-----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, BL8u89GY/ddNZeAMOQpLOYN62B/wsDDNARUKzL5sXkRP33Wlz2rLCQ4IlnnU1QWw 1kRbMEtIQxVeJVFaoDzcEw== 0000950152-08-006200.txt : 20080808 0000950152-08-006200.hdr.sgml : 20080808 20080808082002 ACCESSION NUMBER: 0000950152-08-006200 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20080806 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20080808 DATE AS OF CHANGE: 20080808 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: 081000444 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 k34715e8vk.txt TECUMSEH PRODUCTS COMPANY 8-K ================================================================================ 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): AUGUST 6, 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.) 1136 OAK VALLEY DRIVE ANN ARBOR, MICHIGAN 48108 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (734) 585-9500 (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 August 6, 2008 regarding our second quarter 2008 consolidated results is furnished as Exhibit 99.1 to this report. We hosted our second quarter 2008 earnings conference call and webcast on Thursday, August 7, 2008 at 11:00 a.m. Eastern Time. Via the webcast, we presented our Second Quarter 2008 Investor Presentation, which contained a summary of our financial results for the quarter. We are furnishing a copy of the Second 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 August 7, 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 August 6, 2008 99.2 Second 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: August 8, 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 August 6, 2008 99.2 Second Quarter 2008 Investor Presentation 3 EX-99.1 2 k34715exv99w1.txt EX-99.1 EXHIBIT 99.1 FOR IMMEDIATE RELEASE CONTACT: Teresa Hess Director, Investor Relations Tecumseh Products Company 734-585-9507 TECUMSEH PRODUCTS COMPANY REPORTS SECOND QUARTER 2008 RESULTS - Second quarter net income increased to $9.0 million, compared to a net loss in the prior-year period of $88.2 million - Total cash and equivalents amounted to $178.6 million, an increase of $101.8 million when compared to the beginning of the year - Progress continues on streamlining operations and effectively managing through challenging economic environment ANN ARBOR, MICH., AUGUST 6, 2008 -- Tecumseh Products Company (NASDAQ: TECUA, TECUB), a leading global manufacturer of compressors and related products, today announced results for its second quarter ended June 30, 2008. "Throughout our restructuring process during the last 18 months, our management team has worked aggressively to shape Tecumseh into a global leader, focused on our core compressor business. After much hard work, we are now beginning to see the results of our efforts," said Ed Buker, Chairman, President and CEO of Tecumseh Products. "The major changes we've executed have left Tecumseh well positioned to capitalize on future opportunities. We have eliminated North American debt and increased cash, creating a capital position that forms a platform for future growth." Consolidated net sales from continuing operations in the second quarter of 2008 decreased to $273.8 million from $297.0 million in 2007. After consideration for the effect of currency translation, which increased sales in U.S. dollars by $27.8 million, sales declined by $51.0 million. Sales for refrigeration & freezer applications declined by $25.9 million, associated primarily with a downturn in market volumes, as well as market share, most substantially in North America and Europe. As was the case in the first quarter of 2008, 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. This decline was offset by a $2.7 million increase in sales of compressors for air conditioning and commercial applications. For these applications, price increases and currency effects more than offset declines in unit volumes due to softer economic conditions, cooler weather in many of the Company's markets and lower shipments to customers in light of higher inventory balances. Cost of sales was $240.3 million in the three months ended June 30, 2008, as compared to $261.4 million in the three months ended June 30, 2007. As a percentage of net sales, cost of sales was 87.8% and 88.0% in the second quarters of 2008 and 2007, respectively. Although gross margin as a percentage of sales improved slightly over the same period of 2007, in dollars it represented a decline of $2.1 million in 2008 operating profit when compared to the same period of 2007, dropping from $35.6 million in 2007 to $33.5 million in 2008. 