-----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, OMzUhoAcfeRf446ebRssxxM63LV7TRMRNA/VP/UcGsETkuJorYfC15flUDpPC+Ab ugA4C51Ib3WF1M7LnnjI/w== 0000950124-05-003014.txt : 20050505 0000950124-05-003014.hdr.sgml : 20050505 20050505172411 ACCESSION NUMBER: 0000950124-05-003014 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20050505 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Regulation FD Disclosure FILED AS OF DATE: 20050505 DATE AS OF CHANGE: 20050505 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: 05804678 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 k95022e8vk.txt CURRENT REPORT DATED MAY 5, 2005 UNITED STATES 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): MAY 5, 2005 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 Number) 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 (NOT APPLICABLE) - -------------------------------------------------------------------------------- (Former name or former address, if changed since last report.) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below): [ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) [ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITIONS The registrant's press release dated May 5, 2005, regarding its first quarter 2005 consolidated results is attached hereto as Exhibit 99.1. ITEM 7.01 REGULATION FD DISCLOSURE The registrant hosted its first quarter 2005 earnings conference call and webcast on Thursday, May 5, 2005 at 11:00 a.m. Eastern Time. Via the webcast, registrant presented its First Quarter 2005 Investor Presentation, which contains a summary of registrant's financial results for the quarter ending March 31, 2005, as well as certain other financial and operating information. Pursuant to Regulation FD and the requirements of Item 7.01 of Form 8-K, registrant hereby furnishes the First Quarter 2005 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 May 19, 2005. Exhibit 99.2 is incorporated by reference under this Item 7.01. Note: The information in this report (including Exhibit 99.2) is furnished pursuant to Items 2.02 and 7.01 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 7.01 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 hereunto duly authorized. TECUMSEH PRODUCTS COMPANY Date: May 5, 2005 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 May 5, 2005 99.2 First Quarter 2005 Investor Presentation EX-99.1 2 k95022exv99w1.txt PRESS RELEASE DATED MAY 5, 2005 Tecumseh Products Company Exhibit 99.1 100 E. Patterson Street Tecumseh, MI 49285 PRESS RELEASE TECUMSEH PRODUCTS COMPANY REPORTS FIRST QUARTER 2005 NET LOSS OF $0.67 PER SHARE Tecumseh, Michigan, May 5, 2005 . . . . Tecumseh Products Company (NASDAQ-TECUA, TECUB) announced today its 2005 first quarter consolidated results as summarized in the following Consolidated Condensed Statements of Operations.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED) - --------------------------------------------------------------------------------------------------- Three Months Ended (Dollars in millions, except per share amounts) March 31, --------------------------- 2005 2004 =================================================================================================== NET SALES $ 464.4 $ 477.0 Cost of sales and operating expenses 430.6 421.5 Selling and administrative expenses 48.1 44.7 Restructuring charges, impairments and other items 0.1 -- - --------------------------------------------------------------------------------------------------- OPERATING INCOME (LOSS) (14.4) 10.8 Interest expense (7.7) (5.6) Interest income and other, net 3.3 4.6 - --------------------------------------------------------------------------------------------------- INCOME (LOSS) BEFORE TAXES (18.8) 9.8 Tax provision (benefit) (6.4) 3.4 - --------------------------------------------------------------------------------------------------- NET INCOME (LOSS) $ (12.4) $ 6.4 - --------------------------------------------------------------------------------------------------- BASIC AND DILUTED EARNINGS (LOSS) PER SHARE $ (0.67) $ 0.34 - --------------------------------------------------------------------------------------------------- WEIGHTED AVERAGE SHARES (in thousands of shares) 18,480 18,480 ===================================================================================================
Consolidated net loss for the first quarter of 2005 amounted to $12.4 million or $0.67 per share compared to income of $6.4 million or $0.34 per share in the first quarter of 2004. Operating results were lower than the prior year period across all business segments, with the most substantial decline in the Company's Engine & Power Train business. In general, lower operating results were attributable to lower sales, higher commodity and other input costs in excess of price increases, and unfavorable foreign currency exchange rate changes. Consolidated net sales in the first quarter of 2005 decreased to $464.4 million from $477.0 million in 2004. Excluding an increase in sales due to the effects of currency fluctuation of $13.3 million, sales in the first quarter of 2005 declined by $25.9 million primarily due to the Engine & Power Train business, where