHTED AVERAGE SHARES (in thousands of shares) 18,480 18,480 18,480 18,480 ===============================================================================================================================
Consolidated net income for the third quarter of 2003 amounted to $19.0 million or $1.03 per share compared to $14.2 million or $0.77 per share in the third quarter of 2002. Included in reported results for the third quarter of 2003 is a net gain of $3.3 million ($2.1 million net of tax or $0.11 per share) resulting from the restructuring actions in the Engine & Power Train business announced in the second quarter of 2003. Third quarter results were also favorably impacted by several income tax related items. The resolution of prior years' federal income tax audits reduced the Company's currently payable provision for income taxes by $1.9 million. The Company's effective federal income tax rate was further reduced by adjustments to the provision for deferred taxes pertaining to unremitted earnings of foreign subsidiaries. Third quarter 2003 results include the income of the FASCO Motors Group ("FASCO"), which was acquired on December 30, 2002. FASCO's operating income for the quarter was $4.9 million. Consolidated net income for the first nine months of 2003 amounted to $14.9 million or $0.81 per share compared to $41.7 million or $2.25 per share in the same period of 2002. In addition to the third quarter net gain from restructuring actions and the federal income tax-related items mentioned above, results for the first nine months of 2003 include a charge of $13.6 million ($8.7 million net of tax or $0.47 per share) recorded in the first quarter related to environmental costs at the Company's Sheboygan Falls, Wisconsin facility and a restructuring charge of $28.5 million ($18.2 million net of tax or $0.99 per share) recorded in the second quarter related to the consolidation of operations in the Engine & Power Train business and related plant closings. Year-to-date 2003 operating results were also reduced by $4.2 million ($2.7 million net of tax or $0.15 per share) due to the expensing of inventory write-ups recorded as part of purchase accounting for the FASCO acquisition as required by U.S. Generally Accepted Accounting Principles. Year-to-date results have also been negatively impacted by a $5.6 million charge related to the amortization of a non-compete agreement arising from the FASCO acquisition. Included in the 2002 first half results is a restructuring charge of $4.5 million ($2.9 million net of tax or $0.16 per share) related to the relocation of certain compressor manufacturing operations from the United States to Brazil and the cumulative effect of an accounting change 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." Consolidated sales for the third quarter of 2003 amounted to $438.5 million compared to sales of $310.9 million in the third quarter of 2002. Sales for the nine months ended September 30, 2003 were $1,394.7 million compared to sales of $1,039.6 million in the first nine months of 2002. The net increase in sales of $127.6 million for the third quarter includes FASCO sales of $99.1 million as well as moderate increases in all other business segments. The net increase of $355.1 million for the first nine months also includes FASCO sales of $308.4 million, as well as moderate increases in all other business segments. Exclusive of restructuring and other one-time items, third quarter operating income was slightly lower than the prior year due to weaker results in the Compressor business segment and interest charges on the Company's acquisition related debt, partially offset by improvement in the Engine & Power Train business and the addition of FASCO. COMPRESSOR BUSINESS Third quarter 2003 sales in the Company's Compressor business increased to $193.8 million from $181.9 million in the third quarter of 2002. This increase was primarily attributable to effects of foreign currency translation which increased sales by approximately $11.3 million. Otherwise, gains in sales of compressors used in refrigeration applications and, to a lesser extent, gains in U.S. export sales of compressors used in air conditioning that rebounded after the second quarter slowdown caused by the war in Iraq were offset by declines in sales of compressors used in unitary air conditioning and commercial applications. Compressor business sales in the first nine months of 2003 increased $5.6 million, or approximately 0.9%, from the first nine months of 2002. The relatively flat sales reflect an increase due to currency translation and a 36% increase in sales of compressors utilized in refrigeration applications, more than offset by declines in sales of compressors used in air conditioning. Compressor business operating income for the third quarter of 2003 amounted to $15.5 million compared to $22.6 million in the third quarter of 2002. Operating income for the nine months ended September 30, 2003 amounted to $55.9 million compared to $65.7 million for the first nine months of 2002. The decrease in operating income for the third quarter of 2003 versus the comparable 2002 quarter reflects several factors, including an unfavorable sales mix, unfavorable foreign currency movements, and lower product margins. The continued decline in overall U.S. manufactured volumes reduced the profitability of the segment's U.S. operations. Results in Brazil were