1 Current-year margin was favorably impacted by selling price advances of $17.7 million. However, as discussed above, volumes declined substantially when compared to the second quarter of 2007. These declines were partially offset by an improved mix of higher-margin product, but the net impact of these factors resulted in a decline of $13.9 million in 2008 when compared to 2007 results. Gains in productivity, purchasing savings and other improvements of $10.5 million were offset by the effects of a weakening U.S. dollar ($9.6 million) and higher commodity costs ($6.8 million). Selling, general and administrative ("SG&A") expenses were $34.3 million in the three months ended June 30, 2008 as compared to $34.8 million in the three months ended June 30, 2007. As a percentage of net sales, SG&A expenses were 12.5% and 11.7% in the second quarters of 2008 and 2007, respectively. Despite expenditures of approximately $3.9 million in the second quarter of 2008 for one-time professional fees, which included consulting services for strategic planning and legal fees for corporate governance issues, the Company nonetheless achieved a $3.8 million reduction in professional fees incurred for one-time projects compared to the second quarter of 2007. This improvement was offset by $3.3 million in increased administrative costs; this increase included $2.1 million in losses recognized in the Company's income statement for currency forward contracts undertaken at its Indian facilities that are not afforded hedge accounting treatment, as the rupee weakened against the U.S. dollar during the period. The remainder of the increase in administrative cost is largely reflective of costs recognized in continuing operations that were previously allocated to businesses that are now discontinued operations. Buker continued: "Since the beginning of 2008, we have faced significant macroeconomic challenges to our business, and the second quarter offered no respite. With a significant slowdown in global economic activity adversely affecting our volumes and revenues, we have also experienced rapidly rising commodity prices creating upward pressure on our cost of sales. In addition, the weakening of the U.S. dollar against the euro and the real has further negatively impacted our results. Despite the strides we've made in hedging currency and commodity exposure, we anticipate these factors will continue to influence our results over the near term. We are working diligently to address the softening sales environment by targeting new customers, increasing volumes with existing customers and introducing new Energy Star products such as a refrigeration scroll compressor, while also implementing price adjustments to cover the increasing costs of raw material inputs." Loss from continuing operations was $6.6 million in the current quarter, compared to a loss of $7.4 million in the prior year second quarter. Financial performance was favorably impacted by a $4.6 million improvement in interest expense when compared to second quarter 2007. The higher cost in 2007 was attributable to $2.1 million in amortized debt amendment costs recorded in the period, as well as higher levels of interest paid on discounted accounts receivable. Interest income also improved by $1.7 million in 2008, due to the interest earned on substantially higher levels of cash and short-term investments in 2008. Buker commented: "With the restructuring of our balance sheet in 2007, the elimination of our heavy debt load and associated interest expense resulted in a positive impact on our financial results in the second quarter. Further, we now have the resources necessary to improve our process engineering and focus on targeted market penetration within our core compressor business, even in the face of challenging global macroeconomic conditions." Consolidated net sales from continuing operations in the first two quarters of 2008 decreased to $549.0 million from $586.3 million in 2007. After consideration for the effect of currency translation, which increased sales in U.S. dollars by $60.3 million, compressor sales declined by $97.6 million. Sales of 2 compressors used in commercial applications increased by $17.4 million; these increases were primarily the result of pricing advances and currency impacts. These increases in sales were offset by dollar volume declines in sales of compressors used in refrigeration and freezer applications of $46.4 million, associated primarily with a downturn in market volumes as well as market share, most substantially in North America and Europe. As noted earlier, a portion of these declines in market share were deliberate, where certain products or markets yielded unacceptable profit margins, in many cases due to the declining value of other currencies against the Brazilian real. Sales of compressors for air conditioning applications and all other applications also declined by $8.3 million. Cost of sales was $469.9 million in the six months ended June 30, 2008, as compared to $516.1 million in the same period of 2007. As a percentage of net sales, cost of sales was 85.6% and 88.0% in the first six months of 2008 and 2007, respectively. Although sales volumes have declined, gross margin contributed an additional $8.9 million to 2008 year-to-date operating profit when compared to the same period of 2007, improving from $70.2 million in 2007 to $79.1 million in 2008. Current year margin was favorably impacted by selling price advances of $25.7 million. Gains in productivity, purchasing costs and other improvements of $15.7 million, as well as gains on the sale of an airplane and the Company's former airport facility of $4.2 million, were somewhat offset by increased expense for the weakening of the U.S. dollar ($15.0 million) and higher commodity costs ($9.3 million). In addition, although an improved mix of higher-margin product contributed favorably to 2008 year-to-date results, this favorable mix was not sufficient to fully offset volume declines, resulting in a net reduction to 2008 margin of $12.4 million. Selling, general and administrative ("SG&A") expenses were $65.9 million in the first two