sales volumes were lower in North America, and to a lesser extent, Europe. Sales volume declines were also experienced in the Electrical Components and Pumps segments. COMPRESSOR BUSINESS First quarter 2005 sales in the Company's compressor business increased to $241.0 million from $211.9 million in the first quarter of 2004. The increase over the comparable quarter from the prior year was mainly attributable to higher sales of compressor products sold into the original equipment markets for residential refrigerators and freezers, that are primarily manufactured by the Company in its Brazilian and Indian facilities. Additional sales improvements came from continued growth in Indian 1 export sales of compressors used in room air conditioning. The effects of foreign currency translation increased sales by $11.4 million. Compressor business operating income for the first quarter of 2005 amounted to $8.6 million compared to $11.9 million in the first quarter of 2004. The decrease in operating income for the first quarter of 2005 versus the comparable 2004 quarter reflected higher commodity and other input costs in excess of pricing recoveries and the effects of a weaker U.S. Dollar. ELECTRICAL COMPONENTS BUSINESS Electrical Components business sales were $100.2 million in the first quarter of 2005 compared to $107.0 million in the first quarter of 2004. Volume declines in residential and commercial aftermarket, blower, gear motor and actuator sales were slightly offset by higher sales in the Asian region, mostly attributable to the effects of foreign currency translation. Most of the volume declines were due to fourth quarter purchases ahead of the January price increase and reduced customer demand in response to the price increase. Electrical Components operating loss for the first quarter of 2005 amounted to $1.1 million compared to income of $3.4 million in the first quarter of 2004. The decline in operating income largely resulted from lower sales volumes, higher commodity costs in excess of pricing recoveries, and unanticipated operational inefficiencies related to the closure of the St. Clair facility, partially offset by lower amortization of intangible assets. ENGINE & POWER TRAIN BUSINESS Engine & Power Train business sales amounted to $94.9 million in the first quarter of 2005 compared to $124.3 million in the first quarter of 2004. The decline in sales for the first quarter was primarily the result of the loss of business on walk behind rotary lawn applications with a single customer and other reductions in walk behind volume. The loss of business on applications with the single customer was related to activity largely planned for delivery in the first quarter and should not have an impact on the remainder of the year. Engine & Power Train business operating loss in the first quarter of 2005 amounted to $20.9 million compared to a loss of $2.9 million in the first quarter of 2004. The decline in first quarter results reflected losses in volume, increases in commodity, transportation and tooling costs, and additional warranty response and expediting costs primarily due to a quality issue at a transmission business customer. Continued reductions in profitability in Europe also contributed to the increase in the first quarter loss. Engine & Power Train losses in the first quarter were substantially due to the significant costs associated with excess capacities in the U.S. and Europe. The excess capacity situation is exacerbated by the current shift of production to the Company's Brazilian manufacturing facility resulting in duplicate capacities. While the favorable impact of the normal seasonal snow thrower-related business should improve results in the second half of the year compared to the first half, substantial cost reductions and volume improvements will be necessary for sustained improvement. The Company intends to complete these cost reductions throughout 2005. 2 PUMP BUSINESS Pump business sales in the first quarter of 2005 amounted to $27.9 million compared to $33.4 million in 2004. The 16.5% decrease in first quarter sales was primarily attributable to the loss of water gardening business at one mass market retailer. Operating income amounted to $2.3 million in the first quarter of 2005 compared to $3.3 million in 2004. The decrease in operating income was primarily attributable to the reductions in sales volumes offset by reductions in engineering and selling and administrative costs. OUTLOOK Information in this "Outlook" section should be read in conjunction with the cautionary language and discussion of risks included below. Previously, the Company indicated that 2005 results would depend on commodity cost, currency movements, the Company's ability to obtain price increases from its customers to offset the increased cost of product inputs, and global weather. Experience in the first quarter confirms that all these factors negatively impacted results. The Company has not fully recovered higher commodity costs. Key currency rates, particularly the Brazilian Real, were much worse than expected over the quarter. Weather in North and South America has not been conducive to either OEM or aftermarket sales. In