-----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, IF6jYEmMl4gEoL8lK0l6niMwp9j3yAph2xpjwuE9YOKNnUmxJFeXCVtmpZkykLiE ec41woKn7jUB7/adHjGtNQ== 0000950152-08-009152.txt : 20081112 0000950152-08-009152.hdr.sgml : 20081111 20081112095213 ACCESSION NUMBER: 0000950152-08-009152 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20081105 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20081112 DATE AS OF CHANGE: 20081112 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: 081178604 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 k46954e8vk.txt FORM 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): NOVEMBER 5, 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 November 5, 2008 regarding our third quarter 2008 consolidated results is furnished as Exhibit 99.1 to this report. We hosted our third quarter 2008 earnings conference call and webcast on Thursday, November 6, 2008 at 11:00 a.m. Eastern Time. Via the webcast, we presented our Third Quarter 2008 Investor Presentation, which contained a summary of our financial results for the quarter. We are furnishing a copy of the Third 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 November 6, 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 November 5, 2008 99.2 Third 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: November 12, 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 November 5, 2008 99.2 Third Quarter 2008 Investor Presentation
3 EX-99.1 2 k46954exv99w1.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 THIRD QUARTER 2008 RESULTS - Global economic slowdown exerts significant downward pressure on revenues and margins and accelerates restructuring plans, resulting in a net loss of $36.5 million for the quarter - Total cash and equivalents amounted to $126.1 million, an increase of $49.3 million when compared to the beginning of the year, providing flexibility to support operations. Cash was utilized in the third quarter to address working capital needs - Effectively managing through challenging economic environment with continued efforts to match capacity with demand and reduce operating costs ANN ARBOR, MICH., NOV. 5, 2008 - Tecumseh Products Company (NASDAQ: TECUA, TECUB), a leading global manufacturer of compressors and related products, today announced results for its third quarter ended Sept. 30, 2008. "The dramatic slowdown of the global economy, continued tightening of the credit markets and unprecedented volatility in the foreign exchange and commodity markets combined to have a significant negative impact on our results in the third quarter," commented Ed Buker, Chairman, President and CEO of Tecumseh Products. "Although our bottom-line performance for the quarter was clearly impacted by recent economic events, we took immediate action to address those outside forces, including reducing our global headcount over the course of the quarter by about 1,200 people. Going forward, we will continue to take the steps necessary for Tecumseh to address the current global economic slowdown while positioning the Company for gains in efficiency and profitability once the global economy begins to recover. In the interim, our intensive cost cutting to size our business to current volumes combined with aggressive cash management should enable us to navigate the current economic uncertainties and continue to pursue our long-term strategic plan." With respect to global economic activity, the recent decline, which may ultimately become a global recession precipitated by the financial crisis, has had a detrimental effect on Tecumseh's sales volumes. This decline has been marked by a deterioration of credit availability for consumers and customers, increased borrowing rates for those who are able to secure lines of credit, slowdowns in the housing market, and double-digit inflation rates in some countries where the Company's business is concentrated. Any one of these factors, taken independently, would have an adverse impact on sales volumes; combined, the impact has been significant. Although Tecumseh is a global business, and declines in economic activity that affect only certain regional markets are often balanced against greater growth in other parts of the globe, the current slowdown is affecting all of the Company's global markets with nearly equal severity. In the first half of 2008, consistent with expectations, the Company began to see a slowdown when compared to prior periods. As a result of the conditions described above, this trend continued at an accelerated pace in the third quarter of the year and based upon customer actions evidence suggests that the fourth quarter will see an even greater decline in activity. The 1 Company does not currently expect market conditions to improve before mid-2009. Accordingly, it has accelerated certain restructuring activities which involve the idling of underutilized assets and further reductions in employment levels throughout the world. Consolidated net sales from continuing operations in the third quarter of 2008 decreased to $256.2 million from $278.4 million in 2007. Sales of compressors for air conditioning and other applications declined by $13.6 million, due to softer economic conditions, higher customer inventory levels and cooler-than-normal weather in many markets. Sales for refrigeration & freezer applications declined by $9.6 million, associated primarily with a downturn in market volumes as well as market share, most substantially in North America and India. Compressors for commercial applications reported a slight increase in sales of $1.0 million. For these applications, price increases and currency effects more than offset declines in unit volumes due to softer economic conditions and lower shipments to customers in light of higher inventory balances. Expressed in unit volumes, compressors for commercial and aftermarket applications (52% of sales dollars) declined by 26.9% when compared to 2007, refrigeration & freezer applications (33% of sales dollars) declined by 13.8%, and air conditioning applications (15% of sales dollars) declined by 49.5%. Cost of sales was $238.7 million in the three months ended Sept. 30, 2008 compared to $244.4 million in the three months ended Sept. 30, 2007. As a percentage of net sales, cost of sales was 93.2% and 87.8% in the third quarters of 2008 and 2007, respectively. In dollar terms, gross margin declined $16.5 million to $17.5 million in 2008 compared with $34.0 million in the third quarter of 2007. Current year margin was favorably impacted by selling price advances of $7.0 million. However, as discussed above, unit volumes declined substantially when compared to the third quarter of 2007, resulting in unfavorable overhead absorption rates. 