-----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, K9JIZ3wCKEfgPTpyFVagll/rjG5sm6nJDkvX6zYHsiByQ44bbb0mF9OTlmlL3Uil 7/cOKYFYxpbbK+WuiiVYmA== 0000950124-08-002383.txt : 20080513 0000950124-08-002383.hdr.sgml : 20080513 20080513093520 ACCESSION NUMBER: 0000950124-08-002383 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20080507 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20080513 DATE AS OF CHANGE: 20080513 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: 08825928 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 k26617e8vk.txt CURRENT REPORT, DATED MAY 7, 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): MAY 7, 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 May 7, 2008 regarding our first quarter 2008 consolidated results is furnished as Exhibit 99.1 to this report. We hosted our first quarter 2008 earnings conference call and webcast on Thursday, May 8, 2008 at 11:00 a.m. Eastern Time. Via the webcast, we presented our First Quarter 2008 Investor Presentation, which contained a summary of our financial results for the quarter. We are furnishing a copy of the First Quarter 2008 Investor Presentation as Exhibit 99.2 to this report. The Investor Presentation will be posted on our website, www.tecumseh.com, through at least May 8, 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 May 7, 2008 99.2 First Quarter 2008 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: May 13, 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 May 7, 2008 99.2 First Quarter 2008 Investor Presentation
3 EX-99.1 2 k26617exv99w1.txt PRESS RELEASE DATED MAY 7, 2008 EXHIBIT 99.1 100 East Patterson Street Tecumseh, Michigan 49286 (TECUMSEH LOGO) www.tecumseh.com FOR IMMEDIATE RELEASE CONTACT: Teresa Hess Director, Investor Relations Tecumseh Products Company 517-423-8455 TECUMSEH PRODUCTS COMPANY REPORTS FIRST QUARTER 2008 RESULTS - First quarter net income increased to $17.0 million, compared to a net loss in the prior-year period - Total cash and equivalents improved to $197.0 million, an increase of $120.2 million when compared to the fourth quarter 2007 - Liquidity continues to improve as a result of a new credit agreement and recent restructuring efforts undertaken during 2007 TECUMSEH, MICH., MAY 7, 2008 -- Tecumseh Products Company (NASDAQ: TECUA, TECUB), a leading global manufacturer of compressors and related products, today announced results for its first quarter ended March 31, 2008, highlighted by a return to profitability and significantly improved liquidity. "During the past year, our team has worked diligently to refocus Tecumseh Products on higher margin business opportunities that leverage our core competency as a leading global designer and manufacturer of compressors and related products," said Ed Buker, Chairman, President and CEO of Tecumseh Products. "The decision to divest the Company of non-core businesses during 2007 has had the intended effect of reducing our substantial debt position and related interest expense, while also allowing us to center our efforts on improving the competitive positioning of our products in the marketplace." Consolidated net sales from continuing operations in the first quarter of 2008 decreased to $280.1 million from $293.8 million in 2007. Compressor sales accounted for the decline, decreasing by $14.1 million Sales of compressors for commercial applications increased by $15.1 million; while this was due in part to price increases when compared to the same period of 2007, it was also associated with a reduction in order backlog from the fourth quarter of 2007. These increases in sales were offset by declines in refrigeration & freezer compressors of $21.2 million, associated primarily with a downturn in market volumes as well as market share in North America and Europe. Some of these declines in market share were deliberate, in instances where profit margins were unacceptable due to the declining value of other currencies against the Brazilian real. Sales of compressors for air conditioning and all other applications also declined by $8.0 million. The remaining sales increase of $0.4 million was attributable to a business that is not associated with the Company's compressor operations. Cost of sales was $238.5 million in the three months ended March 31, 2008, as compared to $264.0 million in the three months ended March 31, 2007. As a percentage of net sales, cost of sales was 85.1% and 89.9% in the first quarters of 2008 and 2007, respectively. Growth in operating profitability was largely attributable to a decline in the cost of sales and selling/administrative expenses from the year-ago first quarter; these improvements were partially offset by a net $0.5 million charge recorded in the period. Gross margin contributed an additional $11.8 million to 2008 operating profit when compared to the same period of 