-----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, OHKa+VauD/D3qFd5lNvt5nnPVulPMZgDuRI1GQw1I8QxDWTg7mogDfbaf4V0t6X7 NHzpsBmTLBi/ntHE5zSuyA== 0000950124-04-003479.txt : 20040729 0000950124-04-003479.hdr.sgml : 20040729 20040729160701 ACCESSION NUMBER: 0000950124-04-003479 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20040729 ITEM INFORMATION: ITEM INFORMATION: Financial statements and exhibits ITEM INFORMATION: Regulation FD Disclosure FILED AS OF DATE: 20040729 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: 04939230 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 k87146e8vk.txt CURRENT REPORT, DATED JULY 29, 2004 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): July 29, 2004 TECUMSEH PRODUCTS COMPANY (Exact name of registrant as specified in its charter) Michigan 0-452 38-1093240 (State or other jurisdiction (Commission (IRS Employer of incorporation) File No.) 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 July 29, 2004 99.2 Second Quarter 2004 Investor Presentation ITEM 9. REGULATION FD DISCLOSURE AND ITEM 12. RESULTS OF OPERATIONS AND FINANCIAL CONDITION The registrant's press release dated July 29, 2004, regarding its 2004 second quarter consolidated results is attached hereto as Exhibit 99.1. The registrant hosted its second quarter 2004 earnings conference call and webcast on Thursday, July 29, 2004 at 11:00 a.m. Eastern Time. Via the webcast, registrant presented its Second Quarter 2004 Investor Presentation, which contains a summary of registrant's financial results for the quarter ending June 30, 2004, 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 Second Quarter 2004 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 August 12, 2004. 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: July 29, 2004 By /s/ JAMES S. NICHOLSON -------------------------------- James S. Nicholson Vice President, Treasurer and Chief Financial Officer EXHIBIT INDEX Exhibit No. Description 99.1 Press release dated July 29, 2004 99.2 Second Quarter 2004 Investor Presentation EX-99.1 2 k87146exv99w1.txt PRESS RELEASE, DATED JULY 29, 2004 EXHIBIT 99.1 TECUMSEH PRODUCTS COMPANY 100 E. PATTERSON STREET TECUMSEH, MI 49286 PRESS RELEASE TECUMSEH PRODUCTS COMPANY REPORTS SECOND QUARTER 2004 NET INCOME OF $0.22 PER SHARE Tecumseh, Michigan, July 29, 2004 . . . . Tecumseh Products Company (NASDAQ-TECUA, TECUB) announced today its 2004 second quarter consolidated results as summarized in the following Consolidated Condensed Statements of Operations. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Six Months Ended (Dollars in millions except per share amounts) June 30, June 30, ----------------------------- ------------------------------ 2004 2003 2004 2003 ---------- ---------- ---------- ---------- NET SALES $ 484.2 $ 482.3 $ 961.2 $ 956.2 Cost of sales and operating expenses 421.6 418.1 843.1 833.0 Selling and administrative expenses 51.1 44.9 95.8 86.1 Restructuring charges, impairments and other items 3.6 28.5 3.6 42.1 ---------- ---------- ---------- ---------- OPERATING INCOME (LOSS) 7.9 (9.2) 18.7 (5.0) Interest expense (5.6) (6.2) (11.2) (11.5) Interest income and other, net 3.8 5.2 8.4 10.1 ---------- ---------- ---------- ---------- INCOME (LOSS) BEFORE TAXES 6.1 (10.2) 15.9 (6.4) Tax provision 2.1 (3.7) 5.5 (2.3) ---------- ---------- ---------- ---------- NET INCOME (LOSS) $ 4.0 $ (6.5) $ 10.4 $ (4.1) ---------- ---------- ---------- ---------- BASIC AND DILUTED EARNINGS (LOSS) PER SHARE $ 0.22 $ (0.35) $ 0.56 $ (0.22) ---------- ---------- ---------- ---------- WEIGHTED AVERAGE SHARES (in thousands of shares) 18,480 18,480 18,480 18,480 ========== ========== ========== ==========
Consolidated results for the second quarter of 2004 amounted to net income of $4.0 million or $0.22 per share compared to a net loss of $6.5 million or $0.35 per share in the second quarter of 2003. Reported results for the second quarter 2004 included restructuring and asset impairment charges of $3.6 million ($2.3 million net of tax or $0.13 per share) from previously announced actions involving the Compressor and Electrical Components businesses. Second quarter 2003 results included a charge of $28.5 million ($18.2 million net of tax or $0.99 per share) related to the consolidation of operations in the Engine & Power Train business and related plant closings. Consolidated net income for the six months ended June 30, 2004 amounted to $10.4 million or $0.56 per share compared to a net loss of $4.1 million or $0.22 per share for the same period in 2003. In addition to the 2003 second quarter restructuring charge noted above, the 2003 first half results also included 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. Exclusive of these respective restructuring charges, impairments and other items, second quarter and first half 2004 operating results declined from the respective 2003 periods, primarily due to lower results from the Engine & Power Train, Compressor and Electrical Components businesses. In addition, second quarter and first half 2004 corporate expenses exceeded the comparable 2003 periods, reflecting 1 the costs associated with due diligence