also lower in the third quarter of 2003 versus 2002, partially due to $3.7 million of net re-measurement gains from foreign currency-denominated transactions in the third quarter of 2002 that did not recur in 2003. The weak U.S. dollar narrowed margins on U.S. dollar denominated sales sourced from Brazil and other foreign operations. Lastly, margins were adversely affected by unfavorable product sales mix, material cost increases in some locations, and lower average sales prices in certain product categories. The decline in 2 profitability experienced in the second and third quarters of 2003 compared to the same periods in 2002 is in contrast to the improvement experienced in the first quarter of 2003 where volumes were up over the prior year first quarter and the effects of cost reduction efforts produced positive results. As a result of these two contrasting periods, the Compressor business' operating results for the first nine months of 2003 were down 14.9% in comparison to the same period in 2002. Results from the Company's Brazilian compressor operations for the third quarter of 2003 declined from the comparable prior year period, reflecting a shift in sales mix to lower priced compressors, increased material and operating costs, and the foreign currency effects noted above. Despite these declines, Brazilian operations remain a key to future competitiveness, and for the three and nine month periods ended September 30, 2003, represented 64% and 59% of operating income for the Compressor business compared to 64% and 50%, respectively for the comparable periods in 2002. ELECTRICAL COMPONENTS BUSINESS With the acquisition of FASCO, the Company has created a new operating segment. In addition to FASCO, the segment includes certain North American electrical component manufacturing that was previously reported in the Compressor business. Prior year business segment data, as presented in the table titled "Results by Business Segments (Unaudited)," has been reclassified to conform to the Company's current presentations. Electrical Components sales were $101.5 million in the third quarter of 2003, including $99.1 million of sales from FASCO, compared to $2.3 million in the third quarter of 2002. Year-to-date sales amounted to $315.8 million, including $308.4 million of sales from FASCO, compared to $5.8 million in the first nine months of 2002. Segment operating profit for the quarter was $3.9 million compared to a loss of $2.1 million in 2002. FASCO contributed $4.9 million in operating profit to the third quarter of 2003. Segment operating profit for the first nine months of the year was $11.5 million compared to a loss of $1.5 million for the same period in 2002. FASCO contributed $14.6 million in operating profit to the first nine months of 2003. FASCO's results for the three and nine month periods have been reduced by $1.9 million ($1.2 million net of tax or $0.07 per share) and $5.6 million ($3.6 million net of tax or $0.19 per share), respectively, for amortization of a non-compete agreement arising from the acquisition. The non-compete agreement is being amortized over a two year period. In addition, during the first quarter of 2003, FASCO's results were reduced by $4.2 million ($2.7 million net of tax or $0.15 per share) for inventory adjustments required by purchase accounting rules. ENGINE & POWER TRAIN BUSINESS Engine & Power Train business sales amounted to $113.2 million in the third quarter of 2003 compared to $97.9 million in the third quarter of 2002. Sales in the first nine months of 2003 were $357.1 million compared to $320.7 million in the first nine months of 2002. The improvement in sales for the third quarter reflects a 29% improvement in unit volume of engines used for snow throwers. Sales for the first nine months of the year reflect overall higher U.S. shipment volumes and the effects of translation from a weaker U.S. dollar, partially offset by lower volumes in Europe where the dry, hot summer has dramatically slowed sales. Engine & Power Train business operating income in the third quarter of 2003 amounted to $3.3 million compared to $0.2 million in the third quarter of 2002. For the first nine months of 2003, the business incurred an operating loss of $7.1 million compared to breakeven in 2002. The improvement in 3 third quarter results is attributable to the increased volume of engines for snow throwers and lower fixed costs resulting from the closure of the Douglas, Georgia facility. Offsets include higher engineering costs associated with new product development and startup costs associated with the new facility in Curitiba, Brazil. The substantial decline in profitability of the segment for the first nine months is attributable to numerous factors, including less favorable sales mix, lower average selling prices, higher costs of purchased parts, excess capacity and production inefficiency costs, rising health care expenses and startup expenses associated with the new facility in Curitiba, Brazil, as well as weak sales volumes in Europe. PUMP BUSINESS Pump business sales in the third quarter of 2003 amounted to $29.7 million compared to $28.4 million in 2003. Year-to-date sales amounted to $100.6 million in 2003 compared to $97.4 million the previous year. The increase in third quarter sales was primarily attributed to higher volumes in the retail and plumbing sectors, which were spurred by the inclement weather