-----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, N0JXbxpMraVoRFeDA0CGt/BKwQ6yR/KZneQwaFaL7veDxpf7bk5ZWXk2m4mOd+an pGzfIzTOW9wndc0WOZWX0g== 0000950124-08-001318.txt : 20080319 0000950124-08-001318.hdr.sgml : 20080319 20080319113235 ACCESSION NUMBER: 0000950124-08-001318 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20080314 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20080319 DATE AS OF CHANGE: 20080319 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: 08698492 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 k24941e8vk.txt CURRENT REPORT DATED MARCH 14, 2008 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): MARCH 14, 2008 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 CONDITION. Our press release dated March 14, 2008 regarding our fourth quarter 2007 consolidated results is furnished as Exhibit 99.1 to this report. We hosted our fourth quarter 2007 earnings conference call and webcast on Friday, March 14, 2008 at 11:00 a.m. Eastern Time. Via the webcast, we presented our Fourth Quarter 2007 Investor Presentation, which contained a summary of our financial results for the quarter and full year. We are furnishing a copy of the Fourth Quarter 2007 Investor Presentation as Exhibit 99.2 to this report. The Investor Presentation will be posted on our website, www.tecumseh.com, through at least March 14, 2009. Exhibit 99.2 is incorporated by reference under this Item 2.02. ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS. The following exhibits are furnished with this report:
Exhibit No. Description - ----------- ----------- 99.1 Press release dated March 14, 2008 99.2 Fourth Quarter 2007 Investor Presentation
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: March 19, 2008 By /s/ James S. Nicholson ------------------------------------ James S. Nicholson Vice President, Treasurer and Chief Financial Officer NOTE: The information in Item 2.02 and in Exhibits 99.1 and 99.2 shall not be deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, except as shall be expressly set forth by specific reference in the filing. The inclusion of any information in Item 2.02 is not an admission as to the materiality of the information. 2 EXHIBIT INDEX
Exhibit No. Description - ----------- ----------- 99.1 Press release dated March 14, 2008 99.2 Fourth Quarter 2007 Investor Presentation
3 EX-99.1 2 k24941exv99w1.txt PRESS RELEASE DATED MARCH 14, 2008 Exhibit 99.1 TECUMSEH PRODUCTS COMPANY REPORTS FOURTH QUARTER 2007 RESULTS Tecumseh, Michigan, March 14, 2008.... Tecumseh Products Company (NASDAQ-TECUA, TECUB) announced today its 2007 fourth quarter and full year consolidated results as summarized in the following Consolidated Condensed Statements of Operations. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Twelve Months Ended (Dollars in millions except per share amounts) December 31, December 31, ------------------ ------------------- 2007 2006 2007 2006 ------- -------- -------- -------- NET SALES $ 256.1 $ 250.7 $1,133.4 $1,017.7 Cost of sales 225.0 231.0 1,011.7 943.2 Selling and administrative expenses 27.8 30.2 109.5 99.2 Impairments, restructuring charges and other items 5.6 2.2 7.2 2.4 ------- ------- -------- -------- OPERATING (LOSS) INCOME (2.3) (12.7) 5.0 (27.1) Interest expense 0.9 (9.7) (22.3) (19.4) Interest income and other, net 1.6 1.2 6.2 10.9 ------- ------- -------- -------- INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES 0.2 (21.2) (11.1) (35.6) Tax (benefit) provision (3.4) 3.9 (8.2) 12.5 ------- ------- -------- -------- Income (loss) from continuing operations 3.6 (25.1) (2.9) (48.1) Income (loss) from discontinued operations, net of tax 0.5 (38.7) (175.2) (32.2) ------- ------- -------- -------- Net income (loss) $ 4.1 ($63.8) ($178.1) ($80.3) ------- ------- -------- -------- Basic income (loss) per share*: Continuing operations $ 0.19 ($1.36) ($0.16) ($2.60) Discontinued operations 0.03 (2.09) (9.48) (1.75) ------- ------- -------- -------- Basic net income (loss) per share $ 0.22 ($3.45) ($9.64) ($4.35) ------- ------- -------- -------- Diluted income (loss) per share*: Continuing operations $ 0.18 ($1.36) ($0.16) ($2.60) Discontinued operations 0.03 (2.09) (9.48) (1.75) ------- ------- -------- -------- Diluted net income (loss) per share $ 0.21 ($3.45) ($9.64) ($4.35) ------- ------- -------- -------- WEIGHTED AVERAGE SHARES, BASIC (in thousands of shares) 18,480 18,480 18,480 18,480 ------- ------- -------- -------- WEIGHTED AVERAGE SHARES, DILUTED (IN THOUSANDS OF SHARES) 19,871 18,480 19,494 18,480 ======= ======= ======== ========
* On April 9, 2007, we issued a warrant to a lender to purchase 1,390,944 shares of our Class A Common Stock, which is equivalent to 7% of our fully diluted common stock (including both Class A and Class B shares). This warrant is not included in diluted earnings per share for the full year ended December 31, 2007, as the effect would be antidilutive. As a result of the sale of the majority of the Electrical Components business and the entire Engine & Power Train business during 2007, the operating results from these former businesses have been included in discontinued operations. Interest expense of $7.1 million and $5.7 million was allocated to discontinued operations in the fourth quarter ended December 31, 2007 and 2006 respectively, and interest expense of $36.0 million and $18.2 million was allocated to discontinued operations for the years ended December 31, 2007 and 2006 respectively, related to operations divested in 2007. Approximately $17.8 million in deferred financing costs associated with the Second Lien debt, which we retired during the third quarter 2007, were expensed as part of the interest costs allocated to discontinued operations during that period. The gross proceeds realized from these sales transactions totaled $281 million. Consolidated net sales from continuing