of a potential acquisition target since abandoned and costs of complying with the Sarbanes-Oxley Act of 2002. Consolidated net sales in the second quarter of 2004 increased to $484.2 million from $482.3 million in 2003. Consolidated net sales for the first half of 2004 amounted to $961.2 million compared to $956.2 million in the first half of 2003. The effects of foreign currency translation increased sales by $8.6 million in comparison to the second quarter 2003 and $26.6 million in comparison to the first six months of 2003. Excluding the effects of currency translation, sales in the second quarter and first half 2004 declined primarily due to the Engine & Power Train business, where sales volumes were lower in both North America and Europe, and to a lesser extent, the North American-based Compressor operations and the Electrical Components businesses. COMPRESSOR BUSINESS Second quarter 2004 sales in the Company's compressor business increased to $234.1 million from $223.1 million in the second quarter of 2003. The increase over the comparable quarter from the prior year was due to the effects of foreign currency translation, which increased sales by $6.4 million, and increases in sales of European-built compressors used in commercial applications and Indian-built compressors used in room air conditioning. Sales of Indian-built compressors for room air conditioning more than doubled over the prior year period due to growth in the Indian domestic market and greater export sales. Compressor business sales in the first six months of 2004 increased by $19.2 million, or approximately 4.5%, from the first six months of 2003. The effects of foreign currency translation of $20.3 million accounted for the increase. In addition, declines in sales of compressors used in unitary air conditioning applications and aftermarket distribution in the U.S. were offset by higher levels of sales of compressors used in commercial applications and room air conditioning due to an improving global economic climate. Compressor business operating income for the second quarter of 2004 amounted to $18.8 million compared to $19.5 million in the second quarter of 2003. Operating income for the six months ended June 30, 2004 amounted to $30.7 million compared to $40.4 million for the first six months of 2003. The decrease in operating income for the second quarter of 2004 versus the comparable 2003 quarter reflected specific factors that affected operating results in Brazil and India. Operating income attributable to the Brazilian operations was lower by $0.9 million for the second quarter. While average exchange rates for the quarter were comparable year over year, significant commodity cost increases negatively affected results. With respect to the first six months, Brazilian operating results declined by $7.0 million due to weakness in the U.S. Dollar during the first quarter that narrowed margins on U.S. Dollar-denominated sales, an unfavorable shift in product sales mix, and higher commodity prices. Operating income attributable to the Indian operations declined for the second quarter and first half 2004 by $2.3 million and $3.9 million, respectively, due to the government's lowering of duties on compressors imported into India, which had a significant deflationary effect on compressor prices within India. Higher commodity prices and higher fixed costs associated with production enhancements were also factors in India which offset the positive effects of a 21% increase in sales. Results in North America improved by $2.0 million in the second quarter despite lower sales, as a result of continued cost reduction efforts. ELECTRICAL COMPONENTS BUSINESS Electrical Components business sales were $105.2 million in the second quarter of 2004 compared to $106.5 million in the second quarter of 2003. First half 2004 sales amounted to $212.2 compared to 2 $214.3 million in the first half of 2003. Second quarter and first half volume declines in gear motor and actuator sales were partially offset by higher sales to the automotive market and foreign currency-related increases in the Asian region. Electrical Components operating income for the second quarter of 2004 amounted to $4.0 million compared to $5.7 million in the second quarter of 2003. Segment operating profit for the first half of the year was $7.4 million compared to $7.6 million for the same period in 2003. The decline in second quarter operating income largely resulted from commodity cost increases. First half results were also impacted by warranty, response and expediting costs, incurred as a result of a product design change for an automotive segment customer, and higher intangible amortization resulting from the finalization of purchase accounting in the second quarter of 2003. These costs were partially offset by the absence in 2004 of the $4.2 million write-up of FASCO inventory, recorded at December 31, 2002 in connection with purchase accounting, that was subsequently recognized in cost of sales during the first quarter of 2003. ENGINE & POWER TRAIN BUSINESS Engine & Power Train business sales amounted to $104.0 million in the second quarter of 