quarters of 2008 as compared to $68.9 million in the six months ended June 30, 2007. As a percentage of net sales, selling, general and administrative expenses were 12.0% and 11.8% in 2008 and 2007, respectively. While the Company has incurred approximately $6.1 million in 2008 for one-time professional fees, which included consulting services for strategic planning and legal fees for corporate governance issues, it has nonetheless achieved an $8.9 million reduction in professional fees incurred for one-time projects when compared to 2007. This improvement was offset by $5.9 million in increased administrative costs, which included $2.0 million in losses recognized in the Company's income statement for currency forward contracts undertaken at its Indian facilities, as the rupee has weakened against the U.S. dollar during 2008. The remainder of the increase in administrative cost is primarily reflective of costs recognized in continuing operations that were previously allocated to businesses that are now discontinued operations. Net income from continuing operations was $0.2 million through the first two quarters of 2008, compared to a loss of $10.4 million in the same period of 2007. Financial performance was favorably impacted by a $3.1 million improvement in interest expense when compared to 2007. The improvement is largely due to a $2.0 million year-on-year reduction in the amount of capitalized debt amendment costs expensed in the two periods. Interest income also improved by $1.8 million in 2008 due to the interest earned on substantially higher levels of cash and short-term investments in the current year. As of June 30, 2008, the Company reported total cash and cash equivalents of $178.6 million, an increase of $101.8 million when compared to the end of 2007. The most significant elements of this increase in cash were the net proceeds of $80.0 million realized from the reversion of the Company's salaried retirement plan, and net income of $26.0 million. 3 "With nearly $180 million in cash and equivalents and minimal debt, we're well positioned to support the continuing growth of our business, even in the face of challenging external market conditions," continued Buker. "We expect capital expenditures in 2008 and beyond to remain at much lower levels than historical averages, especially with the elimination of capital-intensive activities relating to businesses we have divested. Looking ahead, we intend to remain disciplined with regard to capital investments resulting in a current forecast for capital expenditures of $20 to $25 million in 2008." Tecumseh reported that commodity costs, key currency rates, unfavorable weather patterns and a continued slowing in the U.S. economy, among other factors, had a significant impact on its business operations during the first and second quarters of the year. Certain key commodities, especially steel and copper, continue to trade at elevated levels compared to recent history. From January 1, 2007 through June 30, 2008, the price of copper increased by approximately 36.5%; in the first six months of 2008 alone, copper prices increased by 28.5%. Steel prices have doubled since the beginning of 2007, with the majority of the increase (86.2%) occurring in the first half of 2008. While the Company has executed forward purchase contracts to cover in excess of 50% of its anticipated copper requirements for the remainder of 2008, continued rapid escalation of these costs would nonetheless have an adverse affect on its results of operations, both in the near and long term. The rapid increase of steel prices has a particularly negative impact, as there is currently no well-established market for hedging against increases in the cost of steel. In the aggregate, the Company expects the total 2008 cost of purchased materials for the full year, net of hedging activities, to be approximately $50 million more than the prior year, depending on commodity cost levels in the second half of 2008. In addition, the Brazilian real and the euro continue to strengthen against the dollar and, as of June 30, 2008, had strengthened 25.5% and 16.1% 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 is anticipated to have a negative financial impact of approximately $19 million when compared to 2007. As a partial means of offsetting these conditions, the Company said it intends to continue to implement selective price increases throughout the year to cover its increased material and currency costs, as necessary. "With the continued unfavorable trends in foreign currencies and key commodities during the second quarter, our efforts to effectively hedge this volatility will likely continue to be an essential component of our financial results for the remainder of the year," said James Nicholson, Chief Financial Officer of Tecumseh Products. "Given the recent declines in oil prices, we are hopeful that the ongoing surge in commodity price inflation may abate in the near term. However, the effective hedging methods we've pursued to mitigate this inflation will remain important tools to enable us to focus on managing our operations through the current period of regional economic softness." CONFERENCE CALL TO DISCUSS SECOND QUARTER 2008 RESULTS Tecumseh Products Company will host a conference call to report on the second quarter 2008 results on Thursday, August 7, 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. 4 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) increased or unexpected warranty claims; and xviii) 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. 5 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)*