operations in the fourth quarter of 2007 increased to $256.1 million from $250.7 million in 2006. Excluding the increase in sales due to the effects of foreign currency translation of $28.4 million, 2007 fourth quarter sales decreased by 1.9%. Increases of $6.1 million in sales of commercial compressors and $9.6 million for room air conditioning compressors were offset by declines in compressors for refrigeration and freezers of $9.7 million and declines of $0.7 million in all other compressor product lines. Net sales in the year ended December 31, 2007 increased $115.7 million or 11.4% versus the same period of 2006. Excluding the increase in sales due to the effect of changes in foreign currency translation of $81.9 million, net sales increased 3.3% from the prior year. The sales increases were primarily attributable to price advances, which were implemented throughout the year across all product lines except residential air conditioning. The increases in commercial compressors were also associated with higher volumes, with unit sales improving by approximately 6%, due both to increased demand from existing customers and from growth in new markets, particularly in India This increase was offset somewhat by volume declines in refrigeration and freezer compressors (down 1%). Consolidated net income from continuing operations for the fourth quarter of 2007 was $3.6 million ($0.19 per basic share and $0.18 per diluted share), compared to net loss of $25.1 million ($1.36 per share) in the fourth quarter of 2006. Operating income improved by $10.4 million compared to the prior year. The improvement was due to $13.1 million of favorable pricing/mix, $5.9 million in productivity improvements, and $4.8 million in reductions in overhead, warranty, and administrative expenses. In addition, fourth quarter 2007 operating results benefited from several events which triggered recognition of income during the quarter, aggregating to approximately $7.2 million. Examples of these items included revisions to property tax assessment laws in Europe and export incentive levels in India. The recognition of these amounts in the fourth quarter is not representative of the ongoing benefits of these changes. Offsets to these improvements included unfavorable changes in currency rates of $8.6 million, and higher commodity costs of $1.7 million. We also recognized the reversal of an accrual for non-income taxes in Brazil in the fourth quarter of 2006 of$6.9 million, while no such benefit was realized in 2007. The fourth quarter of 2007 included $5.6 million in restructuring and asset impairment charges in continuing operations. $4.2 million of the impairment charges in the quarter related to the impairment of long-lived compressor assets in India ($2.2 million) and North America ($2.0 million). These assets were primarily impaired as a result of the global consolidation of our manufacturing operations. The remaining charges reflect the impact of net losses on the sale of buildings ($0.5 million) and related charges ($0.9 million) as a result of the consolidation of non-compressor facilities. Reported results for the fourth quarter of 2006 included restructuring and asset impairment charges of $2.2 million. These charges related to write-offs in our compressor business for various restructuring initiatives. Interest expense amounted to a credit of $0.9 million in the fourth quarter of 2007, compared to $9.7 million in the fourth quarter of 2006. In the fourth quarter of 2007, an adjustment to full year interest expense of $5.8 million was reclassed to discontinued operations, as it related to the repayment of the First and Second Lien credit agreements as referenced above. We recognized a tax benefit of $3.4 million in the fourth quarter of 2007. This compares to a $3.9 million income tax expense in the fourth quarter of 2006. For the year ended December 31, 2007, we recognized a tax benefit of $8.2 million. The full year results of 2007 reflected a tax benefit in continuing operations, tax expense in other comprehensive income, and no U.S. federal income tax impact for discontinued operations. This compares to a $12.5 million income tax provision for the year ended December 31, 2006. Interest expense related to continuing operations amounted to $22.3 million in the fiscal year ended December 31, 2007 compared to $19.4 million in the comparable period of 2006. The increase was primarily related to higher interest rates charged on our foreign borrowings when compared to the prior year. Interest income and other, net amounted to $6.2 million in the fiscal year ended December 31, 2007 compared to $10.9 million in the same period of 2006. In 2006, we recognized a gain of $3.6 million on the sale of our interest in Kulthorn Kirby Public Company Limited, a manufacturer of compressors based in Thailand. The remainder of the decline in 2007 was due to lower interest rates and lower average cash balances. Consolidated net loss from continuing operations for the fiscal year 2007 was $2.9 million ($0.16 per share) compared to a loss of $48.1 million ($2.60 per share) for the same period in 2006. Full year results reflected a $32.1 million improvement in operating income. The majority of this improvement was created by increases in selling price, which improved 2007 results by $75.4 million including volume and mix impacts. These selling price increases helped to offset the unfavorable impacts of currency of $43.7 million and higher commodity costs of $17.2 million. 