2004 compared to $113.6 million in the second quarter of 2003. Sales in the first half of 2004 were $228.3 million compared to $243.9 million in the first half of 2003. The decline in sales for the second quarter and first half reflected an approximate 41% decline in sales volumes at the Company's European operations, where the effects of a dry, hot summer in 2003 left excess inventory in the retail pipeline, and the strength of the Euro versus the Dollar weakened the operation's competitiveness. The second quarter and year-to-date decline in Europe, excluding the effects of currency translation, equated to $7.1 million and $18.3 million, respectively. In addition, first half 2004 sales volumes declined by 2.7% in North America mostly due to shortfalls in engine shipments that occurred in the first quarter. Despite strong industry demand, difficulties in achieving normal production levels in Brazil and difficulties experienced with the domestic third-party supply of aluminum castings resulted in some delayed shipping to certain of the Company's North American customers. Engine & Power Train business operating loss in the second quarter of 2004 amounted to $10.7 million compared to a loss of $6.7 million in the second quarter of 2003. For the first half of 2004, the business incurred an operating loss of $13.6 million compared to an operating loss of $10.4 million in 2003. The decline in second quarter and first half results reflected many factors including currency losses of $1.6 million on dollar-dominated borrowings in Brazil, start up costs and ramp up inefficiencies at the Curitiba, Brazil facility, the impact of increased commodity costs, reduced profitability at the European operations due to the lower sales volumes, and product rework involving engines produced in the Company's facility in the Czech Republic that was necessitated by defective parts received from a supplier. The declines were partially offset by the improvement in the operating results of the North American engine operations due to the cost reductions achieved with the closure of the Douglas, Georgia and Sheboygan Falls, Wisconsin facilities last year. PUMP BUSINESS Pump business sales in the second quarter of 2004 amounted to $40.6 million compared to $39.0 million in same period in 2003. First half sales amounted to $74.0 million in 2004 compared to $70.9 million the previous year. The 4.1% increase in second quarter sales was primarily attributed to robust sales in the plumbing markets due to wet weather and the HVAC market due to strong OEM demand. With respect to the 4.4% increase in the first half of the year, in addition to the second quarter factors, sales of water gardening products were up 19% during the first quarter. 3 Operating income amounted to $4.8 million in the second quarter of 2004 compared to $4.9 million in the same period in 2003. Operating income in the first half of 2004 was $8.1 million compared to $8.4 million in 2003. The slight decrease in operating income was primarily attributable to higher engineering, administrative and promotional costs. RESTRUCTURING CHARGES, IMPAIRMENTS AND OTHER ITEMS Second quarter 2004 results include restructuring and impairment charges totaling $3.6 million related to previously announced facility consolidation actions affecting several of the Company's facilities in its North American Compressor and Electrical Components businesses. The consolidation actions within the Compressor business include a move of compressor machining and assembly operations from its Tecumseh, Michigan facility to its existing compressor facility located in Tupelo, Mississippi. In conjunction, aftermarket distribution operations located in Clinton, Michigan will be relocated to the Tecumseh facility. Charges related to the Compressor business action recognized during the second quarter include asset impairment charges of $1.6 million. Additional severance and relocation costs, estimated to be approximately $1.5 million to $2.2 million, will be recognized during the third and fourth quarters of 2004 as the consolidation action is completed. Actions in the Electrical Components business include the closure of the Company's manufacturing facility in St. Clair, Missouri. Gear machining operations will be consolidated into the Company's Salem, Indiana facility and motor assembly operations will be consolidated into the Company's Piedras Negras and Juarez, Mexico facilities. Charges related to the Electrical Components business action recognized during the second quarter included asset impairment charges of $1.7 million and employment-related charges of $0.3. Additional restructuring and impairment charges, estimated to be approximately $2.6 million to $3.7 million, will be recognized during the third and fourth quarters of 2004 as the plant closure and consolidation action is completed. Second quarter 2003 results were adversely affected by a restructuring charge of $28.5 million ($18.2 million net of tax or $0.99 per share) related to the consolidation of operations in the Engine & Power Train business. The restructuring 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. The