2007, improving from $29.8 million in 2007 to $41.6 million in 2008. Current-year margin was favorably impacted by selling price advances of $8.1 million. In addition, although sales volumes declined when compared to the first quarter of 2007, these declines were more than offset by an improved mix of higher-margin products, which contributed a net improvement of $1.6 million to 2008 results. Gains in productivity, reduced engineering costs and other improvements of $5.8 million, in addition to gains from the sale of the Company's airport facility and an airplane of $4.2 million, were offset by increased expense for the weakening of the U.S. dollar ($5.4 million) and higher commodity costs ($2.5 million). Selling, general and administrative ("SG&A") expenses were $26.6 million in the three months ended March 31, 2008 as compared to $28.3 million in the three months ended March 31, 2007. As a percentage of net sales, selling, general and administrative expenses were 9.5% and 9.6% in the first quarters of 2008 and 2007, respectively. A $5.1 million reduction in professional fees incurred for one-time projects was the primary factor in the decline. This improvement was offset by $3.4 million of net administrative costs recognized in continuing operations that were previously allocated to discontinued operations. Buker continued: "For the past several months, our team has been engaged in a comprehensive operational review of our business designed to help us optimize current and potential market opportunities. Upon completion of this review during the second quarter, we intend to begin sharing with stockholders our longer-term strategy for growing the business. In the near-term, we expect to continue to face challenges from increased commodity costs and changes in currency values. On the positive side, however, we continue to engage in a coordinated effort to rationalize costs throughout the organization, improve supply chain management, and employ stringent product quality controls throughout our global operations. We also intend to emphasize the importance of our valued customers, by providing the highest level of service possible." Earnings from continuing operations before taxes increased to $9.0 million in the current quarter, compared to a loss of $2.6 million in the prior year first quarter. Financial performance was adversely impacted by a $1.5 million increase in interest expense when compared to first quarter 2007. The increase was primarily attributable to $1.4 million in capitalized debt amendment costs associated with the Company's former First Lien credit agreement, which were expensed in the first quarter of 2008 upon its termination. In 2007, the Company sold the majority of its Electrical Components and Engine & Power Train businesses, thereby eliminating the Company's domestic debt in the fourth quarter of 2007. The Company anticipates that, with the elimination of this debt, Tecumseh will reduce its annualized interest expense, including amounts recognized in both continuing and discontinued operations, by approximately $22.0 million. Buker commented: "During 2007, operating cash flows declined substantially, leading us to rely on existing cash balances, proceeds from credit facilities and asset sales to fund our operations. However, 2 with the sale of our Electrical Components and Engine & Power Train businesses late last year, we eliminated our entire debt balance in North America and, as such, subsequently reduced our annualized interest expense. These efforts, combined with our renewed focus on process reengineering and targeted market penetration, contributed positively to our profitability in the first quarter." As of March 31, 2008, the Company reported total cash and cash equivalents of $197.0 million, an increase of $120.2 million when compared to fourth quarter of 2007. The most significant elements of this increase in cash were the gross proceeds of $100.0 million realized from the reversion of the Company's salaried retirement plan, and net income of $17.0 million. "With nearly $200 million in cash and equivalents, we're well positioned to support the ongoing growth of our business," continued Buker. "Furthermore, we expect capital expenditures in 2008 and beyond to remain at levels considerably below the historical averages, due primarily to the elimination of capital-intensive activities and to the recently divested businesses, as well as our decision to increase sourcing of lower cost components from foreign suppliers. Looking ahead, we currently forecast capital expenditures of $20-$25 million in 2008." Tecumseh reported that commodity costs, key currency rates and a continued slowing in the U.S. economy, among others, had a significant impact on its business operations during the first quarter. Certain key commodities, including copper, continue to trade at elevated levels