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 $11.1 million in 2008 when compared to prior year results. The effect of foreign currency exchange unfavorably impacted results for the current quarter by $8.6 million, which included $3.7 million for losses recognized in the Company's income statement from the re-measurement of foreign denominated assets & liabilities in Brazil and the mark to market of ineffective hedges in India, which resulted from the rapid devaluation of these currencies at the end of the quarter. Unfavorable commodity costs of $3.7 million and unfavorable purchasing, productivity and other costs of $0.1 million also affected gross margins in the quarter. Selling, general and administrative ("SG&A") expenses were $33.7 million and $28.8 million in the three months ended Sept. 30, 2008 and 2007 respectively. As a percentage of net sales, SG&A expenses were 13.1% in the third quarter of 2008 compared to 10.3% in the third quarter of 2007. The Company recorded expenditures of approximately $5.1 million in the third quarter of 2008 for one-time professional fees, which included consulting services for strategic planning and legal fees for corporate governance issues. This expenditure constituted an increase of $2.7 million in professional fees incurred for one-time projects when compared to the same period in 2007. The remaining $2.2 million increase in administrative cost was largely reflective of costs recognized in continuing operations that were previously allocated to businesses that are now discontinued operations. Buker continued: "Clearly, the most significant challenge facing our Company in the third quarter came from the dramatic slowdown of the global economy, which had a sizable negative impact on our sales and margins. Beyond the global economic conditions that diminished demand for our compressors, we also had to contend with the tangential impact of the increasingly tight global credit environment on our customers. As a result of reduced levels of available credit and financing sources, we saw many 2 customers delaying orders in efforts to reduce inventory levels, even as we faced pressure from suppliers to accelerate payments or face higher financing costs." Losses from continuing operations were $36.5 million in the current quarter, compared to a profit of $2.2 million in the prior year third quarter. Included in 2008 results were $16.2 million in impairments, restructuring charges, and other items. The majority of these expenses were as a result of the acceleration of the Company's plans for consolidating and relocating certain of its global manufacturing capabilities, in light of the pronounced softening of demand resulting from the current global financial conditions. The expense was recognized in Brazil ($11.9 million), North America ($3.7 million), and India ($0.6 million). Financial performance in 2008 was favorably impacted by a $1.0 million improvement in net interest expense when compared to third quarter 2007. This improvement is attributable to the interest earned on substantially higher levels of cash and short-term investments in 2008. Buker said: "In an environment characterized by recessionary forces impacting both the developed and emerging markets, combined with a dearth of available credit from banks and traditional funding sources, it is clearer than ever that our balance sheet restructuring of 2007 was the right move for Tecumseh. As a result of our efforts to increase cash, the Company has adequate resources to withstand the slowdown, without needing to tap other sources of capital." Consolidated net sales from continuing operations in the first three quarters of 2008 decreased to $805.2 million from $864.7 million in 2007. Sales of compressors used in commercial applications increased by $18.4 million; these increases were primarily the result of pricing advances and currency impacts. These increases in sales were offset by declines in sales of compressors used in refrigeration & freezer applications of $56.0 million, which were associated primarily with a downturn in market volumes as well as market share, predominantly in North America, India and Europe. Sales of compressors for air conditioning applications and all other applications also declined by $21.9 million. Expressed in unit volumes, compressors for commercial and aftermarket applications (52% of sales dollars) declined by 13.9% when compared to 2007, refrigeration & freezer applications (32% of sales dollars) declined by 25.3%, and air conditioning applications (16% of sales dollars) declined by 25.2%. Cost of sales was $708.6 million in the nine months ended Sept. 30, 2008, as compared to $760.5 million in the same period of 2007. As a percentage of net sales, cost of sales was 88.0% and 87.9% in the first nine months of 2008 and 2007, respectively. Gross margin declined by $7.6 million in 2008 when compared to the same period of 2007, from $104.2 million in 2007 to $96.6 million in 2008. Current year margin was favorably impacted by selling price advances of $32.7 million. However, 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 and lower overhead absorption, resulting in a net reduction to 2008 margin of $23.6 million. The effect of foreign currency exchange unfavorably impacted results for 2008 by $23.5 million when compared to the prior year, including $5.7 million for losses from the re-measurement of foreign denominated assets & liabilities in Brazil and the mark to market of ineffective hedges in India. Increased commodity costs accounted for $13.1 million of the gross margin decline. These unfavorable trends were somewhat offset by gains in productivity, purchasing costs and other improvements of $15.6 million, as well as gains on the sale of an airplane and the Company's former airport facility of $4.2 million. 