addition, the Company has become more pessimistic about worldwide demand, as the factors such as the high cost of energy and high interest rates in Brazil slow growth. Accordingly, the Company now expects full year results, before nonrecurring items, to lag prior year results, particularly in the first half of the year. Second quarter results are expected to be a net loss. Improvements are expected in the second half of the year compared to the prior year based upon more aggressive cost cutting, particularly in the Engine & Power Train and Electrical Components businesses. The Company will continue to focus its efforts on improving the profitability and competitiveness of its worldwide operations. It is likely that additional production relocation and consolidation initiatives will take place during 2005 that could have an effect on the consolidated financial position and future results of operations of the Company. The results for the quarter within certain of our businesses were below the forecasts utilized in testing goodwill for impairment at December 31, 2004. While the Company expects results in the second quarter to continue to lag those forecasts, it is the forecasted results for the second half of the year and subsequent years that remain key to the Company's impairment test. While management does not believe the business decline experienced during the first quarter will have a permanence which would represent a triggering event for interim evaluation of the recoverability of goodwill, further deterioration of results below revised forecasts for the second quarter may require the Company to conduct an impairment test during the second quarter 2005 (outside of the annual testing date of December 31) with a better view of the impact of the Company's cost cutting activities, pricing actions, and possibly revised discount rates. While the Company has not begun any further impairment testing at this time, an impairment loss could result during the second quarter of 2005, if such an analysis is warranted. It is not reasonably possible to estimate the amount of impairment, if any; however, such loss could be material. Losses in the second quarter, including any impairment losses, could affect the Company's ability to meet certain of its debt covenants. See the discussion below under "Liquidity and Capital Resources." 3 LIQUIDITY AND CAPITAL RESOURCES The negative results for the quarter, as well as investment in various components of working capital, especially inventory, resulted in using $67.4 million in cash to fund operations. The Company also used existing cash balances to repay debt to maintain compliance with current debt covenants related to earnings, to better optimize the capital structure of the business, and to reduce borrowing costs in excess of earnings on idle cash. The Company plans to continue its efforts to reduce debt through both the deployment of remaining available cash and reducing the investment in various components of working capital. The Company also intends to explore more flexible financing arrangements with less restrictive covenants. Given the Company's expectation of losses in the second quarter, the Company anticipates that further action will be necessary to maintain compliance with current debt covenants. Higher capital expenditures related to new product expansions in Brazil and India also contributed to the use of cash.
RESULTS BY BUSINESS SEGMENTS (UNAUDITED) - ------------------------------------------------------------------------------------------- Three Months Ended (Dollars in millions) March 31, ------------------------ 2005 2004 =========================================================================================== NET SALES: Compressor Products $241.0 $211.9 Electrical Components 100.2 107.0 Engine & Power Train Products 94.9 124.3 Pump Products 27.9 33.4 Other (a) 0.4 0.4 - ------------------------------------------------------------------------------------------- Total net sales $464.4 $477.0 =========================================================================================== OPERATING INCOME (LOSS): Compressor Products $ 8.6 $ 11.9 Electrical Components (1.1) 3.4 Engine & Power Train Products (20.9) (2.9) Pump Products 2.3 3.3 Other (a) (0.9) (0.9) Corporate expenses (2.3) (4.0) Restructuring charges, impairments and other items (0.1) -- - ------------------------------------------------------------------------------------------- Total operating income (loss) (14.4) 10.8 Interest expense (7.7) (5.6) Interest income and other, net 3.3 4.6 - ------------------------------------------------------------------------------------------- INCOME (LOSS) BEFORE TAXES $(18.8) $ 9.8 ===========================================================================================
(a) "Other" consists of non-reportable business segments, primarily Manufacturing Data Systems, Inc. 4