THREE MONTHS ENDED SIX MONTHS ENDED (Dollars in millions, except per share data) JUNE 30, JUNE 30, 2008 2007 2008 2007 ----------- ----------- ---------- -------- Net sales $ 273.8 $ 297.0 $ 549.0 $ 586.3 Cost of sales 240.3 261.4 469.9 516.1 Selling and administrative expenses 34.3 34.8 65.9 68.9 Impairments, restructuring charges, and other items 3.3 1.7 3.8 1.7 ----------- ----------- ---------- -------- Operating (loss) income (4.1) (0.9) 9.4 (0.4) Interest expense 6.2 10.8 13.5 16.6 Interest income and other, net 3.3 1.6 5.1 3.3 ----------- ----------- ---------- -------- (Loss) income from continuing operations before taxes (7.0) (10.1) 1.0 (13.7) Tax (benefit) expense (0.4) (2.7) 0.8 (3.3) ----------- ----------- ---------- -------- (Loss) income from continuing operations (6.6) (7.4) 0.2 (10.4) Income (loss) from discontinued operations, net of tax 15.6 (80.8) 25.8 (94.6) ----------- ----------- ---------- -------- Net income (loss) $9.0 ($88.2) $26.0 ($105.0) =========== =========== ========== ======== Basic earnings (loss) per share: Loss from continuing operations (0.36) (0.40) 0.01 (0.56) Income (loss) from discontinued operations, net of tax 0.85 (4.37) 1.40 (5.12) ----------- ----------- ---------- -------- Net income (loss) per share, basic $ 0.49 ($4.77) $ 1.41 ($5.68) =========== =========== ========== ======== Diluted earnings (loss) per share Income (loss) from continuing operations (0.36) (0.40) 0.01 (0.56) Income (loss) from discontinued operations, net of tax 0.85 (4.37) 1.30 (5.12) ----------- ----------- ---------- -------- Net income (loss) per share, diluted $0.49 ($4.77) $1.31 ($5.68) ----------- ----------- ---------- -------- Weighted average shares, basic (in thousands) 18,480 18,480 18,480 18,480 Weighted average shares, diluted (in thousands) 19,871 19,748 19,871 19,114 ----------- ----------- ---------- -------- Cash dividends declared per share $ 0.00 $ 0.00 $ 0.00 $ 0.00 =========== =========== ========== ========
* 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. 6 CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
JUNE 30, December 31, (Dollars in millions) 2008 2007 - -------------------- ----------- ------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 178.6 $ 76.8 Restricted Cash 14.3 6.8 Short-term investments 5.0 5.0 Accounts receivable, net 118.0 93.2 Inventories 156.0 143.4 Assets held for sale 19.5 21.9 Other current assets 156.1 50.6 ----------- ------------- TOTAL CURRENT ASSETS 647.5 397.7 Property, plant and equipment - net 350.1 353.3 Goodwill and other intangibles 20.5 20.2 Prepaid pension expense 128.3 233.4 Other assets 101.4 160.3 ----------- ------------- TOTAL ASSETS $ 1,247.8 $ 1,164.9 =========== ============= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable, trade $ 158.8 $ 123.0 Short-term borrowings 68.3 59.5 Liabilities held for sale 2.5 2.6 Accrued liabilities 87.7 84.2 ----------- ------------- TOTAL CURRENT LIABILITIES 317.3 269.3 Long-term debt 1.2 3.3 Deferred income taxes 11.4 10.2 Pension and postretirement benefits 49.7 89.1 Product warranty and self-insured risks 9.7 10.0 Other non-current liabilities 40.6 37.1 ----------- ------------- TOTAL LIABILITIES 429.9 419.0 STOCKHOLDERS' EQUITY 817.9 745.9 ----------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,247.8 $ 1,164.9 =========== =============
7 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended (DOLLARS IN MILLIONS) June 30, --------------------- 2008 2007 ---------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: ---------- -------- Cash Provided by (Used in) Operating Activities $ 79.7 $ (24.0) ---------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds From Sale of Assets 22.6 2.0 Capital Expenditures (2.7) (5.4) Change in Restricted Cash (7.6) --- ---------- -------- Cash Provided by (Used in) Investing Activities 12.3 (3.4) ---------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: ---------- -------- Debt Issuance / Amendment Costs (1.6) (2.5) Proceeds / (Repayments) From First Lien Credit Agreement, Net --- 1.9 Other Borrowings / (Repayments), Net 2.5 (0.9) ---------- -------- Cash Provided by (Used in) Financing Activities 0.9 (1.5) ---------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH 9.0 (4.3) ---------- -------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 101.8 (33.2) CASH AND CASH EQUIVALENTS: Beginning of Period 76.8 81.9 ---------- -------- End of Period $ 178.6 $ 48.7 ========== ========