3 Selling, general and administrative ("SG&A") expenses were $99.6 million or 12.4% of net sales in the first three quarters of 2008 as compared to $97.7 million or 11.3% of sales in the nine months ended Sept. 30, 2007. While the Company incurred approximately $11.1 million in 2008 for one-time professional fees, which included consulting services for strategic planning and legal fees for corporate governance issues, this figure represented a $6.2 million reduction in professional fees incurred for one-time projects when compared to 2007. This improvement was offset by $8.1 million in increased administrative costs, which was primarily reflective of costs recognized in continuing operations that were previously allocated to businesses that are now discontinued operations. Net loss from continuing operations was $36.3 million through the first three quarters of 2008, compared to a loss of $8.2 million in the same period of 2007. Results for 2008 were impacted by $20.0 million in impairments, restructuring charges, and other items. These charges included $20.0 million in excise tax expense on the proceeds received from the reversion of the Company's former salaried retirement plan, $15.2 million in charges for impairment of buildings and machinery in the third quarter of 2008 as discussed above, and a curtailment loss on the Company's hourly pension plan of $3.9 million. The Company also recorded expense of $6.9 million related to severance costs for previously announced on-going restructuring activities. Offsetting these expenses were a curtailment gain related to an hourly postretirement benefit plan ($19.1 million) due to reductions in future service cost related to the closure of manufacturing operations in Tecumseh, Michigan, a settlement gain on the sale of annuity contracts for the former salaried retirement plan ($6.3 million), and a gain on the sale of a facility in Dundee, Michigan ($0.6 million). Financial performance in 2008 was favorably impacted by a $2.7 million improvement in interest expense when compared to 2007. Interest income also improved by $3.1 million in 2008 due to the interest earned on substantially higher levels of cash and short-term investments in the current year. As of Sept. 30, 2008, the Company reported total cash and cash equivalents of $126.1 million. In the third quarter of 2008, cash used by operations amounted to $55.6 million. The most significant uses of cash during the quarter involved working capital requirements, particularly payables and accrued expenses (a use of $33.1 million) as well as accounts receivable (a use of $13.2 million). In the case of payables, the Company accelerated payments to many cash- and credit-constrained suppliers during the period, in order to avoid interest rate charges on outstanding balances. With regard to accounts receivable, the Company reduced the amount of discounted receivables by $31.0 million during the period, which increased the net receivables recorded on the balance sheet, and also avoided unnecessary interest expense. The remaining cash use was primarily attributable to cash net losses, which were a result of the economic downturn adversely affecting sales volumes combined with higher steel costs. In each of these instances, Tecumseh's favorable cash position allowed it to address unfavorable market conditions without incurring the cost of escalating interest rates or drawing upon lines of credit. These cash uses were somewhat offset by the Company's aggressive efforts to reduce its inventory balances, which provided cash of $16.5 million during the quarter. Subsequent to the end of the third quarter, the Company has also begun to receive cash refunds from the Brazilian government for pre-paid non-income taxes. As of the end of October, and based upon the exchange rate between the U.S. dollar and the Brazilian real as of the end of the third quarter, the Company had received approximately $53.5 million in refunds. Further refunds are expected by the end of 2008 and into 2009. Due to the recent volatility in the exchange rate between the U.S. dollar and the Brazilian real, the actual amounts received as expressed in U.S. dollars will vary depending on the exchange rate at the time of receipt or future reporting date. 4 In the aggregate, cash balances have increased by $49.3 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 $22.6 million in proceeds from the sale of assets. These increases were offset in part by reductions in discounted accounts receivable of $39.8 million at international locations. Tecumseh reported that the condition of the global economy as discussed above, as well as commodity costs, key currency rates and weather had a significant impact on its business operations through the first three quarters of the year. Certain key commodities, including copper, have seen significant fluctuations in pricing since the beginning of the year; copper prices increased by more than 30% through July and then dropped 22.3% in August and September. As of Sept. 30, 2008, the Company held more than 80% of its total projected copper requirements for the remainder of 2008 in the form of forward purchase contracts and futures, which will provide it with substantial (though not total) protection from any resurgence in price during the remainder of the year but also will detract from the ability to benefit from price decreases. In addition, the Company expects the cost of steel and other purchased materials to be more costly in 2008 versus 2007. As of Sept. 30, 2008, the Company's steel costs had risen by 65.5% since the beginning of this year and by 77.8% when compared to Jan. 1, 2007. Increases in the price of steel are particularly detrimental to the Company's profitability, as there is currently no well-established market for hedging the cost of steel used in its products. In the aggregate and after consideration for the recent rapid escalation in steel costs, the Company expects the total 2008 cost of its purchased materials for the full year, including the impact of its hedging activities, to be approximately $48 million more than the prior year, depending on commodity cost levels in the remaining three months of 2008. As a partial means of addressing the escalating costs of commodities, the Company has implemented price increases, most of which have already taken effect with the remainder becoming effective over the final quarter of this year. "Throughout 2008, we have made significant strides in hedging currency and commodity exposure, but in the third quarter, volatility in commodity and currency markets had a detrimental effect on our profitability," said James Nicholson, Chief Financial Officer of Tecumseh Products. "As the prices of hedged inputs such as copper declined in the third quarter, we did not fully realize the benefit of the falling price, while other inputs that do