restructuring charge included approximately $6.8 million in earned severance pay and future benefit costs relating to manpower reductions, $2.0 million in plant closing and exit costs incurred through June 30, 2003, and $19.7 million in asset impairment charges for idled equipment and facilities. First half 2003 results were 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 4 is available in the Company's Form 8-K filed on April 9, 2003. Also, pursuant to the overall arrangement, the Company transferred the title to the property to PRS in October, 2003. OUTLOOK The outlook for the balance of the year is subject to many variables which could significantly impact the Company's results. While the general economic climate is improving and past restructuring actions are providing positive contributions, the continued escalation of commodity costs, weakness in the U.S. Dollar, and pricing pressures from Asian-based competition will challenge each of the Company's businesses in various ways making any predictions difficult. The Company mitigates only a portion of its exposure to future material price increases through forward contracts. Given the competitive nature of the industries in which the Company competes, the Company most likely will not be able to fully recover such cost increases through product pricing actions. Accordingly, additional commodity cost increases, in the absence of other manufacturing cost reductions, could be expected to negatively impact future gains. Subject to the preceding caveat, the Company expects second half 2004 operating results to be better than the first half of 2004, consistent with the overall seasonality of our businesses, but to fall short of the comparable 2003 period, excluding restructuring charges. The Company has taken significant actions over the last several years to improve its cost position, product competitiveness, and value proposition to its customers. Alternatives continue to be evaluated on how best to compete in the highly competitive segments in which the Company operates. As further actions are taken, it is possible that additional restructuring charges will be incurred, particularly outside North America. While the amount and timing of these charges cannot currently be accurately predicted, they may affect several quarterly periods or years, and they could be material to the reported results in the particular quarter or year in which they are recorded. 5 RESULTS BY BUSINESS SEGMENTS (UNAUDITED)
Three Months Ended Six Months Ended (Dollars in millions) June 30, June 30, --------------------------- --------------------------- 2004 2003 2004 2003 ------ ------ ------ ------ NET SALES: Compressor Products $234.1 $223.1 $446.0 $426.8 Electrical Components 105.2 106.5 212.2 214.3 Engine & Power Train Products 104.0 113.6 228.3 243.9 Pump Products 40.6 39.0 74.0 70.9 Other (a) 0.3 0.1 0.7 0.3 ------ ------ ------ ------ Total net sales $484.2 $482.3 $961.2 $956.2 ====== ====== ====== ====== OPERATING INCOME (LOSS): Compressor Products $ 18.8 $ 19.5 $ 30.7 $ 40.4 Electrical Components 4.0 5.7 7.4 7.6 Engine & Power Train Products (10.7) (6.7) (13.6) (10.4) Pump Products 4.8 4.9 8.1 8.4 Other (a) (0.9) (1.1) (1.8) (2.1) Corporate expenses (4.5) (3.0) (8.5) (6.8) Restructuring charges, impairments and other items (3.6) (28.5) (3.6) (42.1) ------ ------ ------ ------ Total operating income (loss) 7.9 (9.2) 18.7 (5.0) Interest expense (5.6) (6.2) (11.2) (11.5) Interest income and other, net 3.8 5.2 8.4 10.1 ------ ------ ------ ------ INCOME (LOSS) BEFORE TAXES $ 6.1 $(10.2) $ 15.9 $( 6.4) ====== ====== ====== ======
(a) "Other" consists of non-reportable business segments. 6 CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
JUNE 30, December 31, (Dollars in millions) 2004 2003 -------- -------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 283.1 $ 344.6 Accounts receivable, net 272.3 235.0 Inventories 304.9 298.2 Deferred income taxes and other 124.0 102.3 -------- -------- Total current assets 984.3 980.1 PROPERTY, PLANT AND EQUIPMENT -- NET 526.9 554.6 GOODWILL AND OTHER INTANGIBLES 311.0 317.5 OTHER ASSETS 257.1 253.6 -------- -------- TOTAL ASSETS $2,079.3 $2,105.8 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable, trade $ 187.0 $ 172.4 Short-term borrowings 51.8 89.6 Accrued liabilities 187.9 172.6 -------- -------- Total current liabilities 426.7 434.6 LONG-TERM DEBT 326.7 327.6 DEFERRED INCOME TAXES 33.6 36.5 PENSION AND POSTRETIREMENT BENEFITS 232.8 233.3 PRODUCT WARRANTY AND SELF-INSURED RISKS 25.6 24.4 ACCRUAL FOR ENVIRONMENTAL MATTERS 44.1 44.6 -------- -------- Total liabilities 1,089.5 1,101.0 STOCKHOLDERS' EQUITY 989.8 1,004.8 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,079.3 $2,105.8 ======== ========
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