8 EX-99.2 3 k34715exv99w2.txt EX-99.2 EXHIBIT 99.2 TECUMSEH PRODUCTS COMPANY Second Quarter 2008 Earnings Conference Call Thursday, August 7, 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: Second Quarter 2008 Operational Overview 4. Jim Nicholson: Second 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 afternoon and welcome to Tecumseh Products Company's second 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. This conference call is being recorded at the request of Tecumseh Products. If anyone has any objections, you may disconnect at this time. 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 HESS: INTRODUCTIONS AND SAFE HARBOR STATEMENT Section 2.1 Good morning and welcome to Tecumseh Products' second quarter 2008 conference call. Section 2.2 On the call today are: - Ed Buker, President and CEO - and - Jim Nicholson, Vice President, Treasurer and Chief Financial Officer Section 2.3 Yesterday afternoon, we announced the Company's second quarter 2008 results for the period ended June 30, 2008. Section 2.4 If you did not yet receive a copy of the press release, please contact Amanda Passage at 616-233-0500 to have one sent to you. Section 2.5 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 2 Section 2.6 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 2.7 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 2.8 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 2.9 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 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 2.10 Risk factors exist and new risk factors emerge from time to time that may cause actual results to differ materially from those contained in the forward-looking statements. Section 2.11 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 3 discussed in the Company's most recently filed Annual Report on Form 10-K and other SEC filings, under the titles "Risk Factors" or "Cautionary Statements Related to Forward-Looking Statements" 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 2.12 With that said, I would now like to turn the call over to Ed Buker, President and CEO of Tecumseh Products. SECTION 3 ED BUKER - SECOND QUARTER 2008 OPERATIONAL OVERVIEW Section 3.1 Thank you, Teresa. Good morning and welcome to our second quarter 2008 conference call. Section 3.2 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 3.3 On our first quarter call, I described in detail the Company's ongoing transformation process in the context of three phases. During today's call I will update our progress and the initial impacts we are seeing in terms of our global operations and financial results. Section 3.4 For more than a year, our management team has focused on modernizing every aspect of our Company, from our products and processes, to our operations and manufacturing footprint, to our corporate governance and capital structure, all with the view of establishing Tecumseh as a world-class competitor and among the leaders in public company governance and structure. During the call today, we will update you on the status of these efforts and our plans to continue moving forward. 4 Section 3.5 Before turning to a detailed review of our compressor operations, I'd like to make note of the fact that we've sold our MP Pumps business to Lionheart Ventures for $14.6 million on June 30th. This sale was a continuation of our efforts to divest business lines outside of our core compressors. MP Pumps was relatively small but profitable, accounting for approximately $20 million in revenues, however it simply did not fit with our core operations. Over the coming months we will likely continue to identify smaller divestitures as we refine our focus, however the largest steps in this process have already been accomplished. Section 3.6 We've made significant strides in reshaping Tecumseh into a global leader focused on our core compressor business. We've divested our two primary non-core divisions, raising significant levels of cash in the process. Our highly leveraged balance sheet has been dramatically improved as we paid down debt, resulting in lower interest expense and increased flexibility in operating our core business. Section 3.7 Although our work has just begun, we've made the initial critical steps toward improving our operational processes. We've begun to shift our operations through right-sizing our manufacturing to match the needs of our business. We have focused on improving our cost of goods through improved inventory control, better quality control and effective supply chain management. To better address customer demand, we've focused our product development efforts on core products and markets while shifting our global engineering resources to better meet regional market demand. In addition, we continue our efforts to reduce SG&A costs at the corporate level as well as overhead at our production facilities to leverage our non-production staff. And, in facing continued commodity inflation and U.S. dollar weakness, we are proactively managing foreign exchange exposure and hedging our commodity inputs wherever possible. Many more opportunities lie ahead of us, and we look forward to 5 taking on these challenges as we move our operations toward the world-class capability we fully expect to achieve. Section 3.8 In the second quarter we continued to see the initial benefits of these actions; gains in productivity, purchasing savings and other improvements contributed about $10.5 million to the gross margins when compared to the same period in 2007. We expect to see more incremental benefits throughout the remainder of 2008 and into 2009. As I have indicated on prior calls, our expectation is that these operational initiatives will be one of the key factors in restoring our profitability. As I've previously stated, we still expect to reach levels of operating profit between 3% and 5% by the end of 2010. Based upon the recommendations made by our strategic consultants as well as our own analysis, we see clear, definable steps to exceed those levels, particularly