not have effective hedging vehicles continued to rise, notably, the type of steel used in our production. On the currency side, as the rupee, real and euro fell against the dollar, re-measurement of assets and liabilities denominated in foreign currencies further reduced profitability in the quarter. Despite the unprecedented volatility we experienced in recent months, we will remain disciplined in our approach to managing commodity and currency risks. In the long run, we will benefit from these trends if they continue." The Brazilian real, the euro and the Indian rupee continue to show significant volatility against the U.S. dollar. While the Company has considerable forward purchase contracts to cover its exposure to additional fluctuations in value during the year, it expects the changes in foreign currency exchange rates, after giving consideration to its contracts and including the impact of balance sheet re-measurement of assets and liabilities held in an underlying currency other than the dollar, to have a negative financial impact totaling approximately $37 million when compared to 2007; further strengthening of the dollar against the real could result in additional re-measurement losses. As a partial means of offsetting these conditions, the Company said it intends to continue to implement further cost reductions and consolidation of productive capacity. During the third quarter, the Company 5 reduced its total global headcount by approximately 1,200 people, and expects to initiate further actions in the fourth quarter. "With more than $120 million in cash and equivalents and minimal debt, we believe we have adequate resources available to withstand the current economic weakness, but we will remain highly disciplined in our use of cash," continued Buker. "We will continue to hold the line on capital expenditures, though we may incur costs to shift production and adjust our current capacity levels to better reflect global demand and resulting revenue levels. We are holding to our capital expenditure run rate projections of $20 to $25 million as an average annualized basis; in the near term, we anticipate total capital investments of $10 to $15 million in 2008, but with a carryover of approximately $10 million into the upcoming year they may be as high as $35 million in 2009. These expenditures will be managed carefully and will be dependent upon economic conditions throughout the year." CONFERENCE CALL TO DISCUSS THIRD QUARTER 2008 RESULTS Tecumseh Products Company will host a conference call to report on the third quarter 2008 results on Thursday, Nov. 6, 2008 at 11:00 a.m. ET. The call will be broadcast live over the Internet and then be made 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 success of our ongoing effort to bring costs in line with projected production levels and product mix; ii) financial market changes, including fluctuations in foreign currency exchange rates and interest rates; iii) availability and cost of materials, particularly commodities, including steel and copper, whose cost can be subject to significant variation; iv) changes in business conditions and the economy in general in both foreign and domestic markets, the condition of which may magnify other risk factors; v) weather conditions affecting demand for replacement products; vi) actions of competitors; vii) our ability to maintain adequate liquidity in total and within each foreign operation; viii) the effect of terrorist activity and armed conflict; ix) economic trend factors such as housing starts; x) emerging governmental regulations; xi) the ultimate cost of resolving environmental and legal matters; xii) our ability to profitably develop, manufacture and sell both new and existing products; xiii) the extent of any business disruption that may result from the restructuring and realignment of our manufacturing operations or system implementations, the ultimate cost of those initiatives and the amount of savings actually realized; xiv) the extent of any business disruption caused by work stoppages initiated by organized labor unions; xv) potential political and economic adversities that could adversely affect anticipated sales and production in Brazil; xvi) potential political and economic adversities that could adversely affect anticipated sales and production in India, 6 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. 7 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)*
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------ ------------------ (Dollars in millions, except per share data) 2008 2007 2008 2007 ------- ------- ------- -------- Net sales $ 256.2 $ 278.4 $ 805.2 $ 864.7 Cost of sales 238.7 244.4 708.6 760.5 Selling and administrative expenses 33.7 28.8 99.6 97.7 Impairments, restructuring charges, and other items 16.2 (0.1) 20.0 1.6 ------- ------- ------- -------- Operating (loss) income (32.4) 5.3 (23.0) 4.9 Interest expense 7.0 6.6 20.5 23.2 Interest income and other, net 2.7 1.3 7.8 4.6 ------- ------- ------- -------- (Loss) income from continuing operations before taxes (36.7) (0.0) (35.7) (13.7) Tax (benefit) expense (0.2) (2.2) 0.6 (5.5) ------- ------- ------- -------- (Loss) income from continuing operations (36.5) 2.2 (36.3) (8.2) Income (loss) from discontinued operations, net of tax 23.3 (79.4) 49.1 (174.0) ------- ------- ------- -------- Net (loss) income ($13.2) ($77.2) $ 12.8 ($182.2) ======= ======= ======= ======== Basic earnings (loss) per share: (Loss) income from continuing operations (1.98) 0.12 (1.96) (0.44) Income (loss) from discontinued operations, net of tax 1.27 (4.30) 2.65 (9.42) ------- ------- ------- -------- Net (loss) income per share, basic ($0.71) ($4.18) $ 0.69 ($9.86) ======= ======= ======= ======== Diluted earnings (loss) per share (Loss) income from continuing operations (1.98) 0.11 (1.96) (0.44) Income (loss) from discontinued operations, net of tax 1.27 (4.00) 2.65 (9.42) ------- ------- ------- -------- Net (loss) income per share, diluted ($0.71) ($3.89) $ 0.69 ($9.86) ======= ======= ======= ======== Weighted average shares, basic (in thousands) 18,480 18,480 18,480 18,480 Weighted average shares, diluted (in thousands) 19,871 19,871 19,871 19,368 ======= ======= ======= ======== 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. 8 CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