2007 was also favorably affected by $8.2 million in benefit income related to pension and other postretirement ("OPEB") benefits when compared to benefits recorded in 2006. Productivity and purchasing improvements of $9.6 million also contributed to the improved 2007 figure. Net improvements were also realized in overhead, warranty, and administrative expenses associated with lower headcounts of $11.5 million. This improvement was achieved despite aggregate professional fees paid for items such as AlixPartners' services, litigation costs, and bank amendments of $19.8 million which are not expected to continue into 2008. As well, the reversal of accruals for non-income taxes in Brazil received in the fourth quarter of 2006 of $6.9 million were not repeated in 2007. Impairments and Other Restructuring Items 2007 operating net loss included $7.2 million ($0.39 per share) of restructuring, impairment and other charges. $4.2 million of these restructuring charges related to the impairment of long-lived compressor assets in India ($2.2 million) and North America ($2.0 million). These assets were primarily impaired as a result of the global consolidation of our manufacturing operations. We also incurred expense of $1.6 million associated with reductions in force at several of our North American facilities. The remaining charges reflect the impact of net losses on the sale of buildings ($0.5 million) and related charges ($0.9 million) as a result of the consolidation of non-compressor facilities. 2006 operating net loss included $2.4 million ($0.13 per share) of restructuring, impairment and other charges. We recorded these restructuring charges for impairment of long-lived compressor assets ($2.2 million) and related charges ($0.2 million) at two of our facilities in Mississippi. Pension and Other Postretirement Benefit Plans In the first quarter of 2007, we announced revisions to our Salaried Retirement Plan. At December 31, 2007, this Plan reported approximately $121 million in overfunding, out of a total of $233 million for all our pension plans that have plan assets in excess of obligations. On May 1, 2007, we implemented a new retirement program for all Tecumseh salaried employees. We previously expected that this conversion would make net cash available to us in the amount of approximately $55 million. We now expect, however, that the conversion will yield cash proceeds of approximately $80 million, which represents gross proceeds of $100 million net of excise tax of $20 million. The net proceeds will be higher than we previously expected because the old plan was able to purchase annuities to fund its future obligations for a lower premium than we had estimated, due in part to the final actuarial assumptions being more favorable than those we used for purposes of our original estimate. The new retirement program includes both defined benefit and defined contribution plans. A portion of the overfunding for the old plan was utilized to pre-fund the benefits for both of the replacement plans for approximately the next six to eight years. In the first quarter of 2008, we will be recognizing the effects of this transaction. The estimated impact will amount to net expense of $11 million. This net expense results from the recognition of $20 million of federal excise tax that is levied on the gross amount of cash returned to the Company, net of recognition of previously deferred actuarial gains of $9 million dollars. In addition, we anticipate a reduction in net period income. The reduction in income, however, has been more than mitigated by other actions taken to reduce the overall cost of benefits and due to personnel reductions. Taking into account the cost of all retiree benefits, both pensions and other post-retirement benefits, total expected income to be recognized in 2008, other than curtailment gains and losses and excluding potential changes in actuarial assumptions, is expected to be approximately $12 million versus $15 million in 2007. In the fourth quarter of 2007, we announced the relocation of the manufacturing operations at our Tecumseh, Michigan facility to other locations in North America. As a result of this consolidation, we will also be executing a reversion of our Hourly pension plan. At December 31, 2007, this Plan reported approximately $90 million in overfunding. We expect that the conversion of this Plan will make net cash available to the Company of approximately $45 to $60 million. The timing of the distribution, however, will be dependent on the length of time needed to meet IRS distribution requirements, and could extend to 2009 or later, which further increases the variability of the final distribution amount. Liquidity and Capital Resources Effective with the closing of the sale of the Residential & Commercial and Asia Pacific operations of the Electrical Components business on August 31, 2007, we paid off the entire balance associated with our Second Lien Credit Agreement and the majority of the balance under our First Lien Credit Agreement. The remainder of the balance under the First Lien Credit Agreement was paid off effective with the closing of the Engine & Power Train business on November 9, 2007. At December 31, 2007, we had outstanding letters of credit of $6.8 million, and U.S. availability under our First Lien Credit Agreement of approximately $9.4 million. In addition, we have various borrowing arrangements at our foreign subsidiaries to support working capital needs and government sponsored borrowings that provide advantageous lending rates. For further discussion of our liquidity, please refer to the "Outlook" section below. Outlook Information in this "Outlook" section should be read in conjunction with the cautionary statements and discussion of risk factors included elsewhere in this report. The outlook for 2008 is subject to many of the same variables that have negatively impacted us throughout 2007. Commodity costs, key currency rates, weather and the overall growth rates of the respective economies around the world are all important to future performance. Overall, we do not expect these factors to become any more favorable in the foreseeable future. Certain key commodities, including copper, continue to trade at elevated levels