in the eastern United States. The slight improvement in the first nine months of 2003 sales was due to the same third quarter factors, plus increased volumes in condensate products sold to the HVAC and plumbing markets and in industrial products sold through the aftermarket distribution channel, offset by lower volumes in the heavy industrial market. Operating income amounted to $3.3 million in the quarter ended September 30, 2003 compared to $3.3 million in the same period of 2002. Operating income in the first nine months of 2003 decreased to $11.7 million from $12.4 million in 2002. The slight decrease in operating income for the first nine months of 2003 compared to 2002 is primarily attributable to increased administrative costs and unfavorable sales mix. RESTRUCTURING CHARGES AND OTHER ITEMS Third quarter 2003 results were favorably affected by $3.3 million ($2.1 million net of tax or $0.11 per share) for net gains recognized pursuant to the restructuring actions announced in the second quarter involving the Engine & Power Train business. These actions included the closure of the Company's Douglas, Georgia and Sheboygan Falls, Wisconsin production facilities and the relocation of certain production capacities to the new Curitiba, Brazil facility and other existing U.S. locations. As a result of these actions, the Company has incurred both charges and gains, which have been recognized over the second and third quarters of 2003 in accordance with SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets," SFAS No. 146 "Accounting for Costs Associated with Exit or Disposal Activities," and SFAS No. 88 "Employer's Accounting for Settlements & Curtailments of Defined Benefit Pension Plans and Termination Benefits." As of September 30, 2003, the Company has recognized $31.0 million in charges and $5.8 million in gains with respect to these restructuring actions. Included in the charges are approximately $7.5 million in earned severance pay and future benefit costs relating to manpower reductions, $3.2 million in plant closing and exit costs incurred through September 30, 2003, and $20.3 million in asset impairment charges for idled equipment and facilities. The amount of severance pay and future benefit costs mentioned above includes $0.8 million in curtailment losses related to the pension plan at the Sheboygan Falls, Wisconsin facility. The gains represent curtailment gains associated with other post-employment benefits. Under U.S. GAAP, such gains are not recognizable until the affected employees have been severed and, accordingly, were recorded in the third quarter of 2003. 4 Under SFAS No. 146, severance payments that require future service to be received is accrued as earned and other costs are only recognized to the extent a liability has been incurred. Accordingly, $28.5 million and $2.5 million of the charges were recognized in the second and third quarters, respectively. Additionally, the Company expects to incur further charges of approximately $3.2 million in the fourth quarter of 2003. Nine month 2003 results were also adversely affected by a $13.6 million ($8.7 million net of tax or $0.47 per share) charge, recognized in the first quarter, related to environmental costs at the Company's Sheboygan Falls, Wisconsin facility. On March 25, 2003, with the cooperation of the Environmental Protection Agency, the Company entered into a liability transfer agreement with Pollution Risk Services, LLC ("PRS"), whereby PRS assumed substantially all of the Company's responsibilities, obligations and liabilities for remediation of the Sheboygan River and Harbor Superfund Site (the "Site"). While the Company believes the arrangements with PRS are sufficient to satisfy substantially all of the Company's environmental responsibilities with respect to the Site, these arrangements do not constitute a legal discharge or release of the Company's liabilities with respect to the Site. The cost of the liability transfer arrangement was $39.2 million. The charge consists of the difference between the cost of the arrangement and amounts previously accrued for the cleanup. The Company also maintains a reserve of $0.5 million to reflect its potential environmental liability arising from operations at the Site, including potential liabilities not assumed by PRS pursuant to the arrangement. Additional information is available in the Company's Form 8-K filed on April 9, 2003. Nine month 2002 results were adversely affected by a $4.5 million ($2.9 million net of tax or $0.16 per share) restructuring charge in the Compressor segment recognized in the first quarter. The charge relates to the decision to relocate the production of additional rotary compressor product lines to Brazil from the United States and consists of the write-down of certain equipment, which will not be used in other operations. DEBT REFINANCING On December 30, 2002, the Company acquired FASCO from Invensys Plc for cash of $396.6 million and the assumption of approximately $14.5 million in debt. The acquisition was financed, in part, with proceeds from new bank borrowings, including $250 million from a six-month bridge loan and $75 million from a new three-year $125 million revolving credit facility. On March 5, 2003, the Company completed a private placement of $300 million Senior Guaranteed Notes maturing 2008 through 2011. Proceeds from the private placement were used to repay the