SEPTEMBER 30, December 31, (Dollars in millions) 2008 2007 ------------- ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $ 126.1 $ 76.8 Restricted Cash 14.3 6.8 Short-term investments 5.0 5.0 Accounts receivable, net 115.2 93.2 Inventories 125.9 143.4 Assets held for sale 19.5 21.9 Other current assets 116.0 50.6 -------- -------- TOTAL CURRENT ASSETS 522.0 397.7 Property, plant and equipment - net 283.8 353.3 Goodwill and other intangibles 18.5 20.2 Prepaid pension expense 129.7 233.4 Other assets 88.1 160.3 -------- -------- TOTAL ASSETS $1,042.1 $1,164.9 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable, trade $ 117.2 $ 123.0 Short-term borrowings 55.6 59.5 Liabilities held for sale 2.4 2.6 Accrued liabilities 81.7 84.2 -------- -------- TOTAL CURRENT LIABILITIES 256.9 269.3 Long-term debt 1.1 3.3 Deferred income taxes 13.2 10.2 Pension and postretirement benefits 46.6 89.1 Product warranty and self-insured risks 8.2 10.0 Other non-current liabilities 34.3 37.1 -------- -------- TOTAL LIABILITIES 360.3 419.0 STOCKHOLDERS' EQUITY 681.8 745.9 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,042.1 $1,164.9 ======== ========
9 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30, ----------------- (Dollars in millions) 2008 2007 ------ -------- CASH FLOWS FROM OPERATING ACTIVITIES: Cash provided by (used in) operating activities $ 24.1 ($24.5) ------ ------ CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of assets 22.6 205.9 Capital expenditures (5.5) (5.9) Change in restricted cash (7.6) -- ------ ------ Cash provided by investing activities 9.5 200.0 ------ ------ CASH FLOWS FROM FINANCING ACTIVITIES: Debt issuance / amendment costs (1.6) (2.9) Proceeds / (repayments) from First Lien Credit Agreement, net -- (82.8) Other borrowings / (repayments), net 0.5 (116.1) ------ ------ Cash used in financing activities (1.1) (201.8) ------ ------ EFFECT OF EXCHANGE RATE CHANGES ON CASH 16.8 1.6 ------ ------ INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 49.3 (24.7) CASH AND CASH EQUIVALENTS: Beginning of period 76.8 81.9 ------ ------ End of period $126.1 $ 57.2 ====== ======
10 EX-99.2 3 k46954exv99w2.txt EX-99.2 Exhibit 99.2 TECUMSEH PRODUCTS COMPANY Third Quarter 2008 Earnings Conference Call Thursday, November 6, 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: Third Quarter 2008 Operational Overview 4. Jim Nicholson: Third 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 third 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 Thank you Katy. Good morning and welcome to Tecumseh Products' third 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 third quarter 2008 results for the period ended September 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 - THIRD QUARTER 2008 OPERATIONAL OVERVIEW Section 3.1 Thank you, Teresa. Good morning and welcome to our third 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 Today I will provide you with an update on our business from several perspectives. First, I will provide some context for our third quarter results as well as the broader markets and their impact on those results. Then I'll turn the call over to our CFO, Jim Nicholson, to go over our financial results for the quarter and nine months in greater detail. Then update you on our initiative to transform our Company into a world class compressor manufacturer. Finally, we will open the call up to your questions. Section 3.4 It's been a very busy year so far, and we've made a lot of progress; unfortunately, the condition of the global economy has served to mask some results of our efforts. The recent global slowdown has a detrimental effect on our sales volumes. The current decline has been marked by lack of credit availability for our customers, increased borrowing rates for those who are able 4 to secure lines of credit, slowdowns in the housing market, and double-digit inflation rates in some countries where we have key business operations. Any one of these factors, taken independently, would have had an adverse impact on our sales volumes; combined, the impact has been significant. Section 3.5 We are a global business, and under normal circumstances, declines in economic activity that affect one regional market would be balanced against greater growth in other parts of the globe. Unfortunately, the current slowdown is affecting all of our global markets with nearly equal severity with the declines in the third quarter and expected declines in the fourth quarter greatly exceeding our previous expectations. In response, many of our customers quickly reduced production volumes and cancelled or delayed orders in an effort to reduce inventory levels. Although we responded quickly to the slowdown, including reducing our global headcount by 1,200 people over the course of the third quarter, instituting temporary shutdowns at many facilities, and aggressively consolidating our manufacturing footprint, the impact on our financial results was significant. Beyond the broad economic slowdown, many of our customers and suppliers were adversely impacted by the freezing of the credit markets. As a result, we saw increased pressure to pay our suppliers earlier, and it became prudent to use cash to eliminate receivables sales which became less attractive due to the spike in rates that accompanied the global financial crisis. In a nutshell, we used significant cash in the quarter to minimize financing costs. Section 3.6 The global financial crisis that became acute in the third quarter also resulted in dramatic changes and increased volatility of commodity and foreign currency exchange markets. With respect to currency, the increasing volatility and the unprecedented speed of increase in the value of the U.S. dollar relative to the euro, real and rupee had significant adverse impact on our bottom-line results in the quarter. While the weakening of these currencies is a positive development for our results in the long term, the extremely rapid devaluation of the real and 5 rupee in the quarter caused balance sheet re-measurement losses and mark-to-market losses to adversely affect our operating profit. Section 3.7 Volatility in commodity prices also had an impact during the quarter. Copper and steel remain the most significant commodity exposure we have in our manufacturing process, and both have been extremely volatile. Copper rose more than 30% through July, and subsequently fell 22% in the last two months of the third quarter. We've already hedged over 80% of our copper needs for the fourth quarter of this year, and lesser amounts into 2009, so the benefit of