Press Releases
Tecumseh Products Company Reports Second Quarter 2002 Net Income of $1.27 Per Share
PRNewswire-FirstCall
TECUMSEH, Michigan
Jul 25, 2002
Tecumseh Products Company (NASDAQ: TECUA)(NASDAQ: TECUB) announced today its 2002 second 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 Six Months Ended
per share amounts) June 30, June 30,
2002 2001 2002 2001
Net Sales $395.3 $382.0 $728.7 $786.7
Cost of sales and
operating expenses 328.9 322.8 621.0 678.2
Selling and administrative
expenses 31.9 32.7 59.5 63.2
Nonrecurring item -- -- 4.5 --
Operating Income 34.5 26.5 43.7 45.3
Interest expense (1.2) (1.3) (2.1) (2.5)
Interest income and other,
net 3.0 4.6 5.8 9.2
Income before taxes and
cumulative effect of change
in accounting principle 36.3 29.8 47.4 52.0
Taxes on income 12.9 12.3 16.8 20.5
Income before cumulative
effect of accounting change 23.4 17.5 30.6 31.5
Cumulative effect of accounting
change for goodwill, net of tax -- -- (3.1) --
Net Income $23.4 $17.5 $27.5 $31.5
Basic and diluted earnings
per share
Income before cumulative effect
of accounting change $ 1.27 $0.94 $1.66 $1.68
Change in accounting for goodwill -- -- (.17) --
Net Income $ 1.27 $0.94 $1.49 $1.68
Weighted Average Shares
(in thousands of shares) 18,480 18,572 18,480 18,704
Consolidated net income for the second quarter of 2002 amounted to $23.4 million or $1.27 per share compared to $17.5 million or $0.94 per share in the second quarter of 2001. Consolidated net income for the six months ended June 30, 2002 amounted to $27.5 million or $1.49 per share compared to $31.5 million or $1.68 per share for the same period in 2001. Included in the 2002 first half 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". Exclusive of nonrecurring charges and the cumulative effect of the accounting change, first half results would have been $33.4 million or $1.81 per share. Results for 2001 were unfavorably impacted by the settlement of a $1.3 million foreign tax claim, which had the effect of increasing the effective tax rate to 41% and 39% for the second quarter and first half respectively.
Consolidated net sales for the second quarter of 2002 were $395.3 million, compared to $382.0 million in the second quarter of 2001. Consolidated net sales for the six months ended June 30, 2002 amounted to $728.7 million compared to $786.7 million in the first half of 2001. Sales and profits for the second quarter 2002 improved over the prior year in all the Company's segments with the largest improvement occurring in the compressor segment. Despite the improved year over year sales in the second quarter, sales for the first half of the year still lagged the prior year in the Compressor and Engine & Power Train Groups.
Compressor Business
Second quarter 2002 sales in the Company's Compressor business increased to $243.3 million from $236.1 million in the second quarter of 2001. This increase was attributable to greater sales of compressors for refrigeration & freezer applications. Improved marketing efforts and more competitive pricing afforded by the Company's low cost manufacturing centers have helped the Company to capitalize on the improving market conditions in the refrigeration and freezer compressor sector. Compressor business sales in the first six months of 2002 declined $35.5 million or approximately 7.5% from the first six months of 2001. This decline is primarily attributable to lower sales for compressors used in unitary and room air conditioning applications. While some sales were lost in the first quarter due to ramp up and production problems experienced at the Company's Tupelo facility, the main impetus continues to be competitive pressures from Asian producers and a decline in sales of compressors for unitary applications.
Compressor business operating income for the second quarter of 2002 amounted to $28.6 million compared to $23.3 million in the second quarter of 2001. Operating income for the six months ended June 30, 2001 amounted to $43.6 million compared to $36.8 million in the first six months of 2001. The increase in operating income for the second quarter and first half of 2002 over the comparable 2001 periods reflects the effect of cost reduction efforts implemented over the past 12-18 months.