bridge loan and pay down borrowings under the revolving credit facility. ACCOUNTING CHANGE The cumulative effect from an accounting change of $4.8 million ($3.1 million net of tax) recorded in the first quarter of 2002, resulted from the Company adopting SFAS No. 142 "Goodwill and Other Intangible Assets" on January 1, 2002. Under SFAS No. 142, goodwill is no longer amortized, but is subject to impairment testing on at least an annual basis. As required by SFAS No. 142, 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. OUTLOOK The outlook for the fourth quarter of 2003 is unfavorable in comparison to 2002. The accretive impact of FASCO's results are expected to be positive, but results from the Company's traditional 5 Compressor, Engine & Power Train and Pump segments are expected to be soft in relation to the prior year, reflecting little economic growth, higher costs and the unfavorable effects of a weak U.S. dollar. The weakness in the U.S. dollar will be most evident on the results of the Brazilian Compressor operations where the Real was particularly weak in the fourth quarter of 2002 due to the national election and European Engine operations where the strength of the Euro has resulted in a loss of share to non-European suppliers. 6
RESULTS BY BUSINESS SEGMENTS (UNAUDITED) - ------------------------------------------------------------------------------------------------------------------------------- Three Months Ended Nine Months Ended (Dollars in millions) September 30, September 30, --------------------------- --------------------------- 2003 2002 (a) 2003 2002 (a) =============================================================================================================================== NET SALES: Compressor Products $193.8 $181.9 $620.6 $615.0 Electrical Components 101.5 2.3 315.8 5.8 Engine & Power Train Products 113.2 97.9 357.1 320.7 Pump Products 29.7 28.4 100.6 97.4 Other (b) 0.3 0.4 0.6 0.7 - ------------------------------------------------------------------------------------------------------------------------------- Total Net Sales $438.5 $310.9 $1,394.7 $1,039.6 =============================================================================================================================== OPERATING INCOME (LOSS): Compressor Products $15.5 $22.6 $55.9 $65.7 Electrical Components 3.9 (2.1) 11.5 (1.5) Engine & Power Train Products 3.3 0.2 (7.1) 0.0 Pump Products 3.3 3.3 11.7 12.4 Other (b) (0.8) (0.9) (2.9) (1.3) Corporate expenses (3.6) (2.7) (10.4) (6.7) Restructuring charges and other items 3.3 --- (38.8) (4.5) - ------------------------------------------------------------------------------------------------------------------------------- Total Operating Income 24.9 20.4 19.9 64.1 Interest expense (6.8) (1.4) (18.3) (3.5) Interest income and other, net 6.5 3.0 16.6 8.8 - ------------------------------------------------------------------------------------------------------------------------------- INCOME BEFORE TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE $24.6 $22.0 $18.2 $69.4 ===============================================================================================================================
(a) Prior year amounts have been reclassified to conform to 2003 presentation. (b) "Other" consists of non-reportable business segments, primarily MDSI. 7
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED) - ------------------------------------------------------------------------------------------------------------------------------- SEPTEMBER 30, December 31, (Dollars in millions) 2003 (c) 2002 =============================================================================================================================== ASSETS CURRENT ASSETS: Cash and cash equivalents $280.5 $333.1 Accounts receivable, net 252.3 242.4 Inventories 301.3 304.0 Deferred income taxes and other 91.1 75.6 - ------------------------------------------------------------------------------------------------------------------------------- Total Current Assets 925.2 955.1 PROPERTY, PLANT AND EQUIPMENT -- NET 553.5 570.5 GOODWILL AND OTHER INTANGIBLES 349.5 329.1 OTHER ASSETS 247.1 208.3 - ------------------------------------------------------------------------------------------------------------------------------- Total Assets $2,075.3 $2,063.0 =============================================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable, trade $164.1 $172.6 Short-term borrowings 72.3 112.6 Accrued liabilities 161.3 166.2 - ------------------------------------------------------------------------------------------------------------------------------- Total Current Liabilities 397.7 451.4 LONG-TERM DEBT 314.2 298.2 DEFERRED INCOME TAXES 31.3 33.6 PENSION AND POSTRETIREMENT BENEFITS 253.9 250.1 PRODUCT WARRANTY AND SELF-INSURED RISKS 22.6 21.3 ACCRUAL FOR ENVIRONMENTAL MATTERS 39.7 29.5 - ------------------------------------------------------------------------------------------------------------------------------- Total Liabilities 1,059.4 1,084.1 STOCKHOLDERS' EQUITY 1,015.9 978.9 - ------------------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,075.3 $2,063.0 ===============================================================================================================================
(c) Reflects purchase accounting adjustments for FASCO, including the completion of tangible and intangible asset valuations.