these price decreases is felt gradually by our business, as many of our hedges are at substantially higher prices than the current spot rate. Prices for the specific type of electrical steel used in our manufacturing process rose nearly 80% in the first nine months of 2008, we do expect them to stabilize at current high levels, but there is increasing evidence that steel will decline in a manner consistent with other commodities. Since there is currently no well-established market for hedging steel prices, we could benefit more quickly from any such decline. Section 3.8 Although we continue to make strides in accomplishing our strategic goals, in the third quarter we faced unprecedented upheaval in our markets around the globe. Despite these challenges, we believe we navigated these issues as well as could be expected due in large part to the many actions we've taken to streamline operations and generate cash over the last year. As a result of our efforts, all the fundamentals of managing in a crisis like this are in place, and as soon as volumes begin to recover we are confident that our operating results will begin to more fully reflect the improvements we've enacted. Unfortunately, we do not anticipate any meaningful improvements in these external market conditions before mid-2009, so we must continue to be vigilant in managing our costs, while conserving our financial resources. Section 3.9 Jim will you elaborate on our financial results? 6 SECTION 4 JIM NICHOLSON - THIRD QUARTER 2008 FINANCIAL OVERVIEW Section 4.1 Yes, thank you, Ed. Section 4.2 On the bottom line, we reported a net loss of $13.2 million, or $0.71 per share for the third quarter of 2008, versus a net loss of $77.2 million, or $3.89 per share in the year-ago quarter. Income from continuing operations for the third quarter 2008 amounted to a net loss of $36.5 million, or $1.98 per fully diluted share, compared to a profit from continuing operations of $2.2 million, or $0.11 per fully diluted share a year ago. Section 4.3 Operating loss was $32.4 million for the current quarter, compared with an operating profit of $5.3 million last year. Operating results included impairments, restructuring and other charges of $16.2 million, which were mostly non-cash versus $100,000 in 2007. Excluding impairments, restructuring and other charges the decline amounted to $21.6 million, which was caused by much lower unit volumes and the associated unfavorable overhead absorption, the effect of foreign currency exchange rates and higher SG&A costs. Section 4.4 During the third quarter, we had a number of shifts on the sales front. Consolidated net sales for the quarter fell $22.2 million to $256.2 million from $278.4 million in the third quarter of 2007. Excluding the impact of currency translation, consolidated net sales would have declined by $42.3 million in the quarter. Breaking down the total, $22.2 million decline in net sales, sales for refrigeration and freezer applications fell by $9.6 million, which equates to a decline of 14% in unit volumes. There was a distinct pullback in volumes from our R&F customers around the entire globe as they took actions to adjust inventories in response to the dramatic slowdown in consumer demand in the regions where our customers operate. Sales of compressors for air conditioning and other applications declined by $13.6 million, representing a 49% decline in unit volumes due to softer economic conditions, higher customer inventory 7 levels and cooler-than-normal weather in many markets. While this is a substantial decline, air conditioning applications represent only about 15% of our overall business. The decline in these sales was partially offset by sales of compressors used in commercial and aftermarket applications, which increased by $1 million. Unit sales for these applications fell by 27% during the quarter, however the impact of price increases and currency effects helped to offset the unit volumes. Section 4.5 Cost of sales was $238.7 million in the third quarter of 2008, compared with $244.4 million in the prior year's third quarter. As a percentage of net sales, cost of sales increased to 93.2% in the quarter, from 87.8% last year. In dollar terms, gross margin declined $16.5 million to $17.5 million, from $34.0 million in the third quarter of 2007. By far the biggest negative impact on gross profit was the level of un-absorbed overhead resulting from the decline in unit volumes during the quarter which amounted to $11.1 million, followed by unfavorable foreign currency movements which had an unfavorable impact of $8.6 million. This included $3.7 million of losses recognized in our income statement for the mark-to-market of currency forward contracts in India and balance sheet re-measurement losses in Brazil. On the positive side, selling price increases exceeded increases in commodity costs by $3.3 million. Section 4.6 Selling, general and administrative expenses increased by $4.9 million to $33.7 million in the third quarter. The Company spent $5.1 million in the quarter for one-time professional fees, mostly for unplanned professional fees, including legal fees for corporate governance matters. Section 4.7 We recorded expenses of $16.2 million in impairment, restructuring charges, and other items in the third quarter of 2008. The majority of these expenses were a result of the consolidation and relocation of global manufacturing operations, and included expenses recognized at our Brazilian, North American, 8 and Indian locations, which accounted for $11.8 million, $3.6 million and $600,000, respectively, during the quarter. Section 4.8 With regard to cash flow, during the third quarter, cash used by operations amounted to $55.6 million. The most significant uses of cash during the quarter involved working capital requirements, particularly accounts receivable and accounts payable. With regard to accounts receivable, we reduced the amount of discounted receivables by $31 million during the period, which increased the net receivables recorded on our balance sheet but allowed us to avoid unnecessary interest expense. In the case of payables, we accelerated payments to cash- and credit-constrained suppliers during the period. The remaining cash was, use was primarily attributable to cash net losses, which were a result of the economic downturn adversely affecting our sales volumes. In each of these instances, our favorable cash position allowed us to address unfavorable market conditions