compared to recent history. From January 1, 2007 through March 31, 2008, the price of copper increased by approximately 35.4%; in the three months since the beginning of 2008 alone, copper prices increased by 27.5%. As of March 31, 2008, the Company held more than 60% of its total projected copper requirements for the remainder of 2008 in the form of forward purchase contracts, which should provide substantial protection from further price increases during the year, but will detract from the ability to benefit from any price decreases. In addition, the Company expects the cost of aluminum, steel and other purchased materials to be more costly in 2008 versus 2007. As of March 31, 2008, aluminum costs had risen by 24.1% when compared to January 1, 2008; steel costs had risen by 37.9% since the beginning of this year, and by 48.1% when compared to January 1, 2007. In the aggregate, the Company expects the total 2008 cost of purchased materials for the full year, net of hedging activities, to be approximately $23 to $35 million more than the prior year, depending on commodity cost levels in the second half of 2008. In addition, the Brazilian real, euro and Indian rupee continue to strengthen against the dollar and, as of March 31, 2008, had strengthened 18.2%, 16.4% and 9.2% respectively since the beginning of 2007. While the Company has considerable forward purchase contracts to cover its exposure to additional fluctuations in value during the year, the average rate expected to be realized, giving consideration to Tecumseh's contracts, is approximately 12% stronger against the dollar and is expected to have a negative financial impact of approximately $19 million when compared to 2007. As part of Tecumseh's efforts to offset these conditions, the Company said it intends to implement selective price increases throughout the year to cover its increased material and currency costs, as necessary. "While current trends in foreign currencies and key commodities continue to be unfavorable, our ability to effectively hedge against these fluctuations where we have exposure will help to mitigate the volatility in our expected operating profitability as we look to the remainder of 2008," said James Nicholson, Chief Financial Officer of Tecumseh Products. "Recent volatility in global energy and credit markets has led us to take an increasingly conservative stance as we seek to manage profitably through a modest recessionary phase in select geographies. That said, we believe our global manufacturing and distribution model diversifies our exposure amid the current economic climate, and should help fuel the ongoing rebound in our business over the long-term." 3 CONFERENCE CALL TO DISCUSS FIRST QUARTER 2008 RESULTS Tecumseh Products Company will host a conference call to report on the first quarter 2008 results on Thursday, May 8, 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. CAUTIONARY STATEMENTS RELATING TO FORWARD-LOOKING STATEMENTS This release 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) the Company's ability to maintain adequate liquidity in total and within each foreign operation; ii) the success of the Company's ongoing effort to bring costs in line with projected production levels and product mix; iii) weather conditions affecting demand for replacement products; 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) the Company's 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 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 the Company's 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 release, 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. 4 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)*
Three Months Ended (Dollars in millions except per share amounts) March 31, -------------------- 2008 2007 ------- ---------- NET SALES $ 280.1 $ 293.8 Cost of sales and operating expenses 238.5 264.0 Selling and administrative expenses 26.6 28.3 Impairments, restructuring charges and other items 0.5 0.0 ------- -------- OPERATING PROFIT 14.5 1.5 Interest expense (7.3) (5.8) Interest income and other, net 1.8 1.7 ------- -------- INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES 9.0 (2.6) Tax expense (benefit) 1.2 (0.6) ------- -------- Income (loss) from continuing operations 7.8 (2.0) Income (loss) from discontinued operations, net of tax 9.2 (14.8) ------- -------- NET INCOME (LOSS) $ 17.0 ($16.8) ------- -------- Basic earnings (loss) per share: Continuing operations $ 0.42 ($0.11) Discontinued operations 0.50 (0.80) ------- -------- NET EARNINGS (LOSS) PER SHARE, BASIC $ 0.92 ($0.91) ------- -------- Diluted earnings (loss) per share: Continuing operations $ 0.39 ($0.11) Discontinued operations 0.46 (0.80) ------- -------- NET EARNINGS (LOSS) PER SHARE, DILUTED $ 0.85 ($0.91) ------- -------- WEIGHTED AVERAGE SHARES, BASIC (in thousands of shares) 18,480 18,480 ------- -------- WEIGHTED AVERAGE SHARES, DILUTED (in thousands of shares) 19,871 18,480 ======= ========