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) - ------------------------------------------------------------------------------------------------------------------------------- Three Months Ended Nine Months Ended (Dollars in millions) September 30, September 30, --------------------------- --------------------------- 2003 2002 2003 2002 =============================================================================================================================== TOTAL STOCKHOLDERS' EQUITY BEGINNING BALANCE $1,000.6 $985.7 $978.9 $977.7 Comprehensive Income: Net Income 19.0 14.2 14.9 41.7 Other Comprehensive Income (Loss) 2.2 (33.4) 39.8 (41.1) - ------------------------------------------------------------------------------------------------------------------------------- Total Comprehensive Income (Loss) 21.2 (19.2) 54.7 0.6 Cash Dividends Declared (5.9) (5.9) (17.7) (17.7) - ------------------------------------------------------------------------------------------------------------------------------- TOTAL STOCKHOLDERS' EQUITY ENDING BALANCE $1,015.9 $960.6 $1,015.9 $960.6 ===============================================================================================================================
8
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) - ------------------------------------------------------------------------------------------------------------------------------- Nine Months Ended (Dollars in millions) September 30, ------------------------------------ 2003 2002 =============================================================================================================================== CASH FLOWS FROM OPERATING ACTIVITIES: Income before cumulative effect of accounting change $14.9 $44.8 Adjustments to reconcile income before cumulative effect of accounting change to net cash provided by operating activities: Depreciation and amortization 68.7 48.7 Non-cash restructuring charges 22.4 4.5 Accounts receivable 2.8 (3.7) Inventories 19.5 (15.3) Payables and accrued expenses (48.8) 32.9 Prepaid pension expense (12.0) (21.6) Deferred and recoverable taxes 3.1 (11.5) Net effect of environmental payment (25.6) --- Other (6.6) 1.2 - ------------------------------------------------------------------------------------------------------------------------------- Cash Provided By Operating Activities 38.4 80.0 - ------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Business acquisition, net of cash acquired (d) 10.6 (4.0) Capital expenditures (61.3) (41.3) - ------------------------------------------------------------------------------------------------------------------------------- Cash Used In Investing Activities (50.7) (45.3) - ------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Dividends paid (17.7) (17.7) Increase (Decrease) in borrowings, net (36.2) 40.8 - ------------------------------------------------------------------------------------------------------------------------------- Cash Provided By (Used In) Financing Activities (53.9) 23.1 - ------------------------------------------------------------------------------------------------------------------------------- EFFECT OF EXCHANGE RATE CHANGES ON CASH 13.6 (6.2) - ------------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (52.6) 51.6 CASH AND CASH EQUIVALENTS: Beginning of Period 333.1 317.6 - ------------------------------------------------------------------------------------------------------------------------------- End of Period $280.5 $369.2 ===============================================================================================================================
(d) 2003 amount relates to the FASCO acquisition and reflects cash received from the Seller for net purchase price adjustments net of acquisition related costs. 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 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) 9 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; xiii) the integration of the FASCO Motors business into the Company and the ultimate cost associated therewith; xiv) potential political and economic adversities that could adversely affect anticipated sales and production in Brazil; and xv) potential political and economic adversities that could adversely affect anticipated sales and production in India. 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 third quarter results on Thursday, October 30, 2003 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 www.tecumseh.com. Contact: Pat Walsh Tecumseh Products Company 517-423-8455 10 EX-99.2 4 k80477bexv99w2.txt THIRD QUARTER 2003 INVESTOR PRESENTATION EXHIBIT 99.2 THIRD QUARTER 2003 INVESTOR PRESENTATION DAVID W. KAY, VICE PRESIDENT, TREASURER AND CHIEF FINANCIAL OFFICER OCTOBER 30, 2003 Good Morning and welcome to our third quarter 2003 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, www.tecumseh.com. I will begin with some brief comments expanding on our press release in terms of our results for the quarter. 