Three Months Ended Six Months Ended (Dollars in millions) June 30, June 30, -------------------------- -------------------------- 2004 2003 2004 2003 -------------------------- -------------------------- TOTAL STOCKHOLDERS' EQUITY BEGINNING BALANCE $1,002.9 $ 986.1 $1,004.8 $ 978.9 Comprehensive income (loss) Net income (loss) 4.0 (6.5) 10.4 (4.1) Other comprehensive income (loss) (11.2) 26.9 (13.6) 37.6 -------- -------- -------- -------- Total comprehensive income (loss) (7.2) 20.4 (3.2) 33.5 Cash dividends declared (5.9) (5.9) (11.8) (11.8) -------- -------- -------- -------- TOTAL STOCKHOLDERS' EQUITY ENDING BALANCE $ 989.8 $1,000.6 $ 989.8 $1,000.6 ======== ======== ======== ========
7 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended (Dollars in millions) June 30, -------------------- 2004 2003 ------ ------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 10.4 $( 4.1) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 48.8 46.2 Non-cash restructuring charges and other items 3.3 26.6 Loss on disposal of property and equipment 6.2 4.3 Accounts receivable (42.7) (30.4) Inventories (12.9) (12.3) Payables and accrued expenses 36.2 22.7 Employee retirement benefits (7.9) (8.6) Deferred and recoverable taxes (7.7) (14.4) Net effect of environmental payment -- (25.6) Other (5.8) (18.2) ------ ------ Cash provided by (used in) operating activities 27.9 (13.8) ------ ------ CASH FLOWS FROM INVESTING ACTIVITIES: Business acquisition, net of cash acquired -- 10.6 Capital expenditures (37.7) (31.6) ------ ------ Cash used in investing activities (37.7) (21.0) ------ ------ CASH FLOWS FROM FINANCING ACTIVITIES: Dividends paid (11.8) (11.8) Decrease in borrowings, net (29.8) (34.0) ------ ------ Cash used in financing activities (41.6) (45.8) ------ ------ EFFECT OF EXCHANGE RATE CHANGES ON CASH (10.1) 13.1 ------ ------ DECREASE IN CASH AND CASH EQUIVALENTS (61.5) (67.5) CASH AND CASH EQUIVALENTS: Beginning of period 344.6 333.1 ------ ------ End of period $283.1 $265.6 ====== ======
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 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, particularly commodities, including steel, copper and aluminum, whose cost can be subject to significant variation; ix) actions of competitors; x) the ultimate cost of resolving environmental and legal matters; 8 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) potential political and economic adversities that could adversely affect anticipated sales and production in Brazil; and xiv) potential political and economic adversities that could adversely affect anticipated sales and production in India, including potential military conflict with neighboring countries. 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 second quarter 2004 results on Thursday, July 29, 2004 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 9 EX-99.2 3 k87146exv99w2.txt SECOND QUARTER 2004 INVESTOR PRESENTATION EXHIBIT 99.2 SECOND QUARTER 2004 INVESTOR PRESENTATION JAMES S. NICHOLSON, VICE PRESIDENT, TREASURER AND CHIEF FINANCIAL OFFICER JULY 29, 2004 Thank you, Tamika. Good morning and welcome to our second quarter 2004 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 start our conversation this morning with some brief comments expanding on our press release, both in terms of our actual results for the quarter, as well as a preliminary look at the remainder of the year. Following my comments, we will open the call for your questions. As is customary, 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. Before I begin, I would like to call your attention to an error made by our news service for which you should have received a correction announcement. In our cash flow statement, the cash provided by operations for the first half of 2004 should be a positive $27.9 million, not the negative ($27.9) million as originally reported. Reported results for the second quarter 2004 amounted to a net profit of $4.0 million or $0.22 per share, compared to a net loss of $6.5 million or $0.35 per share in the second quarter of 2003. Both 2004 and 2003 second quarters included restructuring and impairment charges. Included in second quarter 2004 reported results was a pre-tax charge of $3.6 million, or $2.3 million net of tax, related to facility consolidation actions taken in both our Compressor and Electrical Components businesses. This charge had the effect of reducing reported earnings by $0.13 per share in the second quarter. Included in the comparable 2003 period was a pre-tax charge of $28.5 million, or $18.2 million net of tax, related to restructuring actions involving the Engine and Power Train business. This charge had the effect of reducing reported earnings by $0.99 per share in the second quarter last year. So while our bottom line did improve year over year, if you exclude each year's respective restructuring charges, the Company experienced an approximate 45% decline in comparable operating results. On an overall basis, the decline was consistent with the year over year results of the first quarter, but below our targets for the second quarter. As anticipated, commodity prices and currencies played a roll in our results. Consolidated sales for the quarter amounted to $484.2 million, up from last year's second quarter sales of $482.3 million; however, the effect of currency translation increased sales by $8.6 million. Excluding the effects of currency, we actually experienced a decrease in overall sales. This decrease was mostly