as we look beyond that time frame. The ultimate potential of the business will depend not only on our success as we execute our long-term strategic objectives, but also on the level of marketplace challenges we encounter as we move forward. Section 3.9 The recommended actions of our strategic consultant can be broadly categorized according to the time horizon involved. In the short-term, our opportunities are concentrated in making readily defined and rapidly implemented improvements in our manufacturing processes. These improvements include eliminating duplicative efforts, identifying the lowest-cost locations for each operation and renewing our emphasis on product quality. They also involve improving our production efficiencies, manpower utilization, and inventory carrying costs through the implementation of tools already available in the marketplace, such as lean manufacturing concepts and the well known TPS system, which of course, we refer to as the "Tecumseh Production System." Other opportunities, over a mid-range timeframe, involve optimizing our level of vertical integration, reducing product costs through strategic sourcing and the simplification of product platforms and their components. Over the longer term, we see the potential to better optimize our product offerings and mix, while identifying and 6 successfully penetrating those markets that offer the greatest opportunities for those products. These recommendations have been reviewed and approved by our board of directors, and the process of cascading them throughout the entire global organization has already begun. In future calls, we'll continue to update you on the status of our efforts, and we'll communicate the magnitude of the results in measurable terms. Section 3.10 We've recently completed the move of our global headquarters from Tecumseh to Ann Arbor. The new location provides us with access to an enhanced pool of professional talent and easier access to travel through a major hub. These benefits will be key to effective management of our growing global enterprise. Section 3.11 During the second quarter, we continued our lean manufacturing training plan at all major locations. We anticipate that the final phase of the 2008 training plan will be completed in the third quarter, followed by a review of the program and planning for the 2009 training program, which will commence in the fourth quarter. Section 3.12 Sixteen Kaizen training events have been completed worldwide, resulting in significant improvements in productivity, reductions in floor space requirements and work in process inventory reductions. Although we're just in the training phase of implementing Kaizen processes, as we go forward we intend to achieve a run-rate of about thirty Kaizen events per quarter, or about one per plant per month, which will bring us into line with industry best practices. Section 3.13 The consolidation of our former manufacturing operations in Tecumseh, Michigan into our other North American locations is now complete. In July, we also completed the consolidation of our La Verpilliere operations into our Cessieu operations, thereby reducing the number of manufacturing locations in France from three to two. 7 Section 3.14 In August, we intend to launch two updated product platforms in India and another project will focus on launching an updated compressor line in the Cessieu plant in France. An important element of the renewed focus on the optimization of our manufacturing capabilities is the re-vitalization of our Engineering function. As part of this effort, we have welcomed a new Vice President of Global Engineering to our team, an individual with advanced leadership and turnaround capabilities. Section 3.15 These initiatives demonstrate the significant efforts that our new leadership team has made and will continue to make in order to produce the results that we have projected, as we stretch the organization to achieve a breakeven operating profit level, before impairment and restructuring charges, in 2008. The quality of our execution on our stated objectives gives me a higher level of confidence in our ability and commitment to reaching the operating and financial goals we have established. It's unfortunate that the marketplace conditions have somewhat masked our successes, I am pleased by the continued progress our team is making in our efforts to position Tecumseh as a world-wide industry leader. Section 3.16 As Jim will discuss shortly, we continued to improve on a number of operational and financial metrics in the second quarter even in the face of some significant headwinds in the global economy. The significant slowing of global economic activity adversely affected our revenues and unit volumes, however it's important to note that as in the first quarter, 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. We were also challenged by plant shutdowns by several of our major customers, especially in Brazil and India that we did not have anticipation of. Given that we received very little advance notification of these shutdowns, sometimes in as little as a week, we were unable to control our inventory levels and manufacturing efficiencies as proactively as we would have liked. Going forward, as we shorten our product lead times, we will be able to better 8 minimize the impact of these unanticipated events. We are also