without incurring the cost of escalating interest rates or drawing upon lines of credit. These uses of cash were somewhat offset by our aggressive efforts to reduce inventory balances, which provided cash of $16.5 million during the quarter. At the end of the third quarter, our cash balance was $126.1 million, providing additional security for our operations amid these uncertain economic conditions. Section 4.9 The extreme volatility in certain commodity prices and in foreign currency exchange had substantial impacts on our business in the third quarter. We are actively engaged in forward purchase contracts and futures contracts, to lock in prices and reduce the risk of commodity volatility on the majority of our forecasted copper use over the next several months. While these hedge positions protect us from increases in price, they also delay the benefit we see from price decreases, such as the one we've recently experienced. We've seen significant volatility in copper, as prices surged throughout the first seven months of the year, and subsequently have declined precipitously since July. Aside from copper, our most significant remaining commodity exposure is steel, 9 simply because there are no well-established effective hedging vehicles available for steel. Unlike most commodities, steel prices for the specific type of electrical steel employed in our production has remained high throughout this year, although we are beginning to see opportunities to participate in falling prices. Considering our hedge positions, we project that our full year commodity cost will exceed the prior year by approximately $50 million. To address this, we previously implemented price increases ranging from 4-8%, the last of which went into effect at the start of the fourth quarter. With the recent sizeable downward movement in commodity costs and growing excess capacity we believe there will be a significant pressure on prices until normal economic activity resumes. Section 4.10 Turning to foreign exchange exposure, the recent unprecedented volatility in currency markets driven by the credit crisis has had a significant adverse impact on our results. From January 1 to July 31, 2008, the Brazilian real strengthened by 11.6% against the dollar, and in the following two months the real weakened by 19.6%. Similarly, for the first nine months of the year, the euro weakened against the dollar by 3.7%, while the rupee weakened 18.8%. While the weakening in these key currencies has a favorable impact on our business over the long term, the rapid and significant weakening in the third quarter caused balance sheet re-measurement losses to out-weigh the benefit of transaction gains during the period. In addition, due to the fact that we had entered into foreign currency forward exchange contracts in India when the rupee was stronger against the dollar, These foreign currency effects were $3.7 million unfavorable to third quarter results when compared to the same period in 2007. Section 4.11 Let me spend a moment on interest expense, as well. In the third quarter, our interest expense increased by approximately $400,000, from $6.6 million in the third quarter of 2007 to $7.0 million this year, due mainly to higher interest rates on our short-term borrowings in Brazil. We expect our borrowings in Brazil to decline significantly in the fourth quarter, as we apply the cash we've received 10 from refunds of non-income taxes in Brazil against that debt. On the positive side, given our sizable cash balance, our interest income for the third quarter more than doubled when compared to last year, to $2.7 million. Section 4.12 I will now turn the call back over to Ed for some additional remarks. SECTION 5 ED BUKER - STRATEGIC PLAN DISCUSSION AND SUMMARY Section 5.1 Thanks, Jim. In the third quarter, despite severe economic headwinds, we continue to make progress in achieving our operational objectives while moving forward with our long-term strategic plan. I'd like to share some of that, those strategic objectives with you in greater detail. Section 5.2 For more than a year, our management team has focused on improving our Company through the development and implementation of a sound, long-term strategic plan. Throughout this process, we've taken a number of tactical steps to modernize every aspect of our business, including our products and processes, our operations and manufacturing footprint, and our corporate governance and capital structure, all with the view of establishing Tecumseh as a world-class competitor in our core compressor condensing unit business. Section 5.3 One of the first steps the Company undertook to move in this direction was the divestiture of non-core businesses. We've also successfully completed the reversion of one of our vastly over-funded pension plans. These important initiatives strengthen our balance sheet have not only given us the solid financial position needed to withstand the current economic contraction, it also provides us with the flexibility to shift our operational footprint. Section 5.4 During the year, we've been engaged in an exhaustive process to determine the optimal strategic direction for Tecumseh as we move forward to world-class status. As we see it, being a world class competitor means a variety of things, 11 but most importantly it means striving to be the best manufacturer of compressors condensing units, designed and developed to be exact products that our customers demand, producing them with high quality and delivering them when our customers want them at a price that reflects the value we provide. In this global economy, it also means establishing an operational footprint that utilizes best cost sources of production. Section 5.5 As part of this process, we've engaged the assistance of independent financial and strategic professionals from Rothschild and Charles River Associates (CRA) to review our business in detail and make strategic recommendations to our Board and management team. During this time, our Board has been fully engaged in the process, and we've spent weeks and months to carefully evaluate every reasonable strategic option, from selling the company, in whole or in parts, to engaging with a strategic partner, to keeping our business exactly as it is, as it once was. No options were left off the table. Section 5.6 This intensive and iterative process has supported our vision of how to best serve our customers across the globe. In the past, Tecumseh's prior management believed the best approach to each market was to establish complete standalone entities in these markets. While this approach might have made sense at the time, we realize now that it created a series of redundant cost structures, and parallel product development efforts that prevented us from operating efficiently on a global basis. We believe we can more effectively serve our customers and meet their needs by leveraging the power of our global organization across selected local markets. We can be more competitive, achieve greater operating leverage by shifting high-cost manufacturing to locations with the most advantageous overall cost structure. These products can then be shipped globally where local teams can complete the process of customization to best meet the demands of our local markets and customers. 