attributable to the Engine and Power Train segment and the North American operations of the Compressor business, and by a small extent, the Electrical 1 Components Group. I will address each of these changes more specifically in my comments regarding each business segment. Results for the quarter were not outside the range of outcomes that we expected given the uncertainties surrounding commodities and currencies. We did get some relief in Brazil, where the Real weaken over the quarter by approximately 7%. This put the average exchange rate of the currency for the quarter on par with the average for the quarter in 2003 at approximately $3.02 Reais to the dollar. While a weak Real generally helps our Brazilian operations, it also resulted in a foreign exchange remeasurement loss on dollar-denominated debt of the Brazilian Engine operation in the amount of $1.6 million. Our commodity costs were also up in the second quarter 2004 versus the prior year and the first quarter of 2004. We have put price increases into effect with varying degrees of acceptability across our respective markets and segments. In total, it would be fair to say that the effect of commodity increases has exceeded the effects of pricing actions and other cost saving initiatives. Sales in some areas fell at the lower range of expectations because weather in the U.S. has, for the most part, been mild. Hot weather is generally more favorable for Compressor and Electrical Component aftermarket operations. To best understand our overall results, it is best to look at them by business segment -- starting with the Compressor business. Compressor sales, in terms of, rose by $11.0 million, or approximately 5%. The effects of currency accounted for about 60% of the increase. The remainder of the increase can be attributable to a favorable commercial market in Europe and growth in domestic and export volumes at our Indian operations, offset by lower U.S.-based sales. It looks like we are at the beginning of good growth in India, as capacity expansions have come on line with more to come in the future. Compressor segment operating results were off $700,000, or 3.6%, excluding the restructuring and impairment charges related to this business. The decline was mostly attributable to Indian operations despite their increase in sales. As you may recall from the first quarter, recent reductions in duties on imported compressors have had a highly deflationary effect on pricing within the country, and commodity cost increases in India have been equally dramatic as the rest of the world. As a result, operating profit in India is down $2.3 million when compared to the prior year. In Brazil, operating results were also down from the prior year by $900,000. While currency rates on average were on par with the prior year, commodity cost and wage increases exceeded the benefits achieved from cost saving actions and price changes. Brazilian operations accounted for approximately 29% of the Compressor Group sales and approximately 44% of the Group's operating profit. The declines in India and Brazil were largely offset by improvements in North America, where the benefits of cost reduction actions improved operating profit by approximately $2.0 million, despite a 4% decline in sales. 2 The outlook in the Compressor Group for the balance of the year is still difficult to predict because of the uncertainties with currency rates and commodity prices, even though we continue to be encouraged by our expectation for sales. Despite a slight easing of commodity prices off of their highs during the second quarter, we are again seeing signs of more price increases. The impact of these increases could become more pronounced as our supply contracts expire and are renegotiated. Keeping in mind the uncertainty regarding currency and commodity prices, which could quickly change our outlook, we are optimistic that the Compressor Group will show improved results over the balance of the year, exclusive of restructuring charges. Moving to the Electrical Components Group. For the quarter, the Group reported sales of $105.2 million compared to $106.5 million a year ago. Volume declines in sales of gear motors and actuators were offset by gains in sales to automotive customers and higher sales in the Asia/Pacific region; albeit, much of this increase was attributable to the effects of currency translation. Electrical Components operating profit for the quarter was $4.0 million compared to $5.7 million a year ago, excluding the restructuring and impairment charges associated with this business. The decline was largely attributable to the escalation of the prices of commodities, including copper and steel. FASCO has typically hedged a smaller percentage of their copper buy than other Company groups and, therefore, has experienced a larger impact from the increase in the cost of this input. A 2% decline in sales at FASCO also contributed to the decline in operating results Looking forward into the second half of the year for the Electrical Components business, our order book and current forecasts indicate increasing sales, but how much of the expected increase will