compared to recent history. From January 1, 2007 through December 31, 2007, the price of copper increased by approximately 6.2%; since the beginning of 2006, copper prices have increased by 40.2%. We currently hold more than 62% of our total projected copper requirements for 2008 in the form of forward purchase contracts, which will provide us with substantial (though not total) protection from further price increases during the year but also will detract from our ability to benefit from any price decreases. In addition, we expect the cost of steel and other purchased materials to be more costly in 2008 versus 2007. In the aggregate, we expect the cost of our purchased materials to be approximately $23 million more expensive than in the prior year. The Brazilian Real and Indian Rupee continue to strengthen against the dollar, and as of December 31, 2007 had strengthened 17.2% and 10.7% respectively since the beginning of the year. While we have considerable forward purchase contracts to cover our exposure to additional fluctuations in value during the year, the average rate expected to be realized, giving consideration to our contracts, will nonetheless have a negative financial impact of $35 million when compared to 2007. As part of our efforts to offset these worsening conditions, to improve profitability and reduce the consumption of capital resources, our plans for 2008 include price increases as needed to cover our increased input costs, and additional cost reduction activities including, but not limited to, further employee headcount reductions, consolidation of productive capacity and rationalization of product platforms, and revised sourcing plans. In addition, we estimate that the Company incurred approximately $19 million in professional and other fees during 2007 that will not recur in 2008. After giving recognition to these factors, we believe we will be challenged to maintain 2007 operating profit levels in 2008. In addition, while not currently modeled in our projections, we remain concerned about the general health of the economy and the possibility of recession in the United States, which could further impact expected earnings. As a result of the sale of the majority of the Electrical Components business and the Engine & Power Train business, we completely eliminated our domestic debt as of November 9, 2007. As a result, we expect our consolidated interest expense in the future to be substantially reduced. Based on the amount of our domestic debt prior to the sale of businesses, we expect that its elimination will reduce our annualized interest expense by approximately $22 million. In addition, recently we successfully completed the reversion of our Salaried Retirement Plan. The reversion is expected to yield net cash in March 2008 of approximately $80 million. Lastly, we are currently negotiating a new financing arrangement for our North American based activities which will increase our availability of funds, should they become necessary. With these and other activities, we believe we have sufficient liquidity to affect the changes necessary to restore our profitability over the near term. We are also continuing to evaluate our corporate infrastructure in relation to the level of business activity that remains now that the majority of our restructuring programs are completed. Such actions could result in further restructuring and/or asset impairment charges in the foreseeable future, and, accordingly, could have a significant effect on our consolidated financial position and future operating results. We are evaluating further potential sales of product lines, divisions, and various idle assets of the Company, including real estate, equipment, and Company aircraft. The proceeds from any such sales would be used to improve our liquidity. With respect to certain idle assets, we expect to realize proceeds of approximately $12 million, with the majority received by the end of the first quarter of 2008. We recently announced our intent to close one of our U.S. operating facilities, located in Tecumseh, Michigan. The costs associated with this closure will be dependent on the outcome of negotiations with our union. The closure, once completed, is expected to reduce annual costs by $5.6 million. We are in the process of finalizing the audit of our 2003 tax year, the resolution of which is expected to result in the refund of federal income taxes previously paid of approximately $13.9 million. Receipt of such proceeds is dependent upon final resolution of these audits, which are currently under dispute with the IRS. We continue to believe that we will prevail in sustaining the deduction and carryback, and are in the process of hiring legal counsel to pursue this refund. The timing of the recovery of the refund is uncertain. As a result of the relocation of our operations in Tecumseh, Michigan, we will also be executing a reversion of our Hourly pension plan. At December 31, 2007, this Plan reported approximately $90 million in overfunding. We expect that the conversion of this Plan will make net cash available of approximately $45 to $60 million. The timing of the distribution, however, will be dependent on the length of time needed to meet IRS distribution requirements, and could extend to 2009 or later, which further increases the variability of the final distribution amount. As part of addressing the Company's liquidity needs, we made substantially lower levels of capital expenditures in 2007, and expect to continue that trend in 2008. Looking ahead, we expect capital expenditures in 2008 and beyond to remain at levels far less than historical averages, due to the elimination of non-core businesses and due to a shift away from capital intensive vertical integration to higher levels of outside sourcing of components from suppliers located in low cost countries. We currently estimate that capital expenditures for 2008 will range from $20 to $25 million. RESULTS BY BUSINESS SEGMENTS (UNAUDITED)