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED) - --------------------------------------------------------------------------------------------------------------------- MARCH 31, December 31, (Dollars in millions) 2005 2004 ===================================================================================================================== ASSETS CURRENT ASSETS: Cash and cash equivalents $ 85.5 $ 227.9 Accounts receivable, net 246.1 220.4 Inventories 431.4 394.2 Deferred income taxes and other 112.6 84.7 - --------------------------------------------------------------------------------------------------------------------- Total Current Assets 875.6 927.2 PROPERTY, PLANT AND EQUIPMENT - NET 553.1 554.8 GOODWILL AND OTHER INTANGIBLES 304.0 305.9 OTHER ASSETS 284.5 274.9 - --------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $2,017.2 $2,062.8 ===================================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable, trade $ 194.5 $ 178.1 Short-term borrowings 89.2 68.8 Accrued liabilities 139.4 174.6 - --------------------------------------------------------------------------------------------------------------------- Total current liabilities 423.1 421.5 LONG-TERM DEBT 251.8 317.3 DEFERRED INCOME TAXES 7.5 8.0 PENSION AND POSTRETIREMENT BENEFITS 234.3 235.2 PRODUCT WARRANTY AND SELF-INSURED RISKS 20.2 21.2 ACCRUAL FOR ENVIRONMENTAL MATTERS 40.7 41.3 OTHER NON-CURRENT LIABILITIES 38.4 -- - --------------------------------------------------------------------------------------------------------------------- Total Liabilities 1,016.0 1,044.5 STOCKHOLDERS' EQUITY 1,001.2 1,018.3 - --------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,017.2 $2,062.8 =====================================================================================================================
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) - --------------------------------------------------------------------------------------------------------------------- Three Months Ended (Dollars in millions) March 31, --------------------------- 2005 2004 ===================================================================================================================== TOTAL STOCKHOLDERS' EQUITY BEGINNING BALANCE $1,018.3 $1,004.8 Comprehensive Income (Loss): Net income (loss) (12.4) 6.4 Other comprehensive income (loss) 1.2 (2.4) - --------------------------------------------------------------------------------------------------------------------- Total comprehensive income (loss) (11.2) 4.0 Cash dividends declared (5.9) (5.9) - --------------------------------------------------------------------------------------------------------------------- TOTAL STOCKHOLDERS' EQUITY ENDING BALANCE $1,001.2 $1,002.9 =====================================================================================================================
5
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) - ------------------------------------------------------------------------------------------------------- Three Months Ended (Dollars in millions) March 31, ------------------------------- 2005 2004 ======================================================================================================= CASH FLOWS FROM OPERATING ACTIVITIES: Cash used in operating activities $(67.4) $ (3.8) - ------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (28.7) (12.1) - ------------------------------------------------------------------------------------------------------- Cash used in investing activities (28.7) (12.1) - ------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Dividends paid (5.9) (5.9) Proceeds from borrowings, net 8.5 0.8 Repayments of long term debt (50.0) -- - ------------------------------------------------------------------------------------------------------- Cash used in financing activities (47.4) (5.1) - ------------------------------------------------------------------------------------------------------- EFFECT OF EXCHANGE RATE CHANGES ON CASH 1.1 (1.5) - ------------------------------------------------------------------------------------------------------- DECREASE IN CASH AND CASH EQUIVALENTS (142.4) (22.5) CASH AND CASH EQUIVALENTS: Beginning of period 227.9 344.6 - ------------------------------------------------------------------------------------------------------- End of period $ 85.5 $322.1 =======================================================================================================
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; 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 or system implementations, 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; xiv) potential political and economic adversities that could adversely affect anticipated sales and production in India, including potential military conflict with neighboring countries, xv) the Company's ability to reduce a substantial amount of costs in the Engine & Power Train group associated with excess capacity, and xvi) the ongoing financial health of major customers. 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. 