12 Section 5.7 Similarly, we've realized the limitations of vertical integration in our business and pursued steps to optimize our level of vertical integration. In our view, in-house production capability only makes sense for products and processes that are essential to meeting the customer demand and where there is no viable and economic alternative from local supply. We need to focus our operations on what we do best, and leave the rest to our supply partners. A good example of this "old school" approach to vertical integration is our manufacturing operation in Brazil. That operation was set up by prior management in a way reminiscent of Henry Ford's Rouge River plant, with iron ore coming in one door and Model T's going out the other. In 2008, with the Brazilian economy more modernized than it was when our plants were originally built, this is a process that no longer makes sense for our business. We're currently evaluating the best alternative to ensure supply of critical components. Section 5.8 We've already implemented substantial improvements to our manufacturing process on a global basis. For example, we've completed thirty-seven Kaizen training events. These events combined with other operational initiatives have yielded significant improvements in productivity and efficiency, including a 13% reduction in the size of our manufacturing footprint. We also expect to reduce our headcount by 25% in 2008, which reflects greater operational efficiency as well as right-sizing efforts reflecting current economic conditions. Section 5.9 Over the longer term, we see the potential to better optimize our product offerings, identifying and successfully penetrating those markets that offer the greatest opportunities for our products. Our Engineering team, over a short timeframe, has identified and is developing a globally consistent New Product Development process, and established clear product platforms with an objective of eliminating overlap in product offerings. Section 5.10 All these efforts have been undertaken in light of our ultimate goal of reaching pre-tax margins of 3 to 5 percent or better over the next three years. We have 13 developed a staged plan over this time period to achieve these results and believe that the plan can mostly be funded by cash generated by ongoing operations. There is no big bang, cash depleting approach to our plan. Section 5.11 Looking beyond our operations, manufacturing footprint and quality initiatives, our Board and management team are looking to make improvements across our entire business, including Tecumseh's corporate governance and capital structure. 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 industry best practices. Over the past year, we've made significant strides in improving our corporate governance, including strengthening the independence of our Board as well as updating our board committee charters and governance guidelines. With regard to our capital structure, based on our own benchmarking data and conversations with a large number of shareholders, we remain convinced that our current dual-class structure must be changed. We believe that our Class A and Class B shares should be consolidated into a single class of voting stock and we are committed to doing just that in the near term. Section 5.12 As many of you are no doubt aware, we are currently involved in preparing for a special meeting of the shareholders to be held on November 21st. I encourage all of you to read through the proxy statement we filed with the SEC on October 24, as well as the supplemental materials filed subsequent to our proxy to become more familiar with the governance issues we face and the important steps your Board and management team are taking to modernize our corporate governance and to increase the value of the business for all shareholders. Section 5.13 While we've made progress in improving our operation, the dramatic slowdown in virtually all of our markets has more than offset that progress in the short term. Although we continue to closely control costs, our biggest challenge now is the top line. As softening demand - particularly in emerging markets - depresses our revenues, we must make every effort to work closely with our 14 suppliers and customers to weather this storm. Fortunately, significant challenges like those we currently face often present opportunities, and the Board and management team will continue to evaluate potential actions that might be taken in this environment to further adjust our operational footprint. While we don't expect the current economic conditions to change the actions we'll take to execute our strategic plan, they could affect their timing; continued adverse trends in sales volumes could accelerate the timing and amounts of severance costs we'll incur to appropriately size the business to current levels demand. We will continue to exercise prudence with regard to use of our cash, including investments in capital expenditures and working capital, keeping in mind that our sizable cash balance will be a critical asset for us as we work through this slowdown. Section 5.14 This concludes our prepared comments for this morning. Operator, Katy, we are now ready to take questions. SECTION 6 QUESTION AND ANSWER SESSION SECTION 7 BUKER - FINAL REMARKS Section 7.1 Okay, Katy thank you very much. I'd like to thank everybody for participating in the call and we'll talk with you again at the end of the fourth quarter and end of the year as soon as we're back at it and we'll try to keep you up to speed with the other things going on in our lives. Thank you. 15 -----END PRIVACY-ENHANCED MESSAGE-----