Three Months Ended Twelve Months Ended (Dollars in millions) December 31, December 31, ------------------ ------------------- 2007 2006 2007 2006 ------ ------ -------- -------- NET SALES: Compressor Products $252.1 $247.1 $1,116.8 $1,002.7 Other (a) 4.0 3.6 16.6 15.0 ------ ------ -------- -------- Total net sales $256.1 $250.7 $1,133.4 $1,017.7 ====== ====== ======== ======== OPERATING INCOME (LOSS): Compressor Products $ 16.8 ($0.8) $45.2 ($4.5) Other (a) 0.7 0.5 3.1 2.7 Corporate expenses (14.2) (10.2) (36.1) (22.9) Impairments, restructuring charges, and other items (5.6) (2.2) (7.2) (2.4) ------ ------ -------- -------- Total operating income (loss) from continuing operations (2.3) (12.7) 5.0 (27.1) Interest expense 0.9 (9.7) (22.3) (19.4) Interest income and other, net 1.6 1.2 6.2 10.9 ------ ------ -------- -------- INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES $ 0.2 ($21.2) ($11.1) ($35.6) ====== ====== ======== ========
(a) "Other" consists of non-reportable business segments. In accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," we previously reported three operating segments; Compressor Products, Electrical Components, and Engine & Power Train. However, as a result of the sale of the majority of the Electrical Components business and the entire Engine & Power Train business during 2007, these segments are no longer reported. The remaining unsold businesses within Electrical Components are included in discontinued operations. Until 2006, we also reported a Pump Products business segment; however, as a result of the decision, during the first quarter of 2006, to sell 100% of our ownership in Little Giant Pump Company, such operations are no longer reported in income (loss) from continuing operations before tax. Little Giant operations represented approximately 90% of that previously reported segment. Since our remaining pump business does not meet the definition of a reporting segment as defined by SFAS 131, we no longer report a Pump Products segment, and operating results of the remaining pump business are included in Other for segment reporting purposes. Another business within Other, Manufacturing Data Systems Inc., was sold and reclassified to discontinued operations during the third quarter of 2007. CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
DECEMBER 31, December 31, (Dollars in millions) 2007 2006 ------------ ------------ CURRENT ASSETS: Cash and cash equivalents $ 76.8 $ 81.9 Restricted cash 6.8 -- Short term investments 5.0 -- Accounts receivable, net 93.2 219.5 Inventories 152.0 353.4 Assets held for sale 21.9 -- Other current assets 42.0 78.6 -------- -------- Total current assets 397.7 733.4 PROPERTY, PLANT AND EQUIPMENT - NET 353.3 552.4 GOODWILL AND OTHER INTANGIBLES 20.2 180.0 PREPAID PENSION EXPENSE 233.4 202.5 OTHER ASSETS 160.3 114.4 -------- -------- TOTAL ASSETS $1,164.9 $1,782.7 ======== ======== CURRENT LIABILITIES: Accounts payable, trade $ 123.0 $ 216.0 Short-term borrowings 59.5 163.2 Liabilities held for sale 2.6 -- Accrued liabilities 84.2 130.1 -------- -------- Total current liabilities 269.3 509.3 LONG-TERM DEBT 3.3 217.3 DEFERRED INCOME TAXES 10.2 28.6 PENSION AND POSTRETIREMENT BENEFITS 89.1 180.9 PRODUCT WARRANTY AND SELF-INSURED RISKS 10.0 13.6 OTHER NON-CURRENT LIABILITIES 37.1 34.6 -------- -------- Total liabilities 419.0 984.3 STOCKHOLDERS' EQUITY 745.9 798.4 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,164.9 $1,782.7 ======== ========
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
Three Months Ended Twelve Months Ended (Dollars in millions) December 31, December 31, ------------------ ------------------- 2007 2006 2007 2006 ------ ------ ------ ------- Total Stockholders' Equity Beginning balance $658.8 $818.2 $798.4 $814.4 IMPACT OF THE ADOPTION OF FIN 48 -- -- (0.4) -- COMPREHENSIVE INCOME (LOSS): NET INCOME (LOSS) 4.1 (63.8) (178.1) (80.3) OTHER COMPREHENSIVE INCOME (LOSS) (7.2) 0.7 28.5 21.0 ------ ------ ------ ------ TOTAL COMPREHENSIVE INCOME (LOSS) (3.1) (63.1) (149.6) (59.3) SHAREHOLDER OPTIONS & WARRANTS -- 3.7 7.3 3.7 POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS 90.2 39.6 90.2 39.6 ------ ------ ------ ------ Total stockholders' equity Ending balance $745.9 $798.4 $745.9 $798.4 ====== ====== ====== ======
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
TWELVE MONTHS ENDED (DOLLARS IN MILLONS) DECEMBER 31, ------------------- 2007 2006 ------ ------ CASH FLOWS FROM OPERATING ACTIVITIES: Cash used by operating activities ($14.8) ($94.4) ------ ------ CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of assets 265.3 135.0 Short term investments (5.0) -- Restricted cash (6.8) -- Capital expenditures (9.2) (62.1) Business acquisition -- (2.0) ------ ------ Cash provided by investing activities 244.3 70.9 ------ ------ CASH FLOWS FROM FINANCING ACTIVITIES: Debt amendment costs (2.5) (14.4) Repayment of Senior Guaranteed Notes -- (250.0) Repayment of Industrial Development Revenue Bonds -- (10.5) Proceeds from First Lien Credit Agreement 261.4 230.2 Repayments of First Lien Credit Agreement (374.5) (117.1) Proceeds from old Second Lien Credit Agreement -- 100.0 Repayments of old Second Lien Credit Agreement -- (100.0) Proceeds from new Second Lien Credit Agreement -- 100.0 Repayment of Second Lien Credit Agreement (100.0) -- Other (repayments)/borrowings, net (21.9) 52.6 ------ ------ Cash used in financing activities (237.5) (9.2) ------ ------ EFFECT OF EXCHANGE RATE CHANGES ON CASH 2.9 (2.0) ------ ------ DECREASE IN CASH AND CASH EQUIVALENTS (5.1) (34.7) CASH AND CASH EQUIVALENTS: Beginning of period 81.9 116.6 ------ ------ End of period $ 76.8 $ 81.9 ====== ======
