Press Releases
Tecumseh Products Company Announces First Quarter 2002 Net Income of $0.54 Per Share Before Nonrecurring Charges and Accounting Changes (Nasdaq: TECUA, TECUB)
PRNewswire-FirstCall
TECUMSEH, Mich.
Apr 23, 2002
Tecumseh Products Company announced today its 2002 first quarter results as summarized in the following Consolidated Condensed Statements of Income.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended
(Dollars in millions except per share amounts) March 31,
2002 2001
Net sales $333.4 $404.7
Cost of sales and operating expenses 291.2 355.4
Selling and administrative expenses 28.5 30.5
Nonrecurring item 4.5 ---
Operating income 9.2 18.8
Interest expense (0.9) (1.2)
Interest income and other, net 2.8 4.6
Income before taxes and cumulative effect of
change in accounting principle 11.1 22.2
Taxes on income 3.9 8.2
Income before cumulative effect of accounting change 7.2 14.0
Cumulative effect of accounting change for goodwill,
net of tax (3.1) ---
Net Income $4.1 $14.0
Basic and Diluted Earnings Per Share
Income before cumulative effect of accounting change $0.39 $0.74
Change in accounting for goodwill (0.17) ---
Net income $0.22 $0.74
Weighted Average Shares (in thousands of shares) 18,480 18,836
Consolidated net income for the first quarter of 2002 amounted to $4.1 million, or $0.22 per share, compared to $14.0 million or $0.74 per share in the first quarter of 2001. Included in the 2002 first quarter results are nonrecurring 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." Exclusive of nonrecurring charges and the cumulative effect of the accounting change, first quarter 2002 results would have been $10.0 million, or $0.54 per share. Consolidated net sales in the first quarter of 2002 decreased to $333.4 million from $404.7 million in 2001.
The lower 2002 results reflected continued weakness in sales in all of the Company's business segments. The lower earnings are primarily attributable to the Engine & Power Train segment as the Compressor segment was able to improve profitability on the lower sales due to the favorable impact of cost cutting measures initiated in 2001.
Compressor Business
The Company's first quarter 2002 Compressor sales declined to $193.6 million from $236.3 million in the first quarter of 2001. This decline was caused primarily by lower demand for commercial refrigeration products at both OEM and aftermarket customers reflecting the weak economy, as well as lower room air conditioning compressor sales. In addition, shipping volumes of compressors from the Company's Tupelo facilities, destined primarily to the export market, were adversely affected by ramp up and production problems resulting from the movement of production equipment from the now closed Somerset, Kentucky facility. These production problems have been addressed and should not have an adverse impact on second quarter results. Also, to a lesser extent, revenues continue to be adversely impacted as a result of ongoing competition from Asian producers.
Despite the lower sales and reduced coverage of fixed costs, the Compressor Group was able to improve operating income from $13.5 million in the first quarter of 2001 to $15.0 million in the first quarter of 2002. The improvement reflects the effects of the cost reduction efforts implemented over the last 12 to 18 months.
Results from the Company's Brazilian compressor operations were lower than first quarter 2001 levels reflecting a shift in mix to lower priced compressors and increased operating costs. While the Brazilian export market remains strong, sales into the local Brazilian market declined approximately 33% due primarily to cooler than normal weather and a soft local economy. Sales into other South American markets were down as well. Brazilian operations continue to represent a significant portion of the Compressor segment comprising approximately 53% of the segment's operating income in the first quarter of 2002 compared to 84% in the first quarter of 2001.
Engine & Power Train Business
Results in the Company's Engine & Power Train business declined significantly in the first quarter of 2002 when compared to the same period of the previous year. Net sales declined to $111.5 million in 2002 compared to $137.1 million in 2001. The primary cause for this decrease is a decline in sales of engines for walk behind rotary mowers. Sales for this application have decreased significantly at one of the Company's major customers, whose products are sold through Sears, and have been offset only partially by increased volume at another manufacturer whose product sells through Home Depot and a dealer distribution network. In addition to the declines in the rotary mower market, nearly all other product categories declined when compared to the first quarter of 2001 reflecting generally weak market conditions. The lone exception was an increase in sales for generator applications, where shipments increased nearly 53% during the quarter. All indications are that the overall market demand for lawn and garden applications remains weak, with greater demand centered around lower price-point engines.
As a result of the significantly lower sales volume and an unfavorable mix of lower priced engines, the Engine & Power Train Group had an operating loss of $2.3 million in the first quarter of 2002 compared to an operating profit of $4.5 million in the first quarter of 2001.
Pump Business
Sales in the Pump business declined to $28.3 million in the quarter ended March 31, 2002 compared to $31.3 million in the same period of 2001, reflecting decreases in both residential and industrial applications. Residential pump sales declined due to poor weather conditions and product line changes which affected sell through at retail. Declines in industrial applications were attributable to general economic conditions.
Despite lower sales, effective management of costs maintained profitability of the group. Pump business operating income amounted to $2.9 million in 2002 compared to $3.0 million in 2001.
Nonrecurring Item
First quarter 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 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.
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 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 March 31, 2002 was $39.8 million. Amortization of goodwill amounted to approximately $0.4 million in the first quarter of 2001.