working diligently to address the overall softening sales environment and market share erosion by targeting new customers, increase volumes with existing customers and introducing new Energy Star products, including our innovative refrigeration scroll compressor. Section 3.17 Despite the slowdown in global economic activity, we also are experiencing rapidly rising commodity prices creating upward pressure on our cost of sales, while the weakening of the U.S. dollar against the euro and the real has further adversely affected our results. Although we've made significant strides in our process for hedging currency and commodity exposure, we will continue to refine our approach in order to minimize our risk exposure to these extremely volatile factors in our product cost. Nonetheless, we anticipate these factors will continue to influence our results over the near term. Section 3.18 As a board and management team, we are looking to make improvements across our entire business. From our operations, manufacturing footprint and quality initiatives, to our capital structure and corporate governance, we are actively engaged in establishing world-class processes, structures and procedures. As part of this process, we are actively reviewing potential options for bringing our governance and capital structures up to date and in line with best practices. Section 3.19 The improvements we are contemplating to our governance and capital structure reflect the fact that we are a widely held public company. Our current capital structure, is a vestige of an earlier time, when management and ownership of the business was more focused on a single family. We believe that a modernization of our capital structure is just as important as the changes we are implementing to our operational, leadership, and overall strategic focus. Section 3.20 Accordingly, we are actively contemplating the elimination of our existing dual-class structure, and moving to a single class of stock. 9 Section 3.21 As part of this undertaking, we have benchmarked the best governance practices of other companies. We've also initiated direct discussions with many of our largest shareholders, and by the way, look forward to meeting with as many more shareholders as possible over the next several months. The information we've obtained through this process has strongly reinforced our own assessment. Not only is a single class of stock preferred by a majority of our shareholders, it's also widely recognized as a best practice by shareholder advocacy firms and corporate governance experts. Section 3.22 We believe a single class of stock would provide significant benefits to all shareholders, including aligning their economic and voting interests, and would provide additional liquidity and broader appeal that will benefit existing shareholders and potential shareholders/investors alike. Section 3.23 We intend to move forward in the very near future to complete our evaluation and begin the execution of a plan to modernize our governance structure, including our capital structure. We look forward to sharing our conclusions with you once our analysis is complete. Section 3.24 Jim will you elaborate on the financial results? SECTION 4 JIM NICHOLSON - SECOND QUARTER 2008 FINANCIAL OVERVIEW Section 4.1 Yes, thank you, Ed. Section 4.2 Income from continuing operations for the second quarter 2008 amounted to a net loss of $6.6 million, or $0.36 per fully diluted share, compared to a net loss from continuing operations of $7.4 million, or $0.40 per fully diluted share a year ago. 10 Section 4.3 Operating loss increased by $3.2 million to $4.1 million from $900,000 last year. . Operating results included impairments, restructuring and other charges of $3.3 million versus $1.7 million in 2007. Excluding these charges operating results were nearly flat. Despite being flat, we made substantial improvements in order to achieve this result by offsetting lost margin of $13.9 million from the slow down in global activity, higher commodity costs of $6.8 million and unfavorable currency movements of $9.6 million. These unfavorable factors which aggregate to $30.3 million for the quarter when compared to the prior year were offset by selling price advances of $7.7 million and overall cost improvements of $11 million. Excuse me, I've just been notified I said $7.7 million, I meant to say $17.7 million. Section 4.4 Of the $11 million in overall cost improvements, $500,000 was attributable to reductions in selling and administrative costs. The Company spent $3.9 million in the second quarter for one-time professional fees, including consulting services for strategic planning and various professional fees, including legal fees, for corporate governance matters. While this represents a net reduction of $3.8 million in professional fees incurred for one-time projects when compared with the second quarter of 2007, it still represents higher spending than was contemplated for the period and represents further opportunity for reduction once the Company is able to stabilize its ownership and modernize its capital structure. This improvement in professional fees was offset by a $3.3 million increase in administrative costs which included a $2.1 million loss on currency forward contracts undertaken at our Indian facilities. The remaining increase in administrative costs was the result of