Press Releases
Tecumseh Products Company Reports Third Quarter 2002 Net Income of $0.77 Per Share
PRNewswire-FirstCall
TECUMSEH, Mich.
Oct 25, 2002
Tecumseh Products Company (NASDAQ: TECUA)(NASDAQ: TECUB) announced today its 2002 third quarter consolidated results as summarized in the following Consolidated Condensed Statements of Income.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(Dollars in millions except Three Months Ended Nine Months Ended
per share amounts) September 30, September 30,
2002 2001 2002 2001
Net Sales $310.9 $313.1 $1,039.6 $1,099.8
Cost of sales and operating expenses 261.1 263.4 882.1 943.2
Selling and administrative expenses 29.4 28.0 88.9 89.6
Nonrecurring charges --- 29.3 4.5 29.3
Operating Income 20.4 (7.6) 64.1 37.7
Interest expense (1.4) (0.9) (3.5) (3.4)
Interest income and other, net 3.0 7.4 8.8 16.6
Income before taxes and cumulative
effect of change in accounting
principle 22.0 (1.1) 69.4 50.9
Taxes on income 7.8 (6.3) 24.6 14.2
Income before cumulative effect of
accounting change 14.2 5.2 44.8 36.7
Cumulative effect of accounting change
for goodwill, net of tax --- --- (3.1) ---
Net Income $14.2 $5.2 $41.7 $36.7
Basic and diluted earnings per share
Income before cumulative effect
of accounting change $0.77 $0.28 $2.42 $1.97
Change in accounting for goodwill --- --- (0.17) ---
Net Income $0.77 $0.28 $2.25 $1.97
Weighted Average Shares (in thousands
of shares) 18,480 18,545 18,480 18,650
Consolidated net income for the third quarter of 2002 amounted to $14.2 million or $0.77 per share compared to $5.2 million or $0.28 per share in the third quarter of 2001. Included in reported results for the third quarter of 2001 are several one-time items such as a nonrecurring charge of $29.3 million ($18.9 million net of tax or $1.02 per share) for an early retirement incentive program, a $5.2 million ($0.28 per share) tax credit resulting from a refund of prior year's federal income taxes, and $2.0 million net of tax ($0.11 per share) for interest income associated with the tax credit. On a proforma basis (excluding one-time items), third quarter 2001 earnings would have been $0.91 per share.
Consolidated net income for the first nine months of 2002 amounted to $41.7 million or $2.25 per share compared to $36.7 million or $1.97 per share in the same period of 2001. Included in the 2002 nine month results are non- recurring charges of $4.5 million ($2.8 million net of tax or $0.15 per share) related to the relocation of certain compressor manufacturing operations from the United States to Brazil and the cumulative effect of a change in accounting for goodwill ($3.1 million net of tax or $0.17 per share) related to the adoption of Statement of Financial Accounting Standards (SFAS) No. 142 "Goodwill and Other Intangible Assets." On a proforma basis, nine month results would have been $47.6 million or $2.58 per share. For comparative purposes, 2001 proforma earnings would have been $48.4 million or $2.60 per share for the nine month period.
Consolidated sales for the third quarter of 2002 amounted to $310.9 million, compared to sales of $313.1 million in the third quarter of 2001. Sales for the nine months ended September 30, 2002 were $1,039.6 million compared to sales of $1,099.8 million in the first nine months of 2001.
The decline in third quarter proforma results was due primarily to lower sales and profits in the Company's Engine & Power Train segment, and to a lesser extent, to increased research and development expenditures in the Compressor segment and corporate spending. These items were partially offset by the favorable effects of a 37% devaluation of the Brazilian Reais, most of which occurred in the month of September. The net gain from re-measurement of foreign denominated receivables and payables in Brazil at September 30, 2002 amounted to $4.2 million or $0.15 per share after tax.
Compressor Business
Third quarter 2002 sales in the Company's Compressor business increased to $184.6 million from $175.5 million in the third quarter of 2001. Sales in the nine months ended September 30, 2002 amounted to $621.5 million compared to $647.9 million in the first nine months of 2001. The increase in sales in the third quarter is due to improved sales in almost all of the Compressor group market segments, particularly the residential refrigeration market where sales have improved year over year for two consecutive quarters. Foreign currency translation reduced sales by $3.7 million in the quarter. For the nine month period, sales declined as a result of lost domestic and export market share for compressors used in room and unitary air conditioning applications.