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, will 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. Reported results for the quarter amounted to a net profit of $19.0 million, or $1.03 per share, compared to a net profit of $14.2 million, or $0.77 per share, in the third quarter of 2002. Included in the 2003 reported net results is a restructuring credit of $3.3 million gross, $2.1 million, or $0.11 per share, net of tax, related to the continuing consolidation of operations and related plant closings in the Engine & Power Train Group. Also included in the third quarter results is a tax credit resulting from a refund of prior years' income taxes amounting to $1.9 million or $0.10 per share. Exclusive of the restructuring charge, earnings for the quarter amounted to $0.81 per share. Consolidated sales for the quarter amounted to $438.5 million, up from last year's third quarter sales of $310.9 million. The largest factor for this increase was the 1 inclusion of sales from the FASCO Motors Group, which amounted to $99.1 million for the quarter. As you know, we completed the FASCO acquisition on December 30, 2002, and this is the third quarterly period in which we are reporting operating results for FASCO. Sales of compressor products increased by $11.9 million, or approximately 6.5%, to $193.8 million from third quarter sales a year ago. Of this increase, approximately $11.3 million is directly related to foreign currency translations. Sales of Engine & Power Train products increased by $15.3 million to $113.2 million from $97.9 million a year ago, while Pump products sales increased by $1.3 million to $29.7 million from 2002 levels. Results for the quarter, both in terms of sales and operating profits, exclusive of special restructuring charges, have improved from third quarter results a year ago. Consolidated operating profit, exclusive of the plant closing and restructuring credit of $3.3 million, amounted to $21.6 million versus $20.4 million a year ago. The improvement in the Engine & Power Train Group, together with operating income provided by the addition of the FASCO Motors Group, was offset by declines in the Compressor Products segment. Compressor operating profit amounted to $15.5 million in the quarter versus $22.6 million a year ago. This decline was driven by a number of factors, including reduced demand in a number of key markets, lower overall selling prices, a higher cost structure, and the impact of a weak U.S. dollar. Exports from North America to Asia and the Middle East were up from third quarter last year, but are still somewhat depressed as the market continues to suffer from a glut of low cost Asian-produced product. Aftermarket sales into the distribution and replacement markets were negatively affected by cool, wet weather declining nearly 14% from third quarter 2002 levels. Unfortunately, summer never seemed to happen in the aftermarket business. As a result, North American compressor sales declined by $8.3 million or nearly 12% from year ago levels. On the 2 positive side, because of cost control measures and previous plant restructuring actions, North American operating margins increased to 9.1% from 8.8% a year ago. Although unit volumes increased quarter over quarter, Brazilian operations, while still very strong, were negatively impacted by global economic conditions, as well as the unfavorable effects of a weak U.S. dollar. Sales into the local Brazilian market increased somewhat during the quarter, as the Brazilian economy started to show early signs of improvement; however, interest rates on consumer borrowing remain extremely high in an effort to control inflation within the Country, which continues to restrain consumer demand. The weakness of the U.S. dollar against the Real has negatively impacted margins in Brazil as a result of translating operating costs incurred in local currency into U.S. dollars. In addition, last years' third quarter results were favorably impacted by a $3.7 million dollar gain resulting from the re-measurement of foreign-denominated receivables and payables as the Real weakened against the dollar. Brazilian operations also suffered from a poor mix of lower margin compressors, higher operating costs, and continued market-based pricing pressures. Results in our European compressor operations remain extremely soft. The stagnant European economy, combined with a strengthening European currency, resulted in reduced operating profits here versus a year ago. Compressor operations in India were also below last year's third quarter results, primarily due to reduced sales in the refrigerator and freezer markets. The outlook in the Compressor Group for the balance of the year is soft. Demand is spotty in most major markets; the exception being the lower-priced household refrigeration and freezer market. There continues to be an excess capacity situation, which has put heavy pressure 3 on selling prices. The worldwide economy remains very soft, particularly in Europe. Additionally, the continuing weakening of the U.S. dollar has put increasing pressure on sales and margins at our overseas compressor operations. Overall, we expect fourth quarter operating results in the Compressor segment will be down from 2002 levels. Brazilian results, while still strong, will be negatively impacted by a uncertain South American market, a product mix slanted heavily toward lower margin household refrigerator and freezer compressors, and the significant strength of the Brazilian currency against the dollar when compared to fourth quarter exchange rates a year ago. As you may recall, in the fourth quarter of 2002, the Real versus the dollar was approximately 3.5 to one. We are currently experiencing exchange rates of approximately 2.85 to one, an appreciation of approximately 20%. This dramatic change will continue to negatively impact operating margins as costs incurred in local currency are translated into dollars. 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, in spite of currencies, remain comparatively low compared to U.S. and European costs, 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 be predicted. Turning our attention to the Engine & Power Train Group, results here have shown significant improvement over third quarter 2002 levels. The Group generated an operating profit for the quarter of $3.3 million compared to a profit of $0.3 million a year ago. Sales in the Group increased from $97.9 million a year ago to $113.2 million this year. This improvement is driven primarily from a 29% improvement in unit volumes of engines used for snow throwers. 