Results from the Company's Brazilian compressor operations for the second quarter and first six months of 2002 have declined from the comparable prior year periods, reflecting a shift in mix to lower priced compressors and increased material and operating costs. While the Brazilian export market remains strong, sales in the local Brazilian and certain South American markets, where margins are typically higher, have declined due to weaker economic conditions and unfavorable weather. Despite these declines, Brazilian operations remain a key to future competitiveness and for the three and six month periods ended June 30, 2002 represented 35% and 41% of operating income for the Compressor business.
Operations in India had the most successful quarter since operations commenced, contributing 9% of the Compressor Group's operating income for the second quarter 2002. Increases in both domestic and export volumes were responsible for the improvement in these operations.
Engine & Power Train Business
Engine & Power Train business sales amounted to $111.3 million in the second quarter of 2002 compared to $109.2 million in the second quarter of 2001. Sales in the first half of 2002 were $222.8 million compared to $246.3 million in the first half of 2001. The Engine & Power Train business operating income was $2.1 million in the second quarter of 2002 compared to an operating loss of $0.1 million in the second quarter of 2001. For the first half of 2002 the Group incurred an operating loss of $0.2 million compared to an operating profit of $4.4 million in 2001.
Despite flat sales and an unfavorable product sales mix, second quarter results in the Engine & Power Train Group were improved over the prior year second quarter due to the favorable impact of operational improvements and cost cutting efforts. Unit sales of engines for walk behind rotary mowers were improved in the second quarter 2002 compared to the same period in 2001 as a result of strong sell through of Toro products with Tecumseh engines that are marketed through Home Depot and Toro's dealer distribution network. These products have experienced a high degree of consumer acceptance and the Company's industry-leading use of Sentinel® equipment for quality assurance has been highly successful. The increase in second quarter unit sales volume of engines for walk behind rotary motors were offset by declines in engines sold for snow throwers and specialty lawn care products. These declines are primarily due to lower overall market demand for these product categories.
For the first half of 2002, unit sales of engines are 11% below the same period 2001, primarily due to the snow thrower and specialty lawn care product segments, as noted above. Declines in these segments were partially offset by increased unit sales in the generator and pressure washer product categories where the Company has captured share at OEM's not affiliated with other engine manufacturers. With respect to engines for walk behind rotary mowers, the strong second quarter has resulted in first half unit sales being approximately equal to first half 2001.
Pump Business
Sales and operating profits in the Pump business both reflected increases over 2001 levels. Sales in the second quarter of 2002 amounted to $40.7 million compared to $36.7 million in 2002. Year-to-date sales amounted to $69.0 million in 2002 compared to $68.0 million the previous year. Operating income amounted to $6.2 million in the quarter ended June 30, 2002 compared to $5.0 million in the same period of 2001. Operating income in the first half of 2002 increased to $9.1 million from $8.0 million in 2001.
The improvements in sales and operating income for the quarter are attributable to the residential pump sector, particularly water garden products, which benefited from the introduction of a new line of products, partially offset by weakness in the general market for industrial products. Operating results were improved for the first half, despite flat sales, through effective cost control.
Nonrecurring Item
First half 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 June 30, 2002, was $44.1 million. Amortization of goodwill amounted to approximately $0.9 million in the first half 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 consolidated basis, the second half of 2002 is expected to improve over the comparable 2001 period with the expected improvement attributable to the Compressor and Pump segments.
In spite of the continuing erosion in the air conditioning markets, both room air and unitary applications, the Compressor Group is expected to achieve improved operating results in the second half of 2002. 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 weakness of the Brazilian and Argentinean economies, the upcoming presidential elections in Brazil and the weather in the fourth quarter are all key factors that could affect the results in Brazil.
Results of the Engine & Power Train Group for the second half of 2002 are expected to lag behind the prior year, largely 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.