costs in continuing operation that were formerly allocated to discontinued operations. Section 4.5 During the second quarter, we had a number of shifts on the sales front. Consolidated net sales for the quarter fell $23.2 million to $273.8 million from $297.0 million in the second quarter of 2007. Excluding the impact of currency 11 translation, consolidated net sales would have declined by $51.0 million in the quarter. Breaking down the total $23.2 million decline in net sales, sales for refrigeration and freezer applications fell by $25.9 million, or 23.5% in the second quarter. There was a distinct pull back in volumes from our R&F customers around the entire globe as they took actions to adjust inventories. We estimate that more than 80% of the overall volume decline was the result of this market slowdown. The decline in these sales was partially offset by sales of compressors used in air conditioning and commercial applications, which increased by $2.7 million, or 0.2%. Unit sales for these applications fell during the quarter, however the impact of price increases and currency effects more than offset declines in unit volumes. Section 4.6 And now, let me say a few words about our hedging activities and foreign exchange, and their impacts on our business in the second quarter. With regard to commodity hedging, we are actively engaged in forward purchase contracts to lock in prices and reduce the risk of commodity volatility on most key commodities. Our most significant commodity exposure remaining is steel, simply because there are no well-established effective hedging vehicles available for steel and we are facing further increases in steel costs in the second half of the year in the 20-30% magnitude. You may recall that we previously indicated that the full year impact of commodity cost increases was estimated to be $35 million. With the last activity in steel pricing, we now believe that number to be closer to $50 million for the full year, with the increase in our estimate all being attributable to the second half of the year. To address this we have implemented price increases ranging from 4-8% effective at various times from August 1 to October1. Section 4.7 Turning to foreign exchange exposure, including the effects of our hedging activities, our average realized rate for the real was 1.83 real to the dollar in the second quarter of 2008, versus 2.08 for the same period in 2007. Our current expectation is that our average realized rate will be 1.84 for 2008 versus 2.10 for 12 2007, respectively. Therefore we are essentially maintaining our full year estimate of the unfavorable impact of the Real and other currencies of $19 million. Section 4.8 It is probably worth spending a couple of minutes on interest expense, as well. As we have indicated in previous conference calls, the elimination of our North American debt has resulted in an approximate $20 million reduction in annual interest expense. In the second quarter our interest expense was reduced by approximately $4.6 million, from $10.8 million in the second quarter to $6.2 million this year. Additionally, given our sizable cash balance, our interest income for the second quarter more than doubled to $3.3 million. Section 4.9 Now I will turn the call over to Ed for some closing remarks. SECTION 5 ED BUKER - SUMMARY AND CONCLUSION Section 5.1 Thanks Jim. In the second quarter, we continued to make progress in achieving our operational objectives. Our cost reduction efforts continued to gain traction, while our continued management of sales mix and sourcing activities helped to offset the commodity and currency-related headwinds prevalent in the market. Certainly, the biggest challenge we still face as we look to the remainder of the year is the ongoing global economic softness and its dampening effect on our revenues. We are working diligently to address the softening sales environment by targeting new customers, increasing volumes with existing customers and managing the size of our infrastructure and our levels of manpower. However, we will continue to be selective in our approach to sales growth, ever mindful of the potential trade-off between revenues and margins. With commodity inflation, we will continue to work closely with our supply chain to minimize the impact while also implementing judicious price increases to cover the increasing costs of raw materials. 13 Section 5.2 While currency will continue to have a negative impact on our 2008 operating results, we believe our existing efforts to hedge against foreign exchange volatility does protect us in part. Perhaps the more immediate challenge lies in the cost of purchased materials, including commodities such as steel and copper, which continue to trade at elevated levels. With respect to copper, we continue to hedge through forward purchase agreements, which offer some degree of protection from continued price increases. Steel and other purchased materials represent a bigger challenge, as they cannot effectively be hedged using futures contracts or forwards. Section 5.3 This concludes our prepared comments for this morning. Operator, we are now ready to take questions. SECTION 6 QUESTION AND ANSWER SESSION SECTION 7 BUKER - FINAL REMARKS Section 7.1 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 7.2 Thank you and have a good day. 14 -----END PRIVACY-ENHANCED MESSAGE-----