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) our ability to maintain adequate liquidity in total and within each foreign operation; ii) the success of our ongoing effort to bring costs in line with projected production levels and product mix; (iii) weather conditions affecting demand for air conditioners; iv) availability and cost of materials, particularly commodities, including steel, copper and aluminum, whose cost can be subject to significant variation; v) financial market changes, including fluctuations in interest rates and foreign currency exchange rates; vi) actions of competitors; vii) changes in business conditions and the economy in general in both foreign and domestic markets; viii) the effect of terrorist activity and armed conflict; ix) economic trend factors such as housing starts; x) emerging governmental regulations; xi) the ultimate cost of resolving environmental and legal matters; xii) our ability to profitably develop, manufacture and sell both new and existing products; xiii) the extent of any business disruption that may result from the restructuring and realignment of our manufacturing operations or system implementations, the ultimate cost of those initiatives and the amount of savings actually realized; xiv) the extent of any business disruption caused by work stoppages initiated by organized labor unions; xv) potential political and economic adversities that could adversely affect anticipated sales and production in Brazil; xvi) potential political and economic adversities that could adversely affect anticipated sales and production in India, including potential military conflict with neighboring countries; xvii) the outcome of the judicial restructuring of our Brazilian engine manufacturing subsidiary; xviii) increased or unexpected warranty claims; and xix) the ongoing financial health of major customers. These forward-looking statements are made only as of the date of this report, and we undertake no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise. Tecumseh Products Company will host a conference call to report on the fourth quarter 2007 results on Friday, March 14, 2008 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: Teresa Hess Director, Investor Relations Tecumseh Products Company 517-423-8455 EX-99.2 3 k24941exv99w2.txt FOURTH QUARTER 2007 INVESTOR PRESENTATION Exhibit 99.2 FOURTH QUARTER INVESTOR PRESENTATION EDWIN L. BUKER, PRESIDENT & CHIEF EXECUTIVE OFFICER JAMES S. NICHOLSON, VICE PRESIDENT, TREASURER AND CHIEF FINANCIAL OFFICER MARCH 14, 2008 BUKER Thank you, Gwen. Good morning everyone. Welcome to our fourth quarter 2007 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. Today, I have with me Jim Nicholson, our Vice President, Treasurer and Chief Financial Officer. Our plan is to begin our conversation today with some introductory remarks regarding the status of our business and our plans for improvement. Next we will provide some commentary regarding our fourth quarter operating achievements as well as some commentary regarding our financial results for the period. Lastly, we will share our perspectives and expectations of 2008. Following our remarks, we will open the call for your questions. I would remind you that our 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. The last we spoke I had been on the job for about 13 weeks. In that original time frame I visited all of our Compressor operating locations to assess the state of the organization and its processes. Based upon my investigation, I am enthusiastic about the future prospects for the Company, not necessarily because I liked what I saw, but instead because of the potential that I see. My team, which is comprised of both old and new faces has, quickly formulated plans to transform the business to world class. I believe all the ingredients are within our reach, it is merely a matter of our execution over the next two to three years. I would characterize the Company's anticipated transformation in three stages. The first stage is essentially complete. It involved the dispositions of non-core assets that has strengthened our balance sheet and allowed us to focus on the core global compressor business. Phase two consists of the various short term actions that we are taking to make our core operations more competitive and profitable. These actions will show benefits in 2008 and 2009, and include types of actions like: - rationalization of our production facilities and manufacturing lines, - new sourcing and procurement strategies, and - the implementation of more lean manufacturing techniques throughout the business. We have not wasted any time in identifying, planning and initiating these activities. They are imperative, not only to improving results, but also to counter the headwinds that we continue to face with the value of the dollar, the price of commodities, and now, greater uncertainty regarding the general economy, in the US and other key markets. It is my goal to be as transparent as possible regarding what we are doing and when we are doing it. We had previously announced that we were executing additional restructuring activities of our North American operations, with the consolidation of manufacturing facilities. Under these plans, the Tecumseh, Michigan and Dundee, Michigan facilities will be shut down by the third quarter 2008. During the first half of 2008 we will be consolidating the manufacturing activities in La Verpilliere, France into Cessieu, and in the first quarter of 2008 we have initiated headcount reduction actions within our Brazilian operations. By our estimates, the sum of these actions will positively affect 2008 results by $7 million dollars, exclusive of any restructuring or impairment charges. In addition, we have capacity availability in India, which we intend to fully utilize by shifting production from other higher cost facilities. I am expecting that as further action steps are formulated, additional announcements could be expected before