* The consolidated condensed financial statements of Tecumseh Products Company and Subsidiaries (the "Company") are unaudited and reflect all adjustments (including normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the financial position and operating results for the interim periods. The December 31, 2007 consolidated condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles in the United States ("U.S. GAAP"). The consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company's Annual Report for the fiscal year ended December 31, 2007. Due to the seasonal nature of certain product lines, the results of operations for the interim period are not necessarily indicative of the results for the entire fiscal year. 5 RESULTS BY BUSINESS SEGMENTS (UNAUDITED)
Three Months Ended (Dollars in millions) March 31, ------------------ 2008 2007 ------- --------- NET SALES: Compressor Products $275.2 $289.3 Other (a) 4.9 4.5 ------ ------ Total net sales $280.1 $293.8 ====== ====== OPERATING INCOME (LOSS): Compressor Products $ 18.2 $ 10.5 Other (a) 1.1 1.0 Corporate expenses (4.3) (10.0) Impairments, restructuring charges, and other items (0.5) -- ------ ------ Total operating income from continuing operations 14.5 1.5 Interest expense (7.3) (5.8) Interest income and other, net 1.8 1.7 ------ ------ INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES $ 9.0 ($2.6) ====== ======
(a) "Other" consists of non-reportable business segments. 6 CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
MARCH 31, December 31, (Dollars in millions) 2008 2007 --------- ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $ 197.0 $ 76.8 Restricted Cash 14.4 6.8 Short-term investments 5.0 5.0 Accounts receivable, net 118.5 93.2 Inventories 148.0 143.4 Assets held for sale 21.8 21.9 Other current assets 129.1 50.6 -------- -------- TOTAL CURRENT ASSETS 633.8 397.7 Property, plant and equipment - net 345.5 353.3 Goodwill and other intangibles 21.1 20.2 Prepaid pension expense 128.4 233.4 Other assets 88.7 160.3 -------- -------- TOTAL ASSETS $1,217.5 $1,164.9 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable, trade $ 172.1 $ 123.0 Short-term borrowings 65.1 59.5 Liabilities held for sale 2.0 2.6 Accrued liabilities 82.0 84.2 -------- -------- TOTAL CURRENT LIABILITIES 321.2 269.3 Long-term debt 3.1 3.3 Deferred income taxes 10.5 10.2 Pension and postretirement benefits 59.7 89.1 Product warranty and self-insured risks 10.7 10.0 Other non-current liabilities 37.2 37.1 -------- -------- TOTAL LIABILITIES 442.4 419.0 STOCKHOLDERS' EQUITY 775.1 745.9 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,217.5 $1,164.9 ======== ========
7 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended (Dollars in millions) March 31, ------------------ 2008 2007 ------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Cash provided by (used in) operating activities $120.5 ($50.8) ------ ------ CASH FLOWS FROM INVESTING ACTIVITIES: Effect of the deconsolidation of TMT Motoco -- (0.3) Proceeds from sale of assets 6.8 -- Capital expenditures (0.8) (1.9) Change in restricted cash (7.6) -- ------ ------ Cash used in investing activities (1.6) (2.2) ------ ------ CASH FLOWS FROM FINANCING ACTIVITIES: Debt amendment costs (1.6) -- Proceeds / repayments from First Lien Credit Agreement, net -- 8.3 Other borrowings / repayments, net 4.8 8.8 ------ ------ Cash provided by financing activities 3.2 17.1 ------ ------ EFFECT OF EXCHANGE RATE CHANGES ON CASH (1.9) 2.7 ------ ------ INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 120.2 (33.2) CASH AND CASH EQUIVALENTS: Beginning of period 76.8 81.9 ------ ------ End of period $197.0 $ 48.7 ====== ======
8 EX-99.2 3 k26617exv99w2.txt FIRST QUARTER 2008 INVESTOR PRESENTATION EXHIBIT 99.2 TECUMSEH PRODUCTS COMPANY First Quarter 2008 Earnings Conference Call Thursday, May 8, 2008 -- 11:00 a.m. ET APPROXIMATE TIMING 20 minutes of presentation 30 minutes of Q&A CALL OUTLINE 1. Operator: Call Opening 2. Teresa Hess: Safe Harbor Statement 3. Ed Buker: First Quarter 2008 Operational Overview 4. Jim Nicholson: First Quarter 2008 Financial Overview 5. Ed Buker: Summary & Conclusion Turn call over to Operator for Q&A 6. Operator: Question and Answer Introduction 7. Management: Question and Answer Session 8. Ed Buker: Final Remarks 1 Section 1 OPERATOR: CALL OPENING Section 1.1 Good morning and welcome to Tecumseh Products Company's first quarter 2008 earnings conference call. Section 1.2 All participants will be in a listen-only mode until the question-and-answer session of the conference call. This call is being recorded at the request of Tecumseh Products. Section 1.3 I would now like to introduce Ms. Teresa Hess, Director of Financial Reporting and Investor Relations at Tecumseh Products. Ms. Hess, you may proceed. SECTION 2 TERESA: WELCOME Section 2.1 Thank you Cecelia. Good morning and welcome to Tecumseh Products' first quarter 2008 conference call. Section 3 TERESA: INTRODUCTIONS AND SAFE HARBOR STATEMENT Section 3.1 On the call today are: - Ed Buker, Chairman, President and CEO - and - Jim Nicholson, Vice President, Treasurer and Chief Financial Officer Section 3.2 Yesterday afternoon, we announced the Company's first quarter 2008 results for the period ended March 31, 2008. 