Compressor business operating profit for the third quarter of 2002 amounted to $19.6 million compared to $15.2 million in the third quarter of 2001. Year-to-date operating income for the nine months ended September 30, 2002 and 2001 amounted to $63.2 and $52.0 million, respectively. The improvement in operating margins is attributable to greater coverage of fixed costs, the positive effects of restructuring actions implemented over the last twelve months, and the favorable effects that result from devaluation of the Brazilian Reais. This improvement in operating margins was partially offset by declining margins on high volume commodity-type compressors and accelerated spending on new product development.
The Company's Brazilian operations contributed approximately 74% of the Compressor business' operating profit in the third quarter 2002, and approximately 52% of the business' operating profits for the nine months ended September 30, 2002. Brazilian operating margins have benefited from the favorable effects of the weak Brazilian currency, as approximately two-thirds of its year-to-date sales were exported and denominated in other currencies.
During the third quarter, the Brazilian operations utilized a government sponsored program designed to promote increased exports. Under the program, the Company borrowed approximately $40 million at favorable rates and reinvested the proceeds in higher yielding certificates of deposit. The effect of this arrangement increased the Company's net interest income by $0.1 million in the third quarter 2002.
Engine & Power Train Business
Sales in the third quarter of 2002 declined to $97.9 million from $111.4 million in the third quarter of 2001. Engine & Power Train sales in the nine months ended September 30, 2002 amounted to $320.7 million compared to $357.7 million in the first nine months of 2001. Operating income for the three months ended September 30, 2002 amounted to $0.2 million compared to $5.5 million in the third quarter of 2001. For the nine months ended September 30, 2002, the Engine & Power Train group broke even compared to an operating income of $9.9 million in the first nine months of 2001. The decline in sales and profits for the three month period ended September 30, 2002 is primarily attributable to lower demand for engines for snow throwers compared to above average demand in the prior year. A shift in mix to less profitable engines for walk behind rotary mowers from engines for specialty lawn care products also contributed to lower earnings in the quarter.
For the first nine months of 2002, domestic unit sales were 13% below the same period 2001, primarily due to the snow thrower and specialty lawn care product segments, as noted above. To a small extent, these declines were offset by increased engine unit sales in the portable power generation and pressure washer categories, where the Company has captured share at OEM's not affiliated with other engine manufacturers. However, third quarter sales in the generator market did not meet previous expectations due to lack of severe storm activity.
Pump Business
Sales in the third quarter of 2002 increased to $28.4 million from $26.2 million in the third quarter of 2001. Pump business sales in the nine month period ended September 30, 2002 increased to $97.4 million compared to $94.2 million in 2001. Operating profit in the third quarter of 2002 and 2001 respectively amounted to $3.3 million and $2.7 million. Year-to-date operating profit amounted to $12.4 million in 2002 compared to $10.7 million in 2001. Improvements in sales have been primarily in pumps used in consumer applications.
Nonrecurring Charges
Nine month 2002 results were adversely affected by a $4.5 million ($2.8 million net of tax or $0.15 per share) nonrecurring charge in the Compressor segment. The charge, which was recorded in the first quarter, relates to the decision to relocate the production of additional rotary compressor product lines to Brazil from the United States and consists of the write-off of certain equipment which cannot be used in Brazil.
Third quarter and nine month 2001 results were adversely affected by a $29.3 million pretax ($18.9 million net of tax) nonrecurring charge for an early retirement incentive plan. The plan was available to eligible Corporate, North American Compressor Group and Engine & Power Train Group employees. 250 employees, representing approximately 78% of those eligible, or approximately 20% of the total salaried workforce in the eligible groups, elected early retirement. Ongoing cost savings from this action were estimated to be in a range of $10 to $12 million annually.
Subsequent Event
On October 10, 2002, the Company announced a voluntary recall program to correct engines for snow thrower, chipper-shredder and other applications with regard to a potential leak in the fuel lines. While no reports of accidents due to the damaged fuel lines have been received, the Company contacted the Consumer Products Safety Commission regarding voluntarily recalling and repairing all the potentially affected engines. Most of the engines should be repaired before reaching the consumer. The Company has adequate warranty reserves to cover the cost of the recall.
Accounting Changes
On January 1, 2002, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 142 "Goodwill and Other Intangible Assets." Under SFAS No. 142 goodwill is no longer amortized, but is subject to impairment testing on at least an annual basis. As of December 31, 2001, the net book value of the Company's goodwill was $45.1 million. However, as required by the Statement, the Company tested for impairment at the date of adoption and found that the goodwill associated with the Engine & Power Train European operations had been impaired. Accordingly, goodwill amounting to $4.8 million ($3.1 million net of tax) has been written-off and recognized as a cumulative effect from an accounting change. The net book value of the Company's goodwill at September 30, 2002, was $43.7 million. Amortization of goodwill amounted to approximately $1.1 million in the first nine months of 2001.