6 Tecumseh Products Company will host a conference call to report on the first quarter 2005 results on Thursday, May 5, 2005 at 11:00 a.m. ET. The call will be broadcast live over the Internet and then available for replay through the Investor Relations section of Tecumseh Products Company's website at www.tecumseh.com. Press releases and other investor information can be accessed via the Investor Relations section of Tecumseh Products Company's Internet web site at http://www.tecumseh.com. Contact: Pat Walsh Tecumseh Products Company 517-423-8455 7 EX-99.2 3 k95022exv99w2.txt FIRST QUARTER 2005 INVESTOR PRESENTATION EXHIBIT 99.2 FIRST QUARTER 2004 INVESTOR PRESENTATION JAMES S. NICHOLSON, VICE PRESIDENT, TREASURER AND CHIEF FINANCIAL OFFICER MAY 5, 2005 Thank you, Christina. Good morning and welcome to our first quarter 2005 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. Following our normal custom, 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 second quarter and rest of the year. Following my comments, we will open up the call for your questions. 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. Reported results for the first quarter 2005 amounted to a net loss of $12.4 million or $0.67 per share, compared to net income of $6.4 million or $0.34 per share in the first quarter of 2004. This $1.01 per share decline year over year is not only a sizeable decline, but also not what we expected when we began the year. Nearly every risk we saw at the beginning of the year, including commodity costs, currency and weather, worked against us during the quarter. In addition, volumes were also a factor in most of our business segments due to softening global demand and share losses. While results declined in all segments, the most significant declines were in our Engine & Power Train and Electrical Components sectors. Consolidated sales for the quarter amounted to $464.4 million, down from last year's first quarter sales of $477.0 million. Excluding the effect of currency translation that increased sales by $13.3 million, sales declined by $25.9 million or 5.4%. This decrease was primarily attributable to the Engine & Power Train business, but sales also declined in the Electrical Components and Pump businesses. I will address these changes more specifically in my comments regarding each business segment; however, in the aggregate and on a pre-tax basis, we estimate that the volume and mix changes affected profitability by approximately $12 million, currency by approximately $6 million, and input costs in excess of price increases by approximately $3 million. Note, however, that the mix of these factors on an aggregate basis varies greatly from segment to segment. In addition, net interest costs rose by $3.4 million reflecting lower earnings from available cash and higher costs on borrowings reflecting the unwinding during the quarter of fixed to variable interest rate swaps. To understand our overall results, it is best to look at them by business segment - starting with the Compressor business. Compressor sales in terms of dollars rose by $29.1 million 1 or 14%, with the effects of currency translation of $11.4 million, representing approximately 39% of the increase. The remaining increase in sales is mostly attributable to price increases versus a change in aggregate volumes. Compressor segment operating results were down $3.3 million or 28% in comparison to the prior year. The single largest factor was the affect of a weaker U.S. Dollar versus the Brazilian Real. The average book keeping rate for the first quarter 2005 had the U.S. Dollar 10% weaker versus the Real and 6% weaker versus the Euro in comparison to the previous year's quarter. In fact, the situation has not improved. Just yesterday, the Real hit a 36 month high versus the dollar at around 2.47 Reais to the dollar. During the quarter, the Company did avail itself of some opportunistic currency hedges in Brazil, but most of the benefit will accrue to later quarters and will not provide 100% offsets. Another factor is a significantly weaker European economy, where commercial volumes were down approximately 10%. The slow down in Europe, a slow down in Brazil attributed to cold weather and rising interest rates, and very cold spring weather in the U.S. all contributed to sales being below expectations, causing a rise in inventories. Over the coming quarters, the Company is taking specific actions to reduce these inventories. The outlook in the Compressor Group for the second quarter and the balance of the year has changed from previous expectations. We are no longer bullish with respect to volumes given the conditions just mentioned, and our expectations with respect to currency will result in lower margins. Accordingly, we believe results in the segment will lag those of the prior year. Two things that could help are commodity prices, if they moderate, and currency, if the dollar strengthens. Moving to the Electrical Components Group - for the quarter, the Group reported sales of $100.2 million compared to $107.0 million a year ago. Volume declines were experienced in most of the Company's markets, reflecting lower demand due to fourth quarter purchases ahead of January price increases and lower demand in response to the price increases. Cool spring weather has also affected aftermarket volumes in March and has continued into the second quarter. Electrical Components operating loss for the quarter was $1.1 million compared to an operating profit of $3.4 million a year ago. The decline in operating results is due to the lower sales volumes, higher