2 Section 3.3 If you have not yet received a copy of the press release, please contact me at 517-423-8455 to have one sent to you. Section 3.4 Please note that the release is also available on many news sites, and it can be viewed on our corporate web site at www.Tecumseh.com Section 3.5 Before I turn the call over to Ed and Jim to comment on our results, I would like to remind you that this conference call contains certain statements regarding the Company's plans and expectations, which are forward-looking statements and are made pursuant to the Safe Harbor provision of the Securities Litigation Reform Act of 1995. Section 3.6 These forward-looking statements reflect the Company's views at the time such statements are made, with respect to the Company's future plans, objectives, events and financial results such as revenues, expenses, income, earnings per share, operating margins, financial position, expected results of operation and other financial items, as well as industry trends and observations. Section 3.7 In addition, words such as estimate, expect, intend, should, could, will and variations of such words and similar expressions are intended to identify forward-looking statements. Section 3.8 These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict with regard to timing, extent, likelihood and degree of 3 occurrence. There are a number of factors, many of which are beyond the Company's control, which could cause actual results and outcomes to differ materially from those described in the forward-looking statements. Section 3.9 Risk factors exist and new risk factors emerge from time to time that may cause actual results to differ materially from those contained in any forward-looking statements. Section 3.10 Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. Furthermore, the Company expressly disclaims any obligation to update, amend or clarify forward-looking statements. In addition to the foregoing, several risk factors are discussed in the Company's most recently filed Annual Report on Form 10-K and other SEC filings, under the titles "Risk Factors" or "Forward-Looking Statements" (or similar caption) and those discussions regarding risk factors as well as the discussion of forward-looking statements in such sections are incorporated by reference in this call. Section 3.11 With that said, I would now like to turn the call over to Ed Buker, Chairman, President and CEO of Tecumseh Products. SECTION 4 BUKER -- FIRST QUARTER 2008 OPERATIONAL OVERVIEW Section 4.1 Thank you, Teresa. Good morning and welcome to our first quarter 2008 conference call. 4 Section 4.2 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. Section 4.3 This morning, I will begin our discussion with some introductory remarks regarding the status of our business and our ongoing plans for improvement. Next, I will provide some commentary regarding the first quarter operating achievements, followed by some commentary from Jim Nicholson, our CFO, regarding our financial results for the period. Lastly, we will share our perspectives and expectations for the future. Following these opening remarks, we will open the call for your questions. Section 4.4 The last time we spoke, I described the Company's ongoing transformation process in three phases. For the purposes of today's call, and the discussions which pertain to the ongoing reengineering of the Company, I intend to use these "three phases" to help frame our dialogue. Section 4.5 As I mentioned on our fourth quarter and year-end call this past March, the first phase, which is substantially complete, related to the disposition of certain non-core businesses, the intent of which was to help clean up our balance sheet, improve our liquidity and help us to focus our attentions on the core compressor business - a market 5 where we continue to maintain a number of strategic and competitive advantages. Section 4.6 The second phase of our action plan consists of multiple near-term tactical objectives which are intended to improve our efficiency, profitability and ability to compete successfully in the marketplace. These initiatives include: - Rationalization of our production facilities and manufacturing lines, - New sourcing and procurement strategies, and - Implementation of lean manufacturing techniques throughout the business Section 4.7 At present, we