4 Engine demand at our European operations continues to be negatively impacted by weather conditions - namely record high temperatures and near drought conditions in some areas of the continent. Inventory levels of unsold product there are at record highs. European operations have also been negatively impacted by the weak economy and the strength of the Euro. As a result, European volumes decreased nearly 15% from third quarter a year ago. In spite of the increase in snow volumes, overall total volume remains weighted toward an unfavorable mix of low margin, walk-behind rotary mower applications where average selling prices continue to deteriorate year over year. Operating results were also negatively impacted by startup costs at our new Curitiba, Brazil operations and increased engineering costs related to the development of new product offerings. Margins were also negatively impacted by increased costs for hourly health care, tooling, freight, general overhead expenses, and inefficiencies as production wound down at the now closed manufacturing plants. In connection with our efforts to reduce manufacturing costs and realign our productive capacity to meet both current and future operational needs, we previously announced our intent to close our Douglas, Georgia and Sheboygan Falls, Wisconsin manufacturing facilities and the relocation of certain production capacity from those facilities to our new Curitiba, Brazil operation and other existing U.S. locations. Production at the Douglas plant effectively ceased by June 30th of this year. The majority of useable equipment was removed from the facility and either has been or will be installed at Curitiba or other U.S. facilities. The Sheboygan Falls Diecasting facility was substantially closed on September 30th. In connection with these actions, we recorded restructuring charges in both the third and second quarters. The restructuring charges have been recognized in accordance with SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets" and SFAS No. 146 5 "Accounting for Costs Associated with Exit or Disposal Activities." Expenses recorded so far in connection with these closings amounted to $31.0 million, which includes approximately $7.5 million in earned severance pay and future benefit costs relating to manpower reductions, $3.2 million in plant closing and exit costs incurred through September 30, 2003, $20.3 million in asset impairment charges for idled equipment and facilities, and $5.8 million in gains resulting from the curtailment of other Post-retirement Benefit Plans. The net amount of the restructuring items recorded in the third quarter was a gain of $3.3 million. We expect to incur future additional shutdown expenses of approximately $3.2 million in connection with these actions. Looking forward to the balance of the year, the bottom line results are difficult to predict with any degree of accuracy. While profitable snow product is expected to continue to have a positive impact on results, other factors will have a negative effect. Volume will continue to be skewed toward a mix of low margin walk-behind rotary mower engines. Additionally, total demand for engines is far from certain. Timing of new product offerings and customer acceptance of these products are unknown at this time. We currently don't see anything on the horizon which would lead us to believe that demand in the fourth quarter will be particularly robust. The 2004 lawn and garden season begins in earnest during the fourth quarter of the year. As of today, we still don't have a final fix on exactly which OEM models we will be placed on for the upcoming 2004 season, although we don't expect our walk-behind volume to differ significantly from the 2003 season. On the plus side, we have retained our position on the Toro/Home Depot line of walk-behinds. Continued startup expenses at the new Curitiba facility will continue to depress operating results in the Engine & Power Train Group. The Curitiba plant is now in operation and has begun producing component parts and subassemblies for use in our U.S. engine manufacturing and assembly plants. With the exception of some larger 6 diecasting equipment, the relocation and installation of equipment from the closed North American plants is substantially completed; however, because of engineering, testing and acceptance requirements, full production of components at the new facility is not planned until late fourth quarter. Nonetheless, we have sufficient inventory of components and engines on hand to meet anticipated production requirements during the Brazilian production ramp up period. The benefit of the lower Brazilian cost structure will not begin to be fully realized until the first quarter of 2004. Now lets take a look at our newest segment - the Electrical Components Group. As previously mentioned, we completed the acquisition of the FASCO Motors Group on December 30, 2002. This is the third full quarter in which the FASCO results are included in our consolidated earnings. FASCO has been combined with certain other legacy electrical component businesses which were previously included in the Compressor segment. For the quarter, the Electrical Components Group reported an operating profit of $3.9 million on net sales of $101.5 million. Of these amounts, FASCO's sales amounted to $99.1 million and its operating profit was $4.9 million. FASCO's results were negatively impacted by $1.6 million in amortization of a non-compete agreement arising from the acquisition. The $15 million dollar total cost of the non-compete agreement is being amortized over a two year period. Sales of the other component companies in the Electrical Components Group are primarily either intercompany or inter-segment, leaving FASCO as the largest single operation in the Group. FASCO's results for the quarter were slightly below our expectations, primarily as a result of softness in two of its major markets - HVAC and linear actuators/gear motors