end up on the bottom line will depend on commodity prices. Now let's look at the Engine and Power Train Group. Sales in the Engine and Power Train Group were down $9.6 million, or approximately 8%, from the prior year's second quarter. The largest portion of the decrease was attributable to Europe, where last year's extremely hot, dry summer left retail inventories very high. As a result, sales volumes at the Company's European operations continue to run 41% lower year over year. In addition, the relatively strong Euro versus the dollar, puts our European engine operations at a competitive disadvantage. In North America, sales also declined despite what was a robust selling season. As we mentioned during the first quarter, some of our customers experienced shipping delays early in the season as we struggled to bring our new supply chain to full capacity after significant restructuring actions in 2003. As a result, one customer redirected some walk behind mower and utility engines to a competitor. The loss of these sales carried into the second quarter. Last quarter, we also discussed the loss of some snow engine SKU's at Sears on product manufactured by Murray. This loss was unrelated to our delivery issues. Second quarter sales of engines for snow applications were down due to the loss of these SKU's because they historically have represented a disproportionate share of early season sales; otherwise, our order book suggests a very good snow season for us and the industry. For the quarter, the Group's operating results declined by $4.0 million. The decline can be attributed to the new Brazilian operations, which also experienced a decline of $4.0 million year over year for the quarter. Of the $4.0 million, $1.6 million was attributable to foreign 3 currency remeasurement losses on dollar-denominated debt. As I mentioned earlier, the Real weakened against the dollar by 7% over the quarter. The remaining $2.4 million decline represents our final ramp up of personnel to prepare for normal production levels. The third quarter should be vastly improved for the Brazilian operations if production targets are met. Commensurate with the significant sales decline in Europe, our European operations, including Italy and the Czech Republic, also experienced a notable decline in operating results, where their losses grew by $1.3 million. The overseas declines were partially offset by improvements in North America, which resulted from the cost savings associated with the Douglas, Georgia and Sheboygan Falls, Wisconsin plant closures. These savings were somewhat curtailed in the second quarter compared to the first quarter due to the cost of aluminum and premiums paid to operate at maximum capacity. Looking forward to the balance of the year for the Engine and Power Train business, our outlook is consistent with the first quarter. We should benefit from better production levels in Brazil and enjoy volumes for snow engines that look to be above that of an average year. Now for the Pump Group. Pump operations continued its sales growth with a 4.1% increase for the quarter. The growth was attributable to increases in sales to the plumbing market and condensate pumps sold into the HVAC market. Despite the increase in sales, operating income in the segment declined $100,000 in the second quarter due to higher engineering, administrative and promotional costs. Looking forward, we expect sales growth to slow in some markets and cost pressures to challenge our margins. If you recall during our call last quarter, I mentioned that these are still challenging times for the Company. Intense competition, rising commodity prices, and a currently unfavorable dollar all weigh heavily on our near term results. This is still true. I also mentioned that the employees were working diligently to build a business that would deliver solutions that are valued by our customers. "Solutions," in this case, means not only engineered products, but also to serve as an integral part of our customers' supply chain. Recently, we announced our intent to implement Oracle's E-Business Suite globally. We expect the implementation to enhance our value proposition to our customers and to lower our costs. In that regard, capital expenditures in the second quarter were up $6.1 million reflecting the cost of the Oracle software license. In the future, capital expenditures will reflect our software implementation costs. In addition, we anticipate continued research and development spending, as pending regulations in the compressor, motor and engine segments all pose opportunities in the marketplace. We have significant cash balances and anticipate generating sufficient cash to fund these planned expenditures and pay dividends. In addition, we continue to assess potential restructuring, cost reduction actions and/or strategic business acquisitions that will enhance our competitiveness and fit into the overall plan. Such actions could result in material charges to our reported results in future periods. That concludes my prepared comments for this morning. I will now be pleased to take your questions. 4 -----END PRIVACY-ENHANCED MESSAGE-----