anticipate these operational initiatives will begin to show initial benefits beginning in 2008 and 2009. Section 4.8 The third phase of our action plan is expected to set the foundation for achieving sustained levels of revenue growth and profitability. In recent months, our team has been working closely with a strategy consultant to more accurately define the markets upon which we should focus and the steps necessary to capture profitable growth in those areas. Although many of these plans remain in development, one of the key areas of focus included within this phase is the formulation of product and service solutions that address those markets and customers that best fit our strengths. More specifically, this focus involves introducing revised product offerings that: - Have been engineered for reduced material costs, - Are produced utilizing a more effective supply chain, 6 - And deliver superior performance and quality characteristics. Section 4.9 As I have indicated on prior calls, our expectation is that these operational initiatives will help to restore profitability to between 3% and 5% EBIT over the next two to three years. Section 4.10 Since we last spoke, our senior leadership team has been looking diligently at the alternatives to achieve this end, without the distractions of past years. So far, the outcomes of these efforts are two-fold: First, the opportunity to achieve and exceed our stated financial targets is encouraging, as there is now a clear and distinct plan in place to help us achieve our objectives and, second, we continue to refine the scope of those alternatives under consideration, resulting in a further narrowing of our focus on several attractive options. Section 4.11 While its premature to share the plans that are currently in development, the reason I wanted to remind you of our overall three-staged approach is because I don't intend to reference it again for the time being. In this and future calls, our primary discussion will focus on reporting our progress towards our stated plans. Section 4.12 Along these lines, we have not wasted any time in identifying, planning and initiating profit improvement activities. Hopefully, you will agree that we are already seeing the benefits of these actions as evidenced by reported financial results for the quarter, which include a return to profitability and greatly improved liquidity. 7 Section 4.13 Previously, we had shared with you some of the ongoing organizational restructuring which had been on top of the mind for us, including: - The further restructuring of our North American operations, which included the consolidation of the Tecumseh and Dundee, Michigan facilities into other facilities, - The consolidation of the manufacturing activities in La Verpilliere, France into Cessieu and - Headcount reductions within our Brazilian operations Section 4.14 Today, I have the opportunity to report that we have made substantial progress in successfully executing on each of these initiatives. As planned, all manufacturing activities in our Tecumseh facility have now been successfully relocated, and we continue to remain on track to consolidate the Dundee facility by the end of the third quarter. Our plans in France also remain on track for a cessation of manufacturing activities in La Verpilliere by the end of the second quarter. In Brazil, we completed a headcount reduction action that reduced employment by 200 people during the first quarter, at a cost of $1.2 million. This cost is reflected in our restructuring charge line item. In addition, we continue to monitor for any softness in global market volumes and will consider taking further quick action to adjust headcounts further if volumes weaken from current expectation. Section 4.15 Our lean manufacturing efforts are also off to a good start. During the first quarter, we completed Kaizen events across all global regions with impressive results. A few examples: 8 - In Tupelo, Mississippi a review of our condensing unit line -- focus on changeover time improvements -- resulted in a 30% improvement in productivity, a 50% reduction in space and a 50% reduction in WIP inventory levels; - In France, a study of the same condensing unit line yielded similar improvements; - In Brazil, a review of our line changeover procedures in one area resulted in a 76% reduction in down time related to changeover. This reduction adds additional units of production to a sold out product line. - India has kicked off a similar event this week. Section 4.16 These examples demonstrate that our new leadership team is fully engaged in the task at hand, and we are rapidly producing the kinds of results that we expect. Moreover, the consistency of our efforts to execute on our stated objectives provides me with growing confidence that the operating and financial goals we've established are within