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. While the nonrecurring charge recorded during this quarter was determined in accordance with the provisions of SFAS No. 144, it was the result of actions taken in the first quarter. There was no material effect on the results of operations or financial position as a result of adopting this standard.
Outlook
On a consolidated basis, second quarter sales and earnings are expected to improve over the first quarter of 2002, but lag behind the results of the second quarter of 2001. Most of the improvement is expected in the Compressor and Pump segments reflecting to some extent the seasonal effect of these businesses. It is expected that, while results for the full year 2002 will be improved over 2001 in the Compressor and Pump segments, the results in the Engine & Power Train Group will be substantially worse than the previous year. The deterioration is the result of loss of market share, anticipated reduction in demand for snow applications, pressure on product pricing and excess capacity costs.
In view of poor market conditions and the over-capacity situation which exists in the Company's two main operating segments, Compressors and Engine & Power Train operations, it is highly likely that the Company will undertake further restructuring and/or realignment actions designed to address these issues, as well as to improve overall cost structure and competitive position in all its major markets. Plans are being developed to determine how best to reorganize the Company's operations and product offerings in light of current and rapidly changing market conditions. As these actions are finalized, future results will likely be impacted by one or more nonrecurring charges. While the amount and timing of these charges cannot currently be accurately predicted, they may affect several quarterly periods or years, and they could be material to the reported results in the particular quarter or year in which they are recorded.
RESULTS BY BUSINESS SEGMENTS (UNAUDITED)
Three Months Ended
(Dollars in millions) March 31,
2002 2001
Net Sales:
Compressor Products $193.6 $236.3
Engine & Power Train Products 111.5 137.1
Pump Products 28.3 31.3
Total Net Sales $333.4 $404.7
Operating Income:
Compressor Products $15.0 $13.5
Engine & Power Train Products (2.3) 4.5
Pump Products 2.9 3.0
Corporate expenses (1.9) (2.2)
Nonrecurring items (4.5) ---
Total Operating Income 9.2 18.8
Interest expense (0.9) (1.2)
Interest income and other, net 2.8 4.6
Income before taxes and cumulative effect of change
in accounting principle $11.1 $22.2
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
March 31, December 31,
(Dollars in millions) 2002 2001
Assets
Current Assets:
Cash and cash equivalents $316.9 $317.6
Accounts receivable, net 233.7 207.1
Inventories 256.1 261.9
Deferred income taxes and other 71.3 72.9
Total Current Assets 878.0 859.5
Property, Plant and Equipment - Net 423.4 431.9
Other Assets 231.7 228.4
Total Assets $1,533.1 $1,519.8
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable, trade $111.4 $101.3
Short-term borrowings 15.3 11.6
Accrued liabilities 148.1 140.9
Total Current Liabilities 274.8 253.8
Product Warranty and Self-Insured Risks 20.9 23.9
Long-term Debt 13.9 13.7
Deferred Income Taxes 2.7 3.0
Pension and Postretirement Benefits 219.2 218.3
Accrual for Environmental Matters 28.7 29.4
Total Liabilities 560.2 542.1
Stockholders' Equity 972.9 977.7
Total Liabilities and
Stockholders' Equity $1,533.1 $1,519.8
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
Three Months Ended
(Dollars in millions) March 31,
2002 2001
Total Stockholders' Equity
Beginning Balance $977.7 $995.4
Comprehensive Income:
Net Income 4.1 14.0
Other Comprehensive Income (3.0) (14.1)
Total Comprehensive Income 1.1 (0.1)
Cash Dividends Declared (5.9) (6.0)
Stock Repurchases --- (10.9)
Total Stockholders' Equity
Ending Balance $972.9 $978.4
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended
(Dollars in millions) March 31,
2002 2001
Cash Flows From Operating Activities:
Income before cumulative effect of change in
accounting principle $7.2 $14.0
Adjustments to reconcile income before cumulative
effect of change in accounting principle to net cash
provided by operating activities:
Depreciation and amortization 15.3 18.9
Nonrecurring item 4.5 ---
Accounts receivable (28.3) (56.9)
Inventories 5.4 (10.2)
Payables and accrued expenses 20.3 26.0
Prepaid pension expense (7.2) (6.2)
Other (4.6) (3.3)
Cash Provided By (Used In) Operating
Activities 12.6 (17.7)
Cash Flows From Investing Activities:
Capital expenditures (11.7) (13.6)
Cash Used in Investing Activities (11.7) (13.6)
Cash Flows From Financing Activities:
Dividends paid (5.9) (6.0)
Increase in borrowings, net 4.2 7.0
Repurchases of common stock --- (10.9)
Cash Used In Financing Activities (1.7) (9.9)
Effect of Exchange Rate Changes on Cash 0.1 (5.7)
Decrease in Cash and Cash Equivalents (0.7) (46.9)
Cash and Cash Equivalents:
Beginning of Period 317.6 268.2
End of Period $316.9 $221.3
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 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 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 first quarter results on Tuesday, April 23rd 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 http://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
Website: http://www.tecumseh.com/
Company News On-Call: http://www.prnewswire.com/comp/842875.html