the end of 2008, particularly around the potential outsourcing of manufacturing activities that are not core to our value proposition. As I stated on our last call, we have opportunities to achieve meaningful cost reductions through the simplification of our business and by taking advantage of currency shifts through more strategic sourcing and less vertical integration. In addition, very recently we announced that we will be relocating our global headquarters out of Tecumseh, Michigan to the Ann Arbor area. This is another important step in the transformation we are striving to achieve. The purpose of the move is to improve our location to a place where we can be more accessible to our customers, our suppliers and global employees to facilitate the transformation of our culture to world class by creating a modest, but tasteful work environment that facilitates open communication globally. The move is cost neutral. The third phase of our transformation is expected to set the foundation for achieving the near term financial target of 3 to 5 percent EBIT margin in 2010. We have been working with a strategy consultant to more accurately define the markets in which we have sustainable competitive advantage and the steps necessary to capture profitable growth in these areas. While not all the tactical plans are fully developed at this time, the general theme of this phase is centered around our targeted customers and markets, and the formulation of product and service solutions that will bring financial success in the market place. This entails introducing revised product offerings that - have been engineered for reduced material costs, - are produced utilizing a more effective supply chain, - and deliver superior performance and quality characteristics. While we will provide additional direction as more specific tactical plans are ready for introduction, its accurate to say at this time that our past focus has been too broad and has stretched our resources too thin. In the future, we will be more focused on these parts of the business where we achieve superior return on assets employed. Now if we can, let us turn our attention to the fourth quarter of 2007. The fourth quarter continued our trend of improved quarter over previous year's quarter results. We started the quarter concerned about several factors that had the potential of eroding our string of improvements, however, they did not materialize to the extent expected during the quarter. Jim will elaborate on the financial aspects of our quarter in a moment. Operationally, I previously mentioned the restructuring types of activities that were initiated during the quarter. Another area of focus has been to improve the delivered quality of our products. Over the quarter we continued to realize improvement in our measures of quality. On average for 2007 we have experienced improvements ranging from 30% to 48% in our various plant quality measurements. This in turn translates into 11% lower warranty costs in 2007 versus 2006. One of the great problems we've had in 2007 early was the delivery of parts in North America. Past due orders in North America have gone down by 90% and last week we reached a new low point for past due over the past 24 months. In addition, we have installed new reporting and tracking tools for sales and inventory so on a daily basis we can respond more rapidly to changing market conditions. Now let's review the financial results in more detail, Jim. NICHOLSON Income from continuing operations for the fourth quarter 2008 amounted to $3.6 million dollars, or $0.19 cents per basic share, $0.18 cents per fully diluted share, compared to a net loss from continuing operations of $25.1 million or $1.36 per share a year ago. As Ed mentioned, the fourth quarter turned out to be better than expected in total, although the quarter was boosted by approximately $7 million dollars in items recognized in the quarter that should be characterized as one-timers. Examples of such items included revisions to property tax assessment laws in Europe and export incentive levels in India. Generally, the $29 million dollar improvement can be broken down between a $10.4 million dollar improvement in Operating Income, an approximate $11 million dollar improvement in net interest expense, and an improvement in the tax provision of $7.3 million dollars. If we focus on Operating Income improvement, excluding the approximate $7.2 million and $6.9 million dollar favorable one-timers in 2007 and 2006, respectively; as well as impairment and restructuring charges of $5.6 million and $2 million dollars, respectively, results improved by $13.5 million dollars. This is consistent with the year over year improvement levels that we demonstrated during the second and third quarters of the year, exclusive of impairments and restructuring charges. This $13.5 million dollar improvement was attributable to favorable pricing and mix in the quarter of $13.1 million dollars and total cost improvements of $10.7 million dollars. These improvements were partially offset by higher average commodity costs of $1.7 million and a less favorable average realized currency rate when compared to the prior year of $8.6 million dollars. To give you a sense of where we are net of hedging, our average realized rate for the Real was 2.10 Real to the Dollar in 2007 versus 2.41 in 2006. For the full year, that is an estimated negative impact of $37.1 million dollars compared to full year 2006 results for the Real alone. When adding weakening of the Dollar versus the Euro and the Rupee, our full year aggregate decline in year over year results due to changes in foreign currency rates amounted to $43.7 million dollars. The quarter was better than our expectation because we had better than expected volumes in our commercial segment in North America, caused mostly by our ability to clear our backlog without losing orders, and a better mix in Latin America. In addition, the value of the Real did not strengthen as much as expected during the fourth quarter. Not only did this help the fourth quarter, but it also provided an opportunity to boost our overall hedge coverage for 2008 at rates favorable to current rates, however, on average worse than what we realized over 2007. We currently have approximately 75-80% of our Real exposure covered for 2008 and as you have probably noticed subsequent to the fourth quarter the Real has started to strengthen again with the latest bout of dollar declines. For the full year, we made good progress in our profit improvement efforts. Our continuing operations showed year over year improvements in every quarter. We finished the 2007 year with a slight loss from continuing operations of $2.9 million dollars versus a loss of $48.1 million dollars in 2006, an improvement of approximately $45 million dollars, despite facing the currency headwinds I just mentioned and overall higher commodity spend of $17.2 million dollars. The reasons for the improvement are consistent with our observations for the fourth quarter; pricing, cost reductions, certain volumes and mix were all contributors. Now lets just take a few moments on our balance sheet. Here we have been successful in executing the plans that we discussed last quarter. Recently, and subsequent to these year-end financials we took important steps to complete the reversion of our Salaried Pension plan. After payment of excise taxes, this will increase our US cash holdings by approximately $80 million dollars. We are also nearing the culmination of our efforts to complete a new financing arrangement in the US, which we expect to remain un-drawn for the foreseeable future. As a result of these events we believe we have sufficient liquidity to accomplish further restructuring and profit improvement activities. Ed. BUKER Thanks Jim. I'd say we are content, I guess that's as good a word as I can use, with the results of the fourth quarter given that they exceeded our expectation and we are encouraged that we continue to see benefits from our various initiatives. However, everyone should recognize that we continue to face unfavorable conditions that are working against our progress. For 2008, we see three important factors that are worth discussion. Of course, currency. As we go into 2008, as Jim mentioned, we have a great deal of forward cover to hedge our exposures. However, even considering last years and this year's coverage, we're still expecting to realize a value of the Real that is 11% stronger than last year. This will have a negative effect on earnings of about $27 million dollars, with other currencies having an additional negative effect of $8 million dollars. The next factor is the cost of purchased materials. With respect to copper, we also have a great deal of forward cover to help reduce our exposure, particularly in the first half of the year, however, even considering last years and this years coverage, we are still expecting to see our copper spend increase. The same is true for the cost of steel and other purchased materials, which we also believe will be up relative to 2007. However, unlike copper, these costs are less predictable as, until recently, there was no good vehicle for hedging steel costs. While we've have budgeted a 6% increase in steel costs, we're seeing signs of significant cost pressures in steel, the magnitude of which could have a significant impact on our expected results in the absence of pricing relief. Including our expectations for copper, steel and other purchased materials we expect to spend an additional $23 million dollars in 2008 over 2007. So if you are doing the math, including the 4th quarter one-timers that means we have $65 million dollars of ground to make up in just in currency and commodities, just to stay even with 2007. Through a combination of price increases, cost saving initiatives, the non-recurrence of $19 million in professional fees incurred during 2007, we expect to mitigate these cost increases, but at this point it will be a challenge to cover all of it in 2008. As a result, it is a distinct possibility that our operating income for the full year will remain in negative territory, before giving consideration to any restructuring charges or impairments. Lastly, I have to talk about an important factor that may prove to be the least predictable, that being general economic activity. I don't need to remind everyone of what is happening in housing, credit, energy and commodity markets. The specter of stagflation is being discussed more and more in the media each day. Accordingly, the general health of the world economy and the potential effects on overall demand represent another factor which we would caution our investors about with respect to our expected results. Despite these risks, we remain optimistic that we are taking actions that will yield improved results. The management team is diligently working to achieve these objectives, and we appreciate those investors who are placing their faith with this team. In that regard I feel compelled to comment on the recent events involving the Herrick Foundation. As we have publicly disclosed we have received a letter from the Herrick Foundation indicating their desire to sell their shares and are requesting certain actions to be taken by the Company to facilitate such a potential sale. In our response, we indicated the Board intends to take action upon proper deliberations and to act appropriately in light of their fiduciary responsibilities. At this point, the Board has not had the opportunity to address the requests. We'll keep the public properly informed as events unfold. That concludes our prepared comments for this morning. Gwen, we are now ready to take questions. -----END PRIVACY-ENHANCED MESSAGE-----