reach. In summary, I am pleased by the initial progress our team has made - a team comprised of capable, experienced leaders who are on board with our efforts to position Tecumseh as a world-class industry leader. Section 4.17 Now, lets turn our attention to results for the first quarter of 2008. As Jim will discuss shortly, we continued to improve on a number of operational and financial metrics in the first quarter 2008 when compared to the year-ago period. Although we started the year knowing that higher commodity costs and unfavorable movement in currency values could negatively impact earnings for the year, we have instituted favorable pricing arrangements, made changes to our targeted sales mix and introduced sourcing initiatives which, in sum, 9 helped us to offset the impact of the commodity and foreign exchange related factors, thereby contributing to the positive results for the quarter. Section 4.18 Jim will you elaborate on the financial results? SECTION 5 NICHOLSON - FIRST QUARTER 2008 FINANCIAL OVERVIEW Section 5.1 Yes, thank you, Ed. Section 5.2 Income from continuing operations for the first quarter 2008 amounted to $7.8 million dollars, or $0.42 cents per basic share and $0.39 cents per fully diluted share, compared to a net loss from continuing operations of $2 million dollars or $0.11 cents per fully diluted share a year ago. First quarter results were bolstered by gains totaling $4.2 million dollars from the sale of aviation assets, which is reflected in cost of sales, and offset by a net $0.5 million dollars in restructuring charges. Generally, the $9.8 million dollar improvement in net operating results from continuing operations can be broken down between a $13 million dollar improvement in operating income, of which $3.7 was attributable to the net one-time gains I just mentioned, offset by higher net interest costs of $1.5 million dollars and a $1.8 million dollar unfavorable change in the tax provision. Section 5.3 If we focus on the improvement in operating income, excluding the $3.7 million dollars of one-time items, results on a pro-forma basis 10 improved by $9.3 million dollars. Pricing improvements of $8.1 million dollars and cost reduction actions of $7.5 million dollars helped to more than offset unfavorable currency effects of $5.4 million dollars and higher commodity costs of $2.5 million dollars. While the change in commodity costs was unfavorable, it was better than our previous expectation for the quarter due to the successful efforts of our purchasing group, which was able to defer some of our expected increases to later in the year. That said, we believe that with the possibility of further inflationary pressures on steel and copper, we could be more negatively affected in the back half of the year than originally expected. We had previously indicated that we expected our material costs for the full year 2008 to be $23 million dollars higher than 2007; we now believe, based on current cost pressures, that we are at risk for seeing these costs rise by an additional $12 million dollars. Section 5.4 Operating income also improved by $1.6 million dollars as a result of a more favorable sales mix despite overall volume declines. Section 5.5 During the first quarter, we had several notable swings on the sales front. First, our sales of compressors used in commercial applications were up by $15.1 million dollars, or 12.2%, while our sales of compressors used in residential refrigerator and freezer applications were down by $21.2 million, or 19.4%. Within sales for R&F, we also saw a shift from sales into the Northern Hemisphere to sales into the Southern Hemisphere. This is a positive trend because we are less affected by unfavorable exchange rates with this sales 11 mix. The net volume decline in sales of compressors for R&F applications was mostly attributed to lower market sales levels in North America and Europe, as well as planned losses of share where profitability was unacceptable due to the current value of the Brazilian Real. Section 5.6 And now, a few words on foreign exchange and its impact on our business in the first quarter. Including the effects of our hedging activities, our average realized rate for the Real was 1.92 Real to the Dollar in the first quarter of 2008, versus 2.23 for the same period in 2007. Our current expectation is that our average realized rate will be 1.85 for 2008 versus 2.10 for 2007, respectively. However, our changing mix of product deliveries from North America to South America is serving to lessen the negative effects of the changes in the value of the Real. We had previously indicated that we expected the impact of currency on the full year to be negative by $35 million dollars. However, due to our redirection of Brazilian production, better than expected rates for the Indian Rupee and additional hedging opportunities taken, we now estimate the full year effect to be approximately $19 million dollars unfavorable. Section 5.7 It is probably worth spending a couple of minutes on interest and taxes, as well. As we have indicated, the elimination of our U.S. debt has resulted in an approximate $20 million reduction in annual interest expense, although that isn't readily apparent in our financial statements where the interest expense line item for the quarter shows an increase of $1.5 million from $5.8 million to $7.3 million dollars. 