commodity costs in excess of pricing recoveries, and operational inefficiencies related to the closure of the St. Claire, Missouri facility. These factors were offset by lower amortization of intangible assets. The cost of copper is still at very high levels, and the costs of other inputs, like freight, continue to rise. Price increases have not fully covered commodity and the other cost increases in this segment. Further price increases are under consideration. Otherwise, more aggressive cost cutting and productivity improvements are planned. Looking forward into the second quarter for the Electrical Components business, in the absence of a strong recovery in weather-related sales, we expect results to lag those of the prior year, but return to profitability. Improvements in the latter half of the year are solely based upon the projected affects of cost cutting actions, as no sales recovery is currently forecasted. 2 Now let's look at the Engine and Power Train Group. The Group continues to encounter impediments to its recovery to profitability. This quarter was particularly difficult as a result of several factors. Sales in the Engine & Power Train Group were down $29.4 million or 24% from the prior year's first quarter. The largest portion of the decrease was attributable to the loss of business on walk behind rotary lawn mower applications sold at Sears. Attempts to obtain price increases resulted in the loss of the business, which occurs primarily in the first quarter. Other volume declines were associated with cool spring weather, which has moderated demand and slowed build schedules, as well as lower sales in Europe. The Group's operating results declined by $18 million. In addition to the 24% decline in sales, the lack of price increases on green season product to cover substantial cost increases in iron castings, freight and other spending contributed to the sizable decline. In addition, the Group incurred warranty and response costs in excess of $2 million with respect to a transmission problem caused by non-conforming material received from a supplier, and losses in Europe exceeded those of the prior year. Similar to the Compressor Group, the somewhat sudden and unexpected fall off in volume resulted in increased inventories. Inventories have also been built as a result of production level-loading and ahead of contract negotiations scheduled for June in the Company's New Holstein, Wisconsin facility. The Company fully expects to utilize these inventories as further cost reduction actions are employed. Looking forward to the second quarter for the Engine & Power Train business, we anticipate results that are improved in comparison to the first quarter 2005, but worse than second quarter 2004. However, year over year, results are expected to improve in the second half of the year as the order book for snow thrower engines indicates another very strong snow season, and aggressive cost cutting associated with the final phases of the transition to Brazilian production sources will be completed. Now for the Pump Group - as anticipated, sales declined by $5.5 million or 16% over the prior year. The decline was attributable to the previously disclosed loss of water gardening business at Lowes to a Chinese-sourced competitor. Sales of such products occur disproportionately in the first half of the year. These declines were partially offset by increases in pumps sold to the HVAC market, other retailers, and the industrial market. The decline in operating profit of $1.0 million is attributable to the net volume decline. Now that we have covered the segments, let's address the balance sheet. During the quarter, we began steps to reduce debt levels through utilization of available cash, partly due to the need to manage compliance with current debt covenants, and partly to begin rationalization of the balance sheet by eliminating borrowing costs in excess of earnings on the available cash. We have also had other demands for cash over the last six months. There has been both planned and unplanned increases in inventory, and during the first quarter, capital expenditures increased as we put in new product capabilities in both Brazil and India - mostly in the compressor business. There will be a continued effort to right size our balance sheet. This potentially might include refinancing of our debt in favor of more flexible structure and terms so as to provide liquidity where we are investing most heavily. Of course, all funding strategies require that we 3 reduce our inventory levels and improve profitability. Given our current expectations with respect to foreign currency exchange rates and the general economic outlook for the remainder of the year, it is evident that more aggressive cost cutting is necessary, including headcount reductions. Plans have been put in place to reduce global headcounts by 5 to 7% by the end of the year. However, our fundamental strategies have not changed. Those strategies require investment in new product and services capabilities that are valued by our customers. That concludes my prepared comments for this morning. I will now take your questions. 4 -----END PRIVACY-ENHANCED MESSAGE-----