On January 1, 2002, the Company also adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets." This statement, which supersedes SFAS No. 121, addresses accounting and financial reporting for the impairment or disposal of long-lived assets. There was no material effect on the results of operations or financial position as a result of adopting this standard. The nonrecurring charge related to the impairment of unusable assets in the Compressor group, recorded during the first quarter, was determined in accordance with the provisions of SFAS No. 144.
Outlook
On a proforma basis (excluding one-time items), full year results are expected to lag behind the prior year. Anticipated improvements in the Compressor and Pump segments are expected to be more than offset by the declining performance of the Engine & Power Train group.
In spite of the continuing erosion in the room and unitary air conditioning markets, the Compressor group is expected to achieve improved operating results for the full year. These results will continue to be driven by cost improvements recognized as a result of prior year restructuring actions and, to a lesser extent, sales that are expected to be improved over last year's weak fourth quarter. There are several cautionary risks that could impact these results, particularly with the Company's greater dependency on its operations in Brazil. The pending change in political leadership has been cited as the cause of the declining economic situation in Brazil, including rapid currency devaluation, slowing economic growth and the possibility of rising inflation. While currency devaluation has a positive effect on reported results due to the operation's significant export volumes, poor local conditions may adversely affect the peak selling season in Brazil. In addition, there is a high degree of uncertainty with respect to the magnitude and direction of further currency movements, making it very difficult to predict overall financial results. Furthermore, while second and third quarter refrigeration and freezer markets have been improved, recent announcements by white good manufacturers suggest these improvements may not continue into the fourth quarter.
Results of the Engine & Power Train group for the full year are expected to significantly lag behind the prior year, partly due to an anticipated reduction in demand for snow applications to more historical levels from last year's record year. The Company continues to maintain a dominant market share in engines for this application, therefore, fluctuations in market demand, which are highly dependent on weather, have a direct impact on the volumes of engines sold. The decline is also attributable to deteriorating margins due to competitive pricing pressures. In recognition of the continued trend toward big box retailers, the Company has initiated strategies to win market share at those OEM's positioned to deliver future growth. While the Company has had some success, as evidenced by its recent placement on the entire White® tractor product line, overall cost improvements are still needed to achieve substantially improved returns. Recently, the Company entered into an agreement subject to a number of conditions to purchase a facility in Brazil to establish a low cost manufacturing center for certain engines and component parts. It is expected that the Company will finalize plans for the restructuring of the Engine & Power Train group in the fourth quarter and will likely incur a nonrecurring charge as a result.
In addition to the initiative being pursued in the Engine & Power Train group, the Company is studying alternatives for improving the Company's overall return to its investors. These alternatives include further production relocation and consolidation, development of new strategic relationships with customers, development of new products, and expansion into new product segments. These actions could involve joint ventures and business acquisitions. Efforts to study and implement these strategies have been accelerating through the year. Corporate expenses in the third quarter 2002 exceeded the previous year third quarter by $1.1 million primarily as a result of expenditures necessary to create and implement these developing plans.
RESULTS BY BUSINESS SEGMENTS (UNAUDITED)
Three Months Ended Nine Months Ended
(Dollars in millions) September 30, September 30,
2002 2001 2002 2001
Net Sales:
Compressor Products $184.6 $175.5 $621.5 $647.9
Engine & Power Train Products 97.9 111.4 320.7 357.7
Pump Products 28.4 26.2 97.4 94.2
Total Net Sales $310.9 $313.1 $1,039.6 $1,099.8
Operating Income:
Compressor Products $19.6 $15.2 $63.2 $52.0
Engine & Power Train Products 0.2 5.5 0.0 9.9
Pump Products 3.3 2.7 12.4 10.7
Corporate expenses (2.7) (1.7) (7.0) (5.6)
Nonrecurring charges --- (29.3) (4.5) (29.3)
Total Operating Income 20.4 (7.6) 64.1 37.7
Interest expense (1.4) (0.9) (3.5) (3.4)
Interest income and other, net 3.0 7.4 8.8 16.6
Income before taxes and cumulative
effect of change in accounting
principle $22.0 ($1.1) $69.4 $50.9
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
September 30, December 31,
(Dollars in millions) 2002 2001
Assets
Current Assets:
Cash and cash equivalents $369.2 $317.6