markets. Sales to the HVAC and water heater OEM sector were off somewhat as a result of soft demand and a slow start to the heating season. Sales to the aftermarket replacement and distribution markets 7 have also been negatively impacted by the cool, wet weather. Sales to the gear motor/linear actuator markets continue to be down significantly from forecasted amounts, primarily in the healthcare equipment sector, as well as the recreation exercise and fitness markets. Product sourced from China has negatively impacted both of these markets. FASCO's operating results were also negatively impacted by increased costs of an ongoing plant closing and restructuring action designed to relocate certain motor production from the U.S. to Mexico. The move from the U.S. and the ramp up of Mexican production took longer than expected. These actions commenced prior to Tecumseh's purchase of the Company and have now been substantially completed. FASCO's results for the fourth quarter are anticipated to improve significantly from the levels of the first three quarters; however, the slow start to the heating season and apparent reluctance of some major OEMs to finalize their requirements give us some concern. Pump operations were nearly flat when compared to the third quarter of 2002. Sales in this segment were up slightly, but operating profits were unchanged from third quarter results a year ago. At Little Giant Pumps, soft economic conditions impacted sales at retail; although, water gardening product saw an up-tick late in the quarter. Additionally, recent severe weather on the East coast resulted in an increase in retail plumbing product sales. Sales and operating profits at MP Pumps, which is a producer of commercial and industrial pumps, were below expectations and continue to be negatively impacted by a soft economy and weak demand for commercial pumps. The Company continues to maintain a very strong balance sheet and a favorable cash position. At September 30, we had approximately $280 million in available cash on our balance sheet. Capital spending for the first nine months of 2003 amounted to slightly under $62 million compared to $41 million in 2002. The majority of this increase relates to the new engine facility 8 in Curitiba, Brazil, as well as spending at FASCO. Most of our capital investments continue to be made in lower cost countries, such as Brazil and India. We continue to analyze strategic acquisition and investment opportunities or alternatives, which would complement and/or improve our core businesses, markets and strategies, but have no imminent plan or opportunities in this area at this time. Looking out at the fourth quarter, we continue to face soft demand, intense competition, and uncertain economic conditions in each of our major segments. Forecasting in this environment has become extremely difficult for us. It is difficult to see out 30 to 45 days, let alone three to six months. As a result, we will continue our previously stated policy of not providing specific or detailed guidance. In general, we now expect fourth quarter results will be below those of a year ago, exclusive of any potential restructuring charges. We do not currently see anything that would lead us to believe that there will be any dramatic improvements in the near term. Compressor operations, because of competitive pricing pressures, worldwide economic conditions, particularly in Europe and South America, and the continued weakness of the U. S. dollar, are expected to be soft and are not expected to perform as well in the fourth quarter as they did in the fourth quarter last year. Brazilian operations will continue to do reasonably well, but because of the currency situation and South American economic conditions, we will see further pressure on margins. FASCO is expected to perform well, but results look to be below our original expectations for the quarter. While results are expected to far outpace third quarter numbers, soft demand and economic conditions in major markets, such as HVAC and gear motors/linear actuators, may have a dampening effect. Demand in the automotive sector, while still holding up reasonably well, is subject to rapid change. 9 Results in the Engine & Power Train Group are even less predictable. The strength and duration of the snow season will have a significant impact on fourth quarter results. While the snow season has been strong to date, how it will hold up for the balance of the year is uncertain. The European engine operation has been severely impacted by some of the most extreme summer weather in history. Extreme heat and near-drought conditions severely reduced demand for our European produced engines and have left the inventory channel full. Additionally, the strength of the European currency has put us in a competitively disadvantaged situation versus our domestic competitors. The ability of this Group to bring newly designed product into production and into the marketplace will be key to the long term profitability of the Group, but we do not currently expect any significant impact until mid-2004. We continue to generate strong operating cash flows and maintain a strong balance sheet. We anticipate generating sufficient cash flows to fund the balance of our capital spending requirements for the year and maintain our dividend payment to our shareholders at its current level. In general, our primary focus is to improve our competitive position in all the markets and segments we serve by lowering cost, developing new or unique products for niche markets or applications, and moving up the value chain by offering value-added subassemblies or complete systems to our customers, rather than just commodity products. That concludes my prepared comments for this morning, and we will now open the call to your questions. 10 -----END PRIVACY-ENHANCED MESSAGE-----