As a result of past performance trends and market conditions that include production over-capacity and inexpensive Asian-based production sources, the Company will continue to undertake actions designed to improve its competitive position in all of its major markets. These actions will likely include 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 combinations. The Company expects that some of these initiatives will still occur in 2002, particularly with respect to the Engine & Transmission operations, although the exact timing will depend on the conclusion and outcome of negotiations with outside parties, which cannot be predicted at this time. Accordingly, 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 Six Months Ended
(Dollars in millions) June 30, June 30,
2002 2001 2002 2001
Net Sales:
Compressor Products $243.3 $236.1 $436.9 $472.4
Engine & Power Train Products 111.3 109.2 222.8 246.3
Pump Products 40.7 36.7 69.0 68.0
Total Net Sales $395.3 $382.0 $728.7 $786.7
Operating Income:
Compressor Products $ 28.6 $23.3 $ 43.6 $36.8
Engine & Power Train Products 2.1 (0.1) (0.2) 4.4
Pump Products 6.2 5.0 9.1 8.0
Corporate expenses (2.4) (1.7) (4.3) (3.9)
Nonrecurring item -- -- (4.5) --
Total Operating Income 34.5 26.5 43.7 45.3
Interest expense (1.2) (1.3) (2.1) (2.5)
Interest income and other,
net 3.0 4.6 5.8 9.2
Income before taxes and
cumulative effect of change
in accounting principle $36.3 $29.8 $47.4 $52.0
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
June 30, December 31,
(Dollars in millions) 2002 2001
Assets
Current Assets:
Cash and cash equivalents $335.4 $317.6
Accounts receivable, net 249.1 207.1
Inventories 259.1 261.9
Deferred income taxes and
other 64.5 72.9
Total Current Assets 908.1 859.5
Property, Plant and Equipment --
Net 420.4 431.9
Other Assets 251.8 228.4
Total Assets $1580.3 $1,519.8
Liabilities and Stockholders'
Equity
Current Liabilities:
Accounts payable, trade $144.5 $101.3
Short-term borrowings 8.0 11.6
Accrued liabilities 152.2 140.9
Total Current Liabilities 304.7 253.8
Product Warranty and Self-Insured
Risks 21.9 23.9
Long-term Debt 14.0 13.7
Deferred Income Taxes 3.1 3.0
Pension and Postretirement
Benefits 222.5 218.3
Accrual for Environmental Matters 28.4 29.4
Total Liabilities 594.6 542.1
Stockholders' Equity 985.7 977.7
Total Liabilities and
Stockholders' Equity $1,580.3 $1,519.8
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
Three Months Ended Six Months Ended
(Dollars in millions) June 30, June 30,
2002 2001 2002 2001
Total Stockholders' Equity
Beginning Balance $972.9 $978.4 $977.7 $995.4
Comprehensive Income:
Net Income 23.4 17.5 27.5 31.5
Other Comprehensive Income (4.7) (8.2) (7.7) (22.3)
Total Comprehensive Income 18.7 9.3 19.8 9.2
Cash Dividends Declared (5.9) (5.9) (11.8) (11.9)
Stock Repurchases -- (4.4) -- (15.3)
Total Stockholders' Equity
Ending Balance $985.7 $977.4 $985.7 $977.4
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended
(Dollars in millions) June 30,
2002 2001
Cash Flows From Operating Activities:
Income before cumulative effect of change in
accounting principle $30.6 $31.5
Adjustments to reconcile net income before
cumulative effect of change in accounting
principle to net cash provided by
operating activities:
Depreciation and amortization 32.6 37.3
Nonrecurring items 4.5 --
Accounts receivable (35.6) (12.5)
Inventories -- (4.1)
Payables and accrued expenses 51.0 24.1
Prepaid pension expense (14.4) (14.5)
Other (0.4) (5.0)
Cash Provided By Operating Activities 68.3 56.8
Cash Flows From Investing Activities:
Business acquisition, net of cash acquired (4.0) (15.5)
Capital expenditures (35.0) (30.8)
Cash Used in Investing Activities (39.0) (46.3)
Cash Flows From Financing Activities:
Dividends paid (11.8) (11.9)
Increase (decrease) in borrowings, net (3.4) 1.8
Repurchases of common stock -- (15.3)
Cash Used In Financing Activities (15.2) (25.4)
Effect of Exchange Rate Changes on Cash 3.7 (8.3)
Decrease in Cash and Cash Equivalents 17.8 (23.2)
Cash and Cash Equivalents:
Beginning of Period 317.6 268.2
End of Period $335.4 $245.0
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 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 second quarter results on Thursday, July 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 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
Web site: http://www.tecumseh.com/
Company News On-Call: http://www.prnewswire.com/comp/842875.html