Accounts receivable, net 203.0 207.1
Inventories 262.4 261.9
Deferred income taxes and other 62.4 72.9
Total Current Assets 897.0 859.5
Property, Plant and Equipment - Net 389.2 431.9
Other Assets 271.3 228.4
Total Assets $1,557.5 $1,519.8
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable, trade $121.3 $101.3
Short-term borrowings 10.0 11.6
Accrued liabilities 145.5 140.9
Total Current Liabilities 276.8 253.8
Product Warranty and Self-Insured Risks 21.0 23.9
Long-term Debt 44.0 13.7
Deferred Income Taxes 3.0 3.0
Pension and Postretirement Benefits 223.7 218.3
Accrual for Environmental Matters 28.4 29.4
Total Liabilities 596.9 542.1
Stockholders' Equity 960.6 977.7
Total Liabilities and Stockholders' Equity $1,557.5 $1,519.8
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
Three Months Ended Nine Months Ended
(Dollars in millions) September 30, September 30,
2002 2001 2002 2001
Total Stockholders' Equity
Beginning Balance $985.7 $977.4 $977.7 $995.4
Comprehensive Income:
Net Income 14.2 5.2 41.7 36.7
Other Comprehensive Income (33.4) (8.5) (41.1) (30.8)
Total Comprehensive Income (19.2) (3.3) 0.6 5.9
Cash Dividends Declared (5.9) (6.0) (17.7) (17.9)
Stock Repurchases --- (2.7) --- (18.0)
Total Stockholders' Equity
Ending Balance $960.6 $965.4 $960.6 $965.4
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended
(Dollars in millions) September 30,
2002 2001
Cash Flows From Operating Activities:
Income before cumulative effect of change in
accounting principle $44.8 $36.7
Adjustments to reconcile net income before cumulative
effect of change in accounting principle to net cash
provided by operating activities:
Depreciation and amortization 48.7 55.2
Nonrecurring items 4.5 29.3
Accounts receivable (3.7) 30.1
Inventories (15.3) 6.0
Payables and accrued expenses 32.9 (20.7)
Prepaid pension expense (21.6) (21.6)
Other (10.3) (7.7)
Cash Provided By Operating Activities 80.0 107.3
Cash Flows From Investing Activities:
Business acquisition, net of cash acquired (4.0) (15.5)
Capital expenditures (41.3) (48.6)
Cash Used in Investing Activities (45.3) (64.1)
Cash Flows From Financing Activities:
Dividends paid (17.7) (17.9)
Increase in borrowings, net 40.8 0.7
Repurchases of common stock --- (18.0)
Cash Provided By (Used In) Financing Activities 23.1 (35.2)
Effect of Exchange Rate Changes on Cash (6.2) (11.3)
Increase (Decrease) in Cash and Cash Equivalents 51.6 (3.3)
Cash and Cash Equivalents:
Beginning of Period 317.6 268.2
End of Period $369.2 $264.9
Cautionary Statement Relating to Forward-Looking Statements
This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to the safe harbor provisions created by that Act. In addition, forward-looking statements may be made orally in the future by or on behalf of the Company. Forward-looking statements can be identified by the use of terms such as "expects", "should", "may", "believes", "anticipates", "will", and other future tense and forward-looking terminology.
Readers are cautioned that actual results may differ materially from those projected as a result of certain risks and uncertainties, including, but not limited to, i) changes in business conditions and the economy in general in both foreign and domestic markets and the effect of terrorist activity and armed conflict; ii) weather conditions affecting demand for air conditioners, lawn and garden products, portable power generators and snow throwers; iii) the extent to which the decline in demand for lawn and garden and utility engines will continue, and the success of the Company's ongoing effort to bring costs in line with projected production levels and product mix; iv) financial market changes, including fluctuations in interest rates and foreign currency exchange rates; v) economic trend factors such as housing starts; vi) emerging governmental regulations; vii) availability and cost of materials; viii) actions of competitors; ix) the ultimate cost of resolving environmental matters; x) the Company's ability to profitably develop, manufacture and sell both new and existing products; xi) the extent of any business disruption that may result from the restructuring and realignment of the Company's manufacturing operations, the ultimate cost of those initiatives and the amount of savings actually realized; xii) the extent of savings actually realized from the Company's early retirement program; and xiii) potential political and economic adversities that could adversely affect anticipated sales and production in Brazil. These forward-looking statements are made only as of the date hereof, and the Company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.
Tecumseh Products Company will host a conference call to report on the third quarter results on Friday, October 25th at 11:00 a.m. ET. The call will be broadcast live over the Internet and then available for replay through Tecumseh Products Company's website at www.tecumseh.com .
Press releases and other investor information can be accessed via Tecumseh Products Company's Internet web site at http://www.tecumseh.com/ .
SOURCE: Tecumseh Products Company
CONTACT: Pat Walsh of Tecumseh Products Company, +1-517-423-8455
Web site: http://www.tecumseh.com/
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