12 First, due to accounting rules, most of the domestic interest expense in the prior period has been allocated to discontinued operations. Accordingly, the interest expense lines in both the 2007 and 2008 period are primarily indicative of interest costs we incur outside of the United States. The increase for the first quarter represents the write-off of debt origination costs due to the termination of our old credit facility, as we have entered into a new $50-million facility, which we expect to remain un-drawn given our substantial cash balances. Section 5.8 With respect to taxes, you have heard me lament in the past about the inability to accurately predict the provision due to the accounting rules and our unique tax position. Fortunately, this quarter represents a fairly straight-forward tax accrual. The provision represents the taxes we would expect to pay in foreign jurisdictions where we do not currently have NOL's to offset taxable income. Otherwise, tax liabilities generated on results in the U.S., Brazil and India, including the taxable income generated from our salaried pension plan reversion, were all offset by NOL's which had valuation allowances against them previously. Accordingly, there is no associated net income tax expense reflected in the income statement for these tax jurisdictions. As we have noted, however, we have accrued $20 million in excise taxes related to the reversion of our salaried retirement plan, an expense which is included in the restructuring charge line and has resulted in a cash outlay in the second quarter. 13 Section 5.9 Now I'd like to turn the call over to Ed for some closing remarks. SECTION 6 BUKER - SUMMARY AND CONCLUSION Section 6.1 Thanks, Jim. We are off to as good a start to the year as could be expected. Notably, our cost reduction efforts continued to gain traction in the period, while our deliberate management of sales mix and sourcing activities helped to more than offset the commodity and currency-related headwinds prevalent in the market. Should we continue to face elevated commodity and currency related costs throughout the remainder of 2008 - which we believe we will - rest assured that our team will continue to make all actions necessary to mitigate the impact of such costs, while continuing down a path toward renewed growth. While currency will have a negative effect on our 2008 operating results, we believe existing efforts to hedge against foreign exchange volatility does protect us in part. However, the more apparent challenge lies in the cost of purchased materials, including commodities such as steel and copper, which continue to trade at elevated levels. Section 6.2 With respect to copper, we have a great deal of forward cover to help reduce our exposure, we have less coverage in the second half of the year versus the first half, and our spend could ultimately be higher than expected if copper remains at current or higher levels. Steel and other purchased materials represent an even greater variable, as they cannot effectively be hedged at this point in time given the lack of a developed forward market. While we've budgeted a 6% increase in 14 steel costs, and we performed better than that level in the first quarter, recent news suggests that significant cost pressures in steel, the magnitude of which could have a substantial impact on our expected results in the absence of pricing relief. Section 6.3 With respect to sales, the first quarter was consistent with our expectations in the aggregate. While we had originally anticipated full year volumes to be down by 7 to 8 percent, we are now expecting volumes to be down 13 to 14 percent, as we are starting to see a slow down in orders and some customers have indicated they expect end consumer demand to be down 15 to 20 percent in 2008 versus 2007. If a greater than expected decline occurs in our key markets, this could adversely affect our current outlook. Section 6.4 That concludes our prepared comments for this morning. Cecelia, we are now ready to take questions. SECTION 7 QUESTION AND ANSWER SESSION SECTION 8 BUKER -- FINAL REMARKS Section 8.1 With that, this concludes our conference call today. Thank you for your interest in Tecumseh Products and we look forward to speaking with you next quarter. Section 8.